2015 (8) TMI 637 - HC - VAT and Sales Tax

Court rules on VAT classification of Digital Still Image Video Cameras

Sony India Pvt. Ltd. And Others Versus The Commissioner of Trade And Taxes And Others

Sony India Pvt. Ltd. And Others Versus The Commissioner of Trade And Taxes And Others - [2015] 85 VST 90 (Del) Issues Involved:1. Classification of Digital Still Image Video Cameras (DSCs) under VAT.2. Deemed waiver of the application for pre-determination.3. Justification of levy of penalty and interest.Detailed Analysis:1. Classification of Digital Still Image Video Cameras (DSCs) under VAT:Period 1st April 2005 to 7th August 2005:- The Appellant paid tax for DSCs at 4%, claiming they were covered under Entry 41 of Schedule III of the DVAT Act.- Entry 41 included IT products such as computers, telephones, and wireless equipment, but did not explicitly mention DSCs.- The Appellant argued that DSCs should be classified as IT products based on the Information Technology Agreement (ITA) of the WTO, which included DSCs under tariff heading 8525 40.- The AT held that DSCs were not covered under Entry 41 as IT products, relying on the Karnataka High Court's decision in Diebold Systems (P) Ltd. v. Commissioner of CT, which emphasized the common parlance test for interpreting VAT entries.- The Court upheld the AT's decision, stating that DSCs were not included in Entry 41 during this period.Period 30th November 2005 to 31st December 2007:- An amendment to Entry 41A included 'digital still image video cameras' under the Central Excise Tariff heading 8525.- The AT interpreted the entry to exclude DSCs from the main category of 'transmission apparatus.'- The Court found that the addition of brackets in the entry was unintended and led to an absurd interpretation.- The correct interpretation, without the brackets, included DSCs as IT products under Entry 41A.- The Court held that for this period, DSCs were eligible for 4% VAT, not 12.5%.2. Deemed Waiver of the Application for Pre-Determination:- The Appellant filed an application on 8th August 2005 for determination of the VAT rate on DSCs.- Under Section 84(6) of the DVAT Act, if the Commissioner fails to decide within six months, the proposed determination by the taxpayer is deemed accepted.- The AT held that the Appellant waived the deemed determination by filing another application on 6th July 2008.- The Court disagreed, stating that merely filing another application did not constitute a waiver.- However, the Appellant did not satisfy condition (b) of Section 84(6), which required implementing the transaction in the manner described in the application after the Commissioner's failure to decide.- Therefore, the Appellant could not benefit from the deemed determination provision.3. Justification of Levy of Penalty and Interest:Period 1st April 2005 to 7th August 2005:- The VATO assessed a higher tax rate of 12.5% and imposed penalties and interest for the period.- The Court upheld the determination of tax and interest but set aside the penalty, recognizing the Appellant's bona fide belief in charging 4% VAT.Period 30th November 2005 to 31st December 2007:- The Court set aside the demand for differential tax, interest, and penalty, as it held that DSCs were correctly taxed at 4% VAT.Summary of Conclusions:1. For the period 1st April 2005 to 7th August 2005, the Appellant cannot benefit from the deemed determination provision.2. DSCs do not fall within the ambit of IT products under Entry 41 for the period 1st April 2005 to 7th August 2005.3. The Appellant is required to pay interest but not the penalty for the period 1st April 2005 to 7th August 2005.4. For the period 30th November 2005 to 31st December 2007, DSCs are subject to 4% VAT, not 12.5%.5. The demand for differential tax, interest, and penalty for the period 30th November 2005 to 31st December 2007 is set aside.Disposition:- The appeals are disposed of with no order as to costs.