2017 (5) TMI 1808 - HC - VAT and Sales Tax

Court Decides Tax Classification Dispute: FM Taxable at 4%; MFD as Computer Peripherals

The court allowed the petitions preferred by the assessee, holding that Facsimile Machines (FM) fall under entry 7 of Schedule-IV, taxable at 4%, and ... Classification of goods - sale of Multi Functional Devices (MFD) and Facsimile Machine (FM) - taxable at the rate of 4% or 12.5%? - levy of penalty - HELD THAT:- The functioning of “FM” becomes operative only when there is a telephone line/connection and unless there is a telephone line/connection, “FM” as it stands, will not be viable. The “FM” would certainly can be said to be covered under entry 7 of Schedule-IV reproduced hereinbefore. It is a case where “FM” as noticed hereinbefore becomes operative only when there is a telephone line/connection and unless and until there is a telephone line/connection, “FM” does not operate. Therefore, it has been held to be falling in the entry 7 of Schedule-IV of the RVAT Act, and I concur with the reasoning of this court. Merely because “FM” specifically has not been included in entry 7, is no reason to infer that it will fall in Schedule-V. Once the claim of the assessee is that it fall under entry 7 Schedule-IV, then the revenue has to bring material on record, which has not been brought on record. The finding reached by all the three authorities appear to be unjust and accordingly the finding reached by all the three authorities is reversed and it is held that “FM” will fall in entry 7, and the claim of assessee is just and proper and allowed. Penalty - HELD THAT:- Once the claim of assessee has been accepted that it was liable to a rate of 4% only, therefore, question of penalty does not arise. Even otherwise, it is case where the matter was relating to classification of entries - The Apex Court in the case of Shree Krishna Electricals (supra) and this court in COMMERCIAL TAXES OFFICER, ANTI-EVASION, ZONE-II, JAIPUR VERSUS BAMBINO AGRO INDUSTRIES LTD. [2015 (9) TMI 1504 - RAJASTHAN HIGH COURT] and in some other cases, has also taken a consistent stand that in a case of classification, question of penalty does not arise. Admittedly, though survey has been conducted, but the Revenue has not been able to pin point or find any defect in the sales version, except whether rate of 4% is leviable or 12.5%, thus, the petitions of Revenue in this regard also stands dismissed. This court in the case of CTO v. M/s. Bambino Agro Industries Ltd., has held penalty not leviable. The petitions preferred by the assessee stand allowed, while the petitions preferred by the Revenue stand dismissed, with no order as to costs. Issues Involved:1. Tax rate applicable to 'Multi Functional Devices' (MFD) and 'Facsimile Machines' (FM).2. Levy of penalty under Section 61.3. Classification of 'FM' under Schedule-IV or Schedule-V of the VAT Act.4. Applicability of previous judgments to the current case.Issue-wise Detailed Analysis:1. Tax Rate Applicable to MFD and FM:The primary issue revolves around the applicable tax rate for MFD and FM. The assessee argued that MFD and FM should be taxed at 4%, while the Assessing Officer (AO) asserted a 12.5% tax rate. The Tax Board allowed the assessee's claim for MFD, referencing judgments in M/s Kores (India) Ltd and M/s Hewlett-Packard India Sales Pvt. Ltd, which categorized MFD under 'computer peripherals' taxable at 4%. However, the Tax Board upheld the 12.5% tax rate for FM, not recognizing it under entry 7 of Schedule-IV.2. Levy of Penalty under Section 61:The AO imposed a penalty under Section 61, which the Deputy Commissioner (Appeals) [DC(A)] deleted. The Tax Board upheld the deletion of the penalty. The court reaffirmed that in cases of classification disputes, penalties are not warranted, referencing the Apex Court's judgment in M/s Shree Krishna Electricals v. State of Tamil Nadu & Others.3. Classification of FM under Schedule-IV or Schedule-V of the VAT Act:The court examined whether FM falls under entry 7 of Schedule-IV, which includes 'electrical apparatus for line telephony or line telegraphy.' The court noted that FM operates only with a telephone line/connection, thus fitting the description of entry 7. The court reversed the findings of the lower authorities, holding that FM should be classified under entry 7 of Schedule-IV, taxable at 4%.4. Applicability of Previous Judgments:The court considered previous judgments, particularly those involving M/s Kores (India) Ltd and M/s Hewlett-Packard India Sales Pvt. Ltd, which dealt with similar issues. The court noted that the Special Leave to Appeal by the Revenue against these judgments was dismissed by the Apex Court, solidifying their applicability. Consequently, the court dismissed the Revenue's petitions regarding the classification of MFD.Conclusion:The court allowed the petitions preferred by the assessee, holding that FM falls under entry 7 of Schedule-IV, taxable at 4%, and confirming that penalties are not applicable in classification disputes. The court dismissed the Revenue's petitions, affirming the classification of MFD under 'computer peripherals' taxable at 4% and upholding the deletion of penalties.