2020 (2) TMI 1247 - HC - VAT and Sales Tax

Court directs reclassification of tablet computers under sub-heading 8471 30, emphasizing CBEC circulars

SAMSUNG INDIA ELECTRONICS PVT LTD Versus STATE OF GUJARAT

The court quashed the assessment order and directed reclassification of tablet computers with calling features under sub-heading 8471 30 of the ... Classification of goods - tablet computers with calling feature - Imposition of additional tax - CBEC Circular No.20/13-Customs dated 14.5.2013 - Whether classifiable under sub-heading No.8471 30 of the notification dated 1.8.2009 issued under Entry 45 of Schedule II to the GVAT Act? - HELD THAT:- When the excise tariff has been incorporated into the notification dated 1st August, 2009 issued in exercise of powers conferred by Entry 45 of Schedule II to the GVAT Act, then the interpretation of CBEC of such excise tariff is binding even on the authorities under the GVAT Act inasmuch as any other interpretation would defeat the very purpose of incorporation of the excise tariff in the notification issued under the GVAT Act - Apart from the Circular dated 14th May, 2013 issued by the CBEC, on facts it may be noted that till the notification dated 1.4 2011 came to be issued, the classification of the product, namely, tablet computers, under entry 8471 30 was accepted by the respondent authorities. According to the respondents, tablet computers with calling facility are required to be classified under sub-heading 8525 50 at serial No.20 of the notification dated 1st August, 2009. On a perusal of the products falling under sub-heading 8525 50 at serial No.20, it is evident that such devices are in the nature of transmission apparatus which also have a reception apparatus, the principal function whereof is transmission of sound. Moreover, even according to the respondents, the product in question is a portable automatic data processing machine. Their only contention is that it also has a calling feature and can therefore be used as a mobile phone. Reference may be made to the decision of the Supreme Court in the case of Mauri Yeast India (P) Ltd. v. State of U.P., [2008 (4) TMI 101 - SUPREME COURT], on which reliance has been placed on behalf of the petitioner for the proposition that it is now a well-settled principle of law that in interpreting different entries, attempts shall be made to find out as to whether the same answers the description of the contents of the basic entry and only in the event it is not possible to do so, recourse to the residuary entry should be taken by way of last resort. Applying the above decision to the facts of the present case, there is a specific entry viz. subheading 8471 30 which relates to portable digital automatic data processing machine. It is an admitted position that the product in question, namely, tablet computer is a portable digital automatic data processing machine. Merely because cellular phones have been deleted from sub-heading 8525 50 at serial No.20 of the notification dated 1st August, 2009 and are no longer classified as IT products, it does not mean that the a tablet computer which contains additional function of calling feature and its principal function is that of automatic data processing machine ceases to be an IT product. As held by the Supreme Court in Mauri Yeast, when the product answers the description of the contents of the basic entry, recourse to the residuary entry cannot be made. Moreover, there is a specific entry in the notification for automatic data processing machines, whereas there is no specific entry for cellular phones. This court is of the considered opinion that tablet computer is not comparable with any of the three devices which came to be deleted from sub-heading 8525 50 vide notification dated 1st April, 2011, inasmuch as, it is neither a car telephone nor a transportable telephone nor a cellular telephone. Thus, the functions mentioned and relatable to calling functions, etc. are merely incidental and the same do not alter the basic feature of the goods in question namely, tablet computers, which even according to the respondents, are portable automatic data processing machines - the respondent assessing authority is not justified in holding that the product in question, namely, tablet computers would fall under Entry 87 of Schedule II to the GVAT Act, namely, the residuary entry. The impugned rectified assessment order dated 23.2.2019 is hereby quashed and set aside - The matter is restored to the file of the assessing authority, who shall pass a fresh assessment order classifying the product in question viz. tablet computers with calling facility, under sub-heading 8471 30 under Entry 4 of the Notification dated 1st August, 2009 issued under Entry 45 of Schedule II to the GVAT Act - petition allowed by way of remand. Issues Involved:1. Classification of tablet computers with calling feature under the Gujarat Value Added Tax Act, 2003 (GVAT Act).2. Binding nature of CBEC Circular on the GVAT authorities.3. Applicability of the residuary entry for taxation.4. Maintainability of the petition under Article 226 of the Constitution of India.Detailed Analysis:1. Classification of Tablet Computers with Calling Feature:The petitioner, a private limited company, challenged the order imposing a higher tax rate on tablet computers with calling features. The petitioner argued that tablet computers, even with calling features, should be classified under sub-heading 8471 30 as 'portable digital automatic data processing machines' and not under the residuary entry. The petitioner emphasized that the primary function of these tablets is data processing, similar to laptops, and the calling feature is supplementary. The CBEC had previously clarified that tablet computers with calling features fall under sub-heading 8471 30, and this classification had been accepted for years under both the Customs/Excise Tariff and the GVAT Act.2. Binding Nature of CBEC Circular on GVAT Authorities:The petitioner argued that the classification made by the CBEC should be binding on the GVAT authorities since the State Government had adopted the Central Excise Tariff Act's headings and sub-headings in its notification. The petitioner relied on the Supreme Court's decision in Paper Products Ltd. v. Commissioner of Central Excise, which held that CBEC circulars are binding on the revenue authorities. The court agreed, noting that when entries from the Central Excise Tariff Act are incorporated into the GVAT notification, the interpretation by the CBEC should be followed to maintain uniformity.3. Applicability of the Residuary Entry for Taxation:The respondents argued that tablet computers with calling features should be classified under the residuary entry 87 of Schedule II to the GVAT Act, attracting a higher tax rate. They contended that the deletion of terms like 'cellular telephone' from the notification indicated that such devices should no longer be classified as IT products. However, the court found that the principal function of tablet computers is data processing, and the calling feature is incidental. The court held that specific entries should be preferred over residuary entries, and since tablet computers fit the description of 'portable digital automatic data processing machines,' they should not be classified under the residuary entry.4. Maintainability of the Petition under Article 226:The respondents raised a preliminary objection regarding the maintainability of the petition, arguing that an alternative statutory remedy was available under the GVAT Act. However, the court noted that the impugned order was non-speaking, arbitrary, and in breach of the principles of natural justice. The court cited the Supreme Court's decision in Whirlpool Corporation v. Registrar of Trade Marks, which held that alternative remedies do not bar a writ petition in cases of violation of natural justice or jurisdictional errors. The court found that the petition was maintainable under Article 226 of the Constitution.Conclusion:The court quashed the impugned assessment order and directed the assessing authority to reclassify the tablet computers with calling features under sub-heading 8471 30 of the notification issued under Entry 45 of Schedule II to the GVAT Act. The court emphasized the importance of maintaining uniformity in classification and the binding nature of CBEC circulars when the Central Excise Tariff Act's provisions are incorporated into state notifications.