Rajasthan High Court, the revenue department’s duty to prove product classification under tariff entries, especially when categorized as residual rather than specific, is emphasized.
Title: M/s Compuage Infocom Limited v. The Assistant Commissioner
Decided on: 30th May, 2023
S.B. Sales Tax Revision / Reference No. 182/2017
CORAM: HON’BLE JUSTICE SAMEER JAIN
Facts:
The case involved a group engaged in the sale of computers and related products, including networking cables like CAT-5 and CAT-6. These cables primarily facilitate data transmission. The petitioners classified these networking cables as ‘computer peripherals’ and, consequently, paid their Value Added Tax (VAT) under Entry 3 of Part A of Schedule IV of the Rajasthan Value Added Tax (RVAT) Act.
However, the revenue department chose to categorize these networking cables under the residual category rather than the specific one. This decision resulted in the imposition of additional tax and interest on the petitioners.
The assessees contended that the revenue department had not met its burden of proving that CAT-5 and CAT-6 cables do not fall under the broad definition of ‘computer peripherals.’ They argued that the revenue department neither sought expert opinions nor presented evidence to support their classification. In accordance with established legal principles, the onus lies with the department to demonstrate that a product falls within a particular tariff item.
The petitioners further argued that since CAT-5 and CAT-6 cables are primarily used to physically connect computer systems to networks, they inherently qualify as ‘computer peripherals’ based on common parlance and end usage criteria.
The revenue department countered that these cables, while used in computer networking, also have broader applications in fields like telecommunications, cable networks, and CCTV systems. Thus, the department asserted that ‘computer peripherals’ should be restricted to hardware used exclusively for computer operation.
Judgment:
The court emphasized that the burden of proof rests with the revenue department when it comes to classifying products within specific tariff entries. It noted that Entry Nos. 3 and 24 of Part-A of Schedule IV to the RVAT Act were later amended to explicitly include “networking items” in Entry 3 and “networking cables of various types, including flat cables, CAT 3 cables, CAT 5 cables, and CAT 6 cables” in Entry 24.
The court highlighted that the amendment was enacted on the same day as the introduction of the State Budget for the 2013-2014 fiscal year. During the Budget introduction, the Chief Minister acknowledged the challenges faced by businesses dealing in ‘computer-related items’ and pledged to establish clear tax rates for such items. Subsequently, the amendment, as mentioned earlier, was put into effect, explicitly placing networking items and cables under Part-A of Schedule IV to the RVAT Act.
As a result, the court quashed the orders of the Tax Board.
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Written by Yagya Agarwal