1999 (1) TMI 505 - AT - VAT and Sales Tax

Issues Involved:
1. Jurisdiction of the CTO(AE).
2. Tax rate on toner and developer supplied with installation kits.
3. Tax rate on rental income from photocopying machines.
4. Taxability of consumables supplied under FSMA and SSMA.
5. Classification of toner and developer as spare parts or accessories.
6. Penalty imposition under section 16(1)(e) of the RST Act.
7. Mens rea requirement for penalty under section 16(1)(e).

Issue-wise Detailed Analysis:

1. Jurisdiction of the CTO(AE):
The CTO(AE) had the necessary jurisdiction to survey and assess MX's premises. This was a clear case of evasion, and all the ingredients of an offense punishable under section 16(1)(e) of the RST Act existed. The CTO(AE) was justified in assuming jurisdiction over the petitioner-company for passing the impugned orders.

2. Tax Rate on Toner and Developer Supplied with Installation Kits:
MX charged sales tax at 4% on toner and developer supplied with installation kits, considering them as accessories. However, the Board held that toner and developer are not spare parts or accessories but consumables. Consequently, they were taxable at the general rate of 10% after June 27, 1990, and 12% before that date. MX was liable to pay the differential tax rate with interest.

3. Tax Rate on Rental Income from Photocopying Machines:
MX charged 3% sales tax on rental income from photocopying machines, but the applicable rate under S.O. 123 was 10%. The Board found no basis for the 3% rate and held that the correct rate was 10%, making MX liable for the differential tax rate of 7% with interest.

4. Taxability of Consumables Supplied under FSMA and SSMA:
The Board distinguished between the supply of spares and consumables under FSMA and SSMA. Under SSMA, toner and developer were excluded from the contract, making their supply a sale taxable at the general rate. Under FSMA, the supply of toner and developer was considered a transfer of the right to use, included in the contract price, and taxable accordingly. The supply of spares under both agreements was also considered a transfer of the right to use, taxable at the rates applicable to photocopying machines.

5. Classification of Toner and Developer as Spare Parts or Accessories:
Toner and developer were not considered spare parts or accessories. The Board applied the test laid down by the Supreme Court in Mehra Bros. v. Joint Commercial Tax Officer, concluding that xerographic supplies like toner and developer do not fit the definition of accessories. They are consumables used in the process of photocopying and not integral parts of the machines.

6. Penalty Imposition under Section 16(1)(e) of the RST Act:
The Board upheld the imposition of penalty under section 16(1)(e) of the RST Act. MX's claim of a bona fide belief regarding the tax rates was not accepted. The Board found that MX had no legitimate basis for charging 3% tax on rentals or excluding toner and developer from tax under SSMA. This was a clear case of evasion, justifying the penalty.

7. Mens Rea Requirement for Penalty under Section 16(1)(e):
The Board found that MX had consciously concealed the particulars or deliberately furnished inaccurate particulars, fulfilling the mens rea requirement for imposing a penalty under section 16(1)(e) of the RST Act. The penalty was reduced to the amount equal to the tax liability evaded, with the interest liability remaining.

Conclusion:
The applications for revision filed by MX were rejected, and the matters were remanded to the CTO(AE) for re-computing the tax liability, interest, and penalty in accordance with the Board's directions. The applications for revision filed by the CTO(AE) were also dismissed as they raised no substantial questions of law. No order as to costs.

← Previous Next →