2017 (1) TMI 64 - HC - VAT and Sales Tax

Classification of goods - batteries for the purposes of Radio Communication Receivers (RCRs) - classified under Entry no.13 i.e. RCRs, taxable at the rate of 4% or will fall in the Residuary Entry V taxable at the rate of 12.5%? - Held that - the batteries which were supplied by the assessee to the Army, were accessories of Radio Set STARS V 5W, and Radio Communication Receiver is incomplete/non-functional without the said part being placed. Once there is a specific certificate by the Army itself, who purchased the said batteries, in my view the finding reached by the Tax Board appears to be unjustified, and when Entry No.28 mentions about tax on 1 to 27, which includes RCRs and Radio Pagers, to be applicable at the rate of 4%, in my view any part including batteries would cover in Entry No.28. Battery is certainly fitted for RCRs or used in Cars and for other diverse purposes and unless a battery is fitted into a RCR or so to say a Car, it would be non-functional and such RCRs or/and Cars will not start and will not function. Once there is a specific rate of 4% for the parts sold, in my view the finding reached by the AO as well as the Tax Board is contrary to the specific Entry - the claim of assessee, in my view, appears to be just and proper and the rate of 4% was rightly paid by the assessee and is not required to be interfered with - petition allowed - decided in favor of assessee.

Summary

Issues:
Interpretation of tax rate for batteries sold for Radio Communication Receivers (RCRs) under the Rajasthan Value Added Tax Act, 2003.

Analysis:
1. The primary issue in this case is the correct tax rate applicable to batteries sold for RCRs under the Rajasthan Value Added Tax Act, 2003. The petitioner claimed that since batteries are integral parts of RCRs, they should be taxed at 4% as per Schedule IV, Entry no.13. However, the Assessing Officer applied the Residuary Entry V at 12.5%, leading to a dispute.

2. The Dy. Commissioner (Appeals) considered certificates from Army Authorities stating that batteries are integral parts of RCRs and should be taxed at 4%. In contrast, the Tax Board concluded that batteries are separately sold and should be taxed at 12.5%, reversing the DC(A)'s decision.

3. The petitioner argued that batteries sold are solely for Army use in RCRs, supported by specific certificates from the Army. The Tax Board's reasoning was challenged based on Schedule IV, Entry no.28, which mentions parts of RCRs to be taxed at 4%, indicating batteries should also fall under this category.

4. The Court analyzed precedents such as ACTO v. M/s Swastik Agencies, Vikas Traders v. The State of Gujarat, and others to establish that when specific items are covered by a specified entry, the Residuary entry should not apply. The certificates from Army Authorities were crucial in determining the integral nature of batteries to RCRs.

5. Citing cases like State of Karnataka v. Mysore Thermo Electric and Tudor India Limited v. State of U.P., the Court emphasized that when items are specifically designed for a particular purpose, they should be taxed accordingly. The judgment distinguished cases like State of Punjab & Ors. v. Nokia India Pvt. Ltd., where the accessory nature of a product led to a different tax rate.

6. Ultimately, the Court held that the batteries sold for RCRs were integral parts and should be taxed at 4%, overturning the Tax Board's decision. The specific use of batteries in RCRs, as certified by the Army, was crucial in determining the correct tax rate.