2017 (11) TMI 929 - HC - VAT and Sales Tax

Classification of goods - computer peripherals - Routers and Hubs - - Clarification issued by the first respondent/Commissioner of Commercial Taxes, dated 29.07.2004 - Section 28-A of the TNGST Act, 1959 - Held that - the impugned clarification, dated 29.07.2004 cannot be treated as superseding the clarification, dated 24.08.1998, as it does not contain any reasons to the said effect. Merely stating that the impugned clarification modifies the earlier clarification is insufficient. Even assuming that there is modification done by the Commissioner, such modification should contain reasons, as to how, the Commissioner proposes to take a different stand from that of the earlier clarification, which, in the instant case, was given, after obtaining the opinion of ELCOT, which would bind the first respondent. The appropriate classification of switches, hubs and routers dealt with by the petitioner should undoubtedly fall under Entry 18 (i) in Part B of the first schedule to the TNGST. The counter affidavit filed by the second respondent does not render much assistance to the case of the respondent/Department. One more factor, to be taken into consideration is the proceedings of the Authority for Clarification and Advance Ruling under Section 60 of the Karnataka Value Added Tax Act, 2003. Though the clarification given by the said Authority will not bind the respondent, it will be a good indicator, as to how, the products dealt with by the petitioner have been considered under the Karnataka Value Added Tax Act, 2003. The decision, in the case of C.M.C Ltd., 2015 (4) TMI 167 - MADRAS HIGH COURT would support the petitioner s case, insofar as the the product, routers is concerned, where it was held that the goods sold by the assessee, namely, router, is a computer peripheral, falls under Serial No.22, Entry 68 of Part B of I Schedule of TNVAT Act, 2006. - petition challenging the clarification dated 29.07.2004 is allowed - petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Legality of the clarification dated 29.07.2004 issued by the Commissioner of Commercial Taxes.
2. Validity of the notice proposing to re-open the assessment for the year 2004-2005 based on the said clarification.

Issue-wise Detailed Analysis:

1. Legality of the clarification dated 29.07.2004 issued by the Commissioner of Commercial Taxes:

The petitioner, a dealer in computer parts and peripherals, initially received a favorable clarification on 24.08.1998 from the Commissioner of Commercial Taxes, classifying items like switches, hubs, and routers as computer peripherals taxable at 4% under Entry 18 (i) of Part B of the first schedule to the TNGST Act. This classification was based on an expert opinion from the Electronics Corporation of Tamil Nadu Ltd. (ELCOT), which is recognized as a technical body in the State.

However, a subsequent clarification dated 23.12.2002, issued in favor of another dealer (WIPRO Ltd.), reclassified switches and electronic cables as taxable at 10% and hubs and routers at 12%. This led to the issuance of the impugned clarification on 29.07.2004, which classified the petitioner’s products as taxable at 12% under Entry 14 (iv) Part D of the first schedule to the TNGST Act.

The court noted that the impugned clarification was issued without providing the petitioner an opportunity to present objections and without any tangible material or reasoning to deviate from the earlier clarification of 1998. The court emphasized the importance of the expert opinion from ELCOT, which classified the products as computer peripherals, and found no substantial basis for the contradictory clarification in 2004.

Additionally, the court referenced a decision in State of Tamil Nadu Vs. CMS Limited, which supported the classification of routers as computer peripherals. The court also considered a certificate from the Dean of the College of Engineering, Guindy, confirming that the products in question are used in connecting computers and are indeed computer peripherals.

2. Validity of the notice proposing to re-open the assessment for the year 2004-2005 based on the said clarification:

The second writ petition challenged the notice issued by the Assessing Officer to re-open the assessment for the year 2004-2005, which was based on the impugned clarification dated 29.07.2004. Since the court found the clarification dated 29.07.2004 to be unsustainable and set it aside, the basis for the re-opening notice was invalidated.

The court held that without a valid clarification to support the re-opening of the assessment, the notice issued by the Assessing Officer lacked jurisdiction and was not sustainable. Consequently, the notice dated 27.04.2007 was also set aside.

Conclusion:

Both writ petitions were allowed. The clarification dated 29.07.2004 was set aside, and the earlier clarification dated 24.08.1998, which classified switches, hubs, and routers as computer peripherals taxable at 4%, was upheld. The notice proposing to re-open the assessment for the year 2004-2005 was also set aside, as it was based on the invalidated clarification. No costs were imposed, and connected miscellaneous petitions were closed.