2018 (12) TMI 1162 - HC - VAT and Sales Tax

Classification of goods - multi function printers - classifiable under Entry 84.71 of the Notification No. VAT-1505/CR116/Taxation-1 dated 1st April, 2005 or not - MVAT Act - Held that - Multi-functional printers are modular units which connect to the computer/computer network and are used in automation activity of printing. The heart of the multi-functional printers consists of a printing mechanism to perform the basic function of printing. In addition to the primary function of printing, other incidental functions performed by the multi-functional printers are scanning and copying or scanning, copying and fax. However, the essential function of the product is nothing but printing - A multi-functional printer is sold and marketed as a printer with additional capabilities such as copy, fax and scan. Thus, the understanding in the commercial parlance and of the end customer/user is that of a printer, with supplementary features and capabilities. Rather than having to invest in four separate machines of printer, scanner, fax and copier, the user can obtain all these capabilities by purchasing a multi-functional printer. The printers sold by the appellant are classifiable under Entry 84.71 of the IT Products Notification as laser jet printers . The specific entry must prevail over the residuary entry and hence, the appellant s goods cannot be classified under the residuary entry. The appellant s products have been rightly classified as attracting the rate of duty at 12.5% - substantial questions of law concurrently answered in favour of the Revenue and against the appellant-assessee - appeal dismissed.

Summary

Issues Involved:
1. Classification of Multi-Function Printers (MFPs) under various entries of the Maharashtra Value Added Tax (MVAT) Act, 2002.
2. Rate of tax applicable on the sale and leasing of MFPs.
3. Rate of tax applicable on the sale of spares, drums, toners, and developers of MFPs.
4. Inclusion of refundable security deposit in the sale price for VAT purposes.

Detailed Analysis:

1. Classification of Multi-Function Printers (MFPs):
The appellant argued that MFPs should be classified under Entry 84.71 of the Notification No. VAT-1505/CR116/Taxation-1 dated 1st April 2005, asserting that these products fall under "automatic data processing machines and units thereof," "input units," or "output units." The appellant emphasized that MFPs are primarily printers with additional functionalities such as scanning, copying, and faxing, and should be classified as "laser jet printers" under the same entry. The tribunal and the Commissioner, however, concluded that MFPs did not fall under the specific descriptions listed in the notification and classified them under the "other" category, which is not covered by Entry C-56, thereby attracting a higher tax rate of 12.5%.

2. Rate of Tax on Sale and Leasing of MFPs:
The appellant contended that the applicable tax rate on MFPs should be 4%, as they are IT products under Entry C-56. The tribunal upheld the Commissioner's decision that MFPs are not explicitly mentioned in the notification and thus do not qualify for the reduced tax rate. The tribunal relied on the Delhi High Court judgment in a similar case, which held that MFPs fall under the "others" category and are taxable at a higher rate.

3. Rate of Tax on Sale of Spares, Drums, Toners, and Developers:
The appellant claimed that spares and consumables for MFPs should be taxed at 4% under Entry 84.73, which covers parts and accessories suitable for use with machines of heading 84.71. The tribunal, agreeing with the Commissioner, held that these items also fall under the "other" category and are subject to a 12.5% tax rate.

4. Inclusion of Refundable Security Deposit in Sale Price:
The appellant argued that refundable security deposits collected during the leasing of MFPs should not be included in the sale price for VAT purposes. The tribunal, however, upheld the Commissioner's decision that such deposits are includible in the sale price under Explanation III to Section 2(25) of the MVAT Act, as they are a part of the consideration for the lease.

Conclusion:
The tribunal's decision, affirmed by the High Court, concluded that MFPs and their spares fall under the "other" category and attract a tax rate of 12.5%. The refundable security deposits collected during leasing transactions are includible in the sale price for VAT purposes. The appeal was dismissed, and the tribunal's interpretation of the relevant entries and notifications was deemed consistent with the law.