2023 (1) TMI 184 - HC - VAT and Sales Tax

Benefit of concessional rate of duty - automatic data processing machine - to be classified under CTH-8471 or not - HELD THAT - It is not in dispute that EVM Machines are classified under 8471 and ADPM is described at Sl. No.4 in the Notification. It is also not in dispute that assessee has been clearing the EVMs under tariff item 8471. The Gujrat High Court in Samsung India 2020 (2) TMI 1247 - GUJARAT HIGH COURT has held that the VAT authorities are bound by the classification accepted by the Central Excise Authorities. The Notification FD 116 CSL 2006(9) dated March 31, 2006 makes it clear that the goods specified under respective headings and sub-headings in the Central Excise Tariff Act, 1985 as IT Products. Admittedly, Central Excise has accepted clearance of EV Machines under Tariff Head 8471. Therefore, the principal contention of Revenue that an EVM does not process anything, is untenable because, the KVAT Authority is bound by the classification accepted by the Central Excise Authority. Petition dismissed.

Summary

Issues:
1) Interpretation of the binding judgment of the Hon'ble Supreme Court regarding classification of commodities based on functionality.
2) Classification and taxation of Electronic Voting Machines (EVMs) and other goods under the Karnataka Value Added Tax Act.

Issue 1:
The first issue revolves around whether the Karnataka Appellate Tribunal (KAT) erred in not following the binding judgment of the Hon'ble Supreme Court in the case of Commissioner of Customs /Vs/ N.I. Systems India Pvt. Ltd. The judgment established that commodities should be classified based on functionality and not merely because they contain automated data processing machines. The Revenue contended that the EVMs should be classified as data registering, counting, and displaying machines, not as Automatic Data Processing Machines (ADPMs). The Tribunal's decision was challenged on the grounds of disregarding the specific functionality of the goods in question.

Issue 2:
The second issue pertains to the classification and taxation of goods under the Karnataka Value Added Tax Act. The case involved BEL Bharat Electronics Ltd., a registered dealer engaged in manufacturing various products, including EVMs. The Assessing Authority determined the tax rate for the goods sold by the assessee, leading to disputes over classification and applicable tax rates. The KAT partially allowed the appeal, setting the tax rate at 5.5% for most goods but requiring further examination for specific items. The debate centered on whether EVMs should be classified as IT products under the Central Excise Tariff Act, attracting a lower tax rate, or taxed at the general rate of 14.5%. The Tribunal's decision was challenged by the Revenue, arguing that EVMs do not fall under Automatic Data Processing Machines and should be taxed at a higher rate.

In conclusion, the High Court dismissed the petition and ruled in favor of the assessee, upholding the classification of EVMs under the Central Excise Tariff Act as IT products. The judgment emphasized that the VAT authorities are bound by the classification accepted by the Central Excise Authorities, highlighting the importance of consistent classification across different tax regimes.