2024 (1) TMI 296 - HC - VAT and Sales Tax

Classification of goods - memory cards - IT products covered under Entry No. 10 of Part A of Entry 65 of Schedule IV of the Rajasthan Value Added Tax Act, 2003 or taxed at residuary rate as per Entry 78 of Schedule V to the RVAT Act? - HELD THAT - As per settled position of law, a specific entry would always trump a general entry and the burden would always be on the Revenue to prove that the goods in question would have to fall in residual entry as opposed to the specific entry. The Commissioner opined that since the use of memory cards is not restricted to recording sound and that since memory card can be used in a variety of devices, to increase functionality, the same cannot be said to be covered under any of the specific entries. A bare perusal of the aforesaid determination would reveal that the same is merely the opinion of the Commissioner and is not supported by any cogent reasons and or technical/expert opinion. It cannot be emphasized enough that in indirect tax matters, long standing classification cannot be disturbed merely on personal opinion/knowledge. The revenue has to discharge its burden to prove that the change in classification is warranted and necessary by adducing cogent and corroborating evidence. Mere assertion or personal opinion, even of the Commissioner, without any supporting evidence is of no use or value. Since the revenue has not discharged its burden to show that the good in question, i.e. memory cards, which is undisputedly media which can record sound and other phenomena, would not be covered under the specific entry of either Entry No. 10 or Entry No. 3 of Part A to Schedule IV to the RVAT Act, the levy of additional tax and interest, merely on the basis of determination order passed by the Commissioner, cannot be sustained. Because the Entry 10 of Part A of Schedule IV to the RVAT Act is inclusive and illustrative and not exhaustive. The items CD and DVD are merely listed as examples - Because reassessment after substantial period of time cannot be made merely on change of opinion. Because the case is of classification and interpretation of taxing statute and not of avoidance or evasion of taxes, therefore invoking of Section 25 and 26 of the RVAT Act was not warranted. Further the judgment of RAJASTHAN FELTS MANUFACTURING COMPANY VERSUS THE STATE OF RAJASTHAN AND OTHERS 1978 (1) TMI 160 - RAJASTHAN HIGH COURT , relied upon by learned counsel for the revenue to support reassessment, was passed under the erstwhile regime of Rajasthan Sales Tax Act, 1994, that too under different facts, and therefore the same has no application in the facts and circumstances of the present case. The question(s) of law framed hereinabove have to be answered in favour of the petitioner-assessee and against the Revenue - the STRs are allowed.

Issues Involved:
1. Whether the assessment order was passed merely on a change of opinion.
2. Classification of Memory Cards under the RVAT Act.
3. Validity and retrospective application of the notification dated 08.03.2016.
4. Validity of the determination order passed after nine years.

Summary:

Issue 1: Change of Opinion
The petitioner-assessee argued that the reassessment was done merely on a change of opinion without any new evidence or reason to believe that tax was evaded. The court noted that the long-standing classification by the petitioner-assessee was accepted for several years and was only changed after a survey and a determination order by the Commissioner. The court held that reassessment cannot be made merely on a change of opinion, citing several Apex Court judgments.

Issue 2: Classification of Memory Cards
The primary contention was whether memory cards should be classified as 'I.T. Products' under Entry 10 or Entry 3 of Part A of Schedule IV to the RVAT Act or taxed at the residuary rate. The court found that memory cards qualify as 'prepared unrecorded media' capable of recording sound and other phenomena, thus falling under Entry 10. The court also noted that the burden of proof was on the revenue to show that memory cards should be classified under the residual entry, which the revenue failed to do.

Issue 3: Notification Dated 08.03.2016
The petitioner-assessee argued that the notification clarifying that memory cards are I.T. products should have retrospective effect. The court held that the notification, although prospective, demonstrated that memory cards were always considered I.T. products. The court cited Apex Court judgments to support that amendments clarifying existing laws can have retrospective effect.

Issue 4: Validity of Determination Order
The court found that the determination order dated 15.09.2015, which led to the reassessment, was based merely on the opinion of the Commissioner without any supporting evidence or technical opinion. The court emphasized that long-standing classifications cannot be disturbed based on personal opinions without cogent reasons. The court also noted that the determination order was not binding on quasi-judicial bodies like the Tax Board.

Result:
The court answered all questions of law in favor of the petitioner-assessee and against the revenue. All Sales Tax Revisions were allowed, and the orders of the Tax Board and authorities below were quashed and set aside. Pending applications, if any, were disposed of.

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