2015 (2) TMI 751 - HC - VAT and Sales Tax

Classification of goods - Rate of tax applicable - Levy of tax on Image Runners @4% or @12% - Whether the Image Runners (Multi-function Network Printers) sold by the assessee are to be classified under Schedule I, Part B, Entry 18(i) as claimed by the assessee or under Schedule I, Part C, Entry 13(i) as held by the Tribunal - Held that - Goods in question are peripherals to a computer working in conjunction with the computer. There is no question of classifying the goods under residual entry or under Entry 14(iv) of Part D or Entry 40 of Part D of Schedule I of the TNGST Act. - The importer therein primarily contended that the predominant function of the machine is printing documents along with scanner, which is an input and output device and therefore the classification sought for by the importer was correct. After discussing various heads under which the classification was contested and placing reliance on Note 5 of Chapter 84 and Rules relating to General Rules of interpretation of the first schedule, the Supreme Court came to hold that the goods imported, namely, multi-functional machines, serve as input and output device of ADPM (computer) and therefore, classifiable under Heading 8471.60 of the Act. The Authority for Clarification and Advance Ruling placing reliance on the notification issued by the Government of India, Information Technology Department in G.O.No.3, CT & R (B1) Department, dated 1st January, 2007, interpreted Entry 68 Part B item No.22 and came to hold that multi-function device is an office machine connected to a computer and it acts as a combination of one or more devices, namely, fax, photocopier (xerox), printer and scanner. - The fact that the goods in question work in conjunction with a computer, personal, mini, mainframes and laptops of analog and digital varieties is not in dispute. It is also not in dispute that this equipment is an input and output device. The printer and the scanner of different kinds fall within the definition of peripheral . If it is a standalone photocopier machine or fax machine, then the Department would have a case and counter. Photocopying is not the primary function of the equipment in question, as it works in conjunction with the computer. The distinction is evident from the reading of Entry 18(i) of Part B of Schedule I and Entry 14(iv) of Part D of Schedule I of the TNGST Act. Peripherals in relation to computer personal, mini, mainframes and laptops of analog and digital varieties would fall under Entry 18(i) of Part B of Schedule I, whereas Electronic instruments including cash registers, tabulating and calculating machines, electronic duplicating machines, reprographic copiers including duplicators, xerox and photo copying machines and any other electronic apparatus for obtaining duplicate copies fall under Entry 14(iv) of Part D of Schedule I. On considering the functions of the Image Runner in the light of the decisions, referred supra, we are of the firm view that the goods in question are peripherals and the function of printing of documents based on a command given by the computer in the form of digital signals transmitted through networking device, namely, Local Area Network (LAN), makes it ample clear that it serves as an input and output device and therefore, it would partake the character of the peripheral , which includes printer and scanner. - goods in question are peripherals to a computer working in conjunction with the computer. There is no question of classifying the goods under residual entry or under Entry 14(iv) of Part D or Entry 40 of Part D of Schedule I of the TNGST Act. Nature of the equipment and its predominant use. In this case, the Image Runner is an equipment, which is an input and output device that works in conjunction with the computer and also has got scanning facility for the very same function of input and output device and therefore, it is clearly a peripheral . - Image Runner is an equipment, which is an input and output device that works in conjunction with the computer and also has got scanning facility for the very same function of input and output device and therefore, it is clearly a peripheral . Router is a device falling outside the main part, namely, computer and it is partially or completely dependent on the host and expands the capabilities of the computer and it does not form part of the core architecture. What are all computer peripherals have not been defined in Serial No.22 of Entry 68 of Part B of I Schedule to TNVAT Act, 2006. Therefore, whatever goods, which are falling within the definition of peripheral would be entitled to such a benefit. We find that router , from the nature of its use in conjunction with the computer as has been defined by the Appellate Deputy Commissioner and the Tribunal based on relevant computer related dictionary and data, is a peripheral of a computer. It is also held by the Tribunal that router is a computer network device that transmits data from one area to another and expands the capabilities of the computer, hence, it does not form part of core computer architecture. Therefore, we find that the Appellate Deputy Commissioner as well as the Tribunal are justified in holding 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. Goods in question partake the character of peripheral of a computer and therefore, it is classifiable under Entry 18(i) of Part B of Schedule I of TNGST Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of multi-function network printers under the appropriate tax schedule.
2. Interpretation of the term "printers" in the tax schedule.
3. Determination of whether additional functions affect the classification.
4. Applicability of Supreme Court judgments and other legal precedents.
5. Correctness of the Tribunal's classification and procedural fairness.

Detailed Analysis:

Issue A: Classification of Multi-Function Network Printers
The primary issue revolves around whether the multi-function network printers sold by the assessee should be classified under Schedule I, Part B, Entry 18(i) taxable at 2% (10% without C Form) or under Schedule I, Part C, Entry 13(i) taxable at 4% (12% without C Form). The Tribunal held that these printers fall under Schedule I, Part C, Entry 13(i) due to their additional functions of copying and faxing.

Issue B: Inclusion of Printers with Subsidiary Functions
The court examined whether Schedule I, Part B, Entry 18(i) includes printers with additional functions such as scanning, copying, and faxing. The assessee argued that the primary function of the Image Runner is printing, and the additional functions are subsidiary. The Tribunal, however, did not accept this and classified the printers under a different entry due to their multifunctional capabilities.

Issue C: Interpretation of the Word "Printers"
The court analyzed whether any qualifications or restrictions should be read into the term "printers" in Schedule I, Part B, Entry 18(i). The assessee contended that the term should include all types of printers, including those with additional functions. The Tribunal, however, interpreted the term more narrowly.

Issue D: Exclusivity of Printing Function
The court considered whether the term "printers" in Schedule I, Part B, Entry 18(i) should include only those exclusively used for printing or also those with additional functions. The Tribunal held that the multifunctional nature of the printers excluded them from this entry.

Issue E: Descriptive or Exhaustive Nature of the Word "Like"
The court examined whether the use of the word "like" in Schedule I, Part B, Entry 18(i) is merely descriptive and illustrative or exhaustive. The assessee argued that it is illustrative, thereby including multifunction printers. The Tribunal disagreed, leading to a different classification.

Issue F: Tribunal's Classification Based on Additional Functions
The Tribunal's decision to exclude the disputed printers from Schedule I, Part B, Entry 18(i) due to their additional functions was scrutinized. The court found that the Tribunal's reasoning was based on a misinterpretation of the primary function of the printers.

Issue G: Consideration of Supreme Court Judgment
The court noted that the Tribunal failed to consider the Supreme Court judgment in Xerox India Limited vs. Commissioner of Customs, Mumbai, where multifunction machines with printing as the predominant function were classified as printers. This precedent was crucial for the assessee's argument.

Issue H: Explicit Mention of Digital Printers
The Tribunal's decision that the disputed printers cannot be classified under Schedule I, Part B, Entry 18(i) because the entry did not explicitly mention digital printers was challenged. The court found this reasoning flawed.

Issue I: Classification under Schedule I, Part C, Entry 13(i)
The Tribunal classified the printers under Schedule I, Part C, Entry 13(i) after acknowledging their multifunctional nature. The court found this classification incorrect based on the predominant function of printing.

Issue J: Dependency on Laser Printing Components
The Tribunal's failure to refute the appellant's contention that the multifunction printers were laser printers with additional features dependent on laser printing components was highlighted. The court found this oversight significant.

Issue K: Procedural Fairness and Natural Justice
The court noted that the Tribunal classified the printers under Schedule I, Part C, Entry 13(i) without giving the appellant an opportunity to address this issue, which was not relied upon by the Department earlier. This constituted a violation of natural justice.

Issue L: Predominant and Primary Function of Digital/Laser Printing
The Tribunal's failure to consider the predominant and primary function of digital/laser printing in the disputed printers was a critical error. The court emphasized the importance of this function in classification.

Issue M: Consideration of Judgments and Supplier Certificates
The Tribunal's neglect in considering various judgments and supplier certificates submitted by the appellant was highlighted. The court found this omission significant.

Issue N: Demand for CST and Furnishing of C Forms
The Tribunal's decision to confirm the remand order regarding the CST demand, despite the appellant furnishing C Forms, was challenged. The court found this decision questionable.

Issue O: Levy of Penalty
The Tribunal's confirmation of the remand order regarding the penalty was also challenged. The court found the Tribunal's reasoning insufficient.

Conclusion:
The court allowed the revisions, holding that the disputed printers are "peripherals" to computers and should be classified under Schedule I, Part B, Entry 18(i) of the TNGST Act. The Tribunal's order was set aside, and the classification under the residuary entry was deemed incorrect. The court emphasized the importance of the predominant function and the binding nature of the Authority for Clarification and Advance Ruling.