2015 (2) TMI 1059 - HC - VAT and Sales Tax

Denial of Input tax credit - Utilization of credit under the nomenclature of work stations - assessing authority disallowed such input tax on work stations considering them as input tax restricted goods falling under Entry No.5 of the V Schedule read with Section 11(a)(2) of the Karnataka Value Added Tax, 2003 - Tribunal allowed all the appeals of the assessee holding that work stations are accessories of technical goods viz., of computer/computer peripherals falling under Entry No.3 of V Schedule read with Section 11(a)(2) of the KVAT Act, 2003 - Whether work stations purchased by the assessee which is in the business of development and sale of computer software would fall within the definition of furniture in Entry No.5 of V Schedule and is not entitled to the benefit of Input Tax Deduction. Held that - The word 'furniture' has not been defined under the Act. In Chambers 20th Century Dictionary 'furniture' is defined as movables either for use or ornament with which a house is equipped. In the Webster Dictionary II edition, it is defined to mean articles of convenience or decoration used to furnish the house. Insofar as the word 'furnished' is concerned, the Shorter Oxford English Dictionary defines the word 'furniture' has to fit up with all that is requisite including moveable furniture which is now predominant notion. Shorter Oxford English dictionary gives the meaning of the word 'furniture' as movable articles in a dwelling house, place of business or a public building. Therefore, insofar as the dictionary meaning is concerned, it means all articles of convenience or decoration used for the purpose of furnishing a place of business or office or a house as articles of furniture. If any term or expression has been defined in the enactment then it must be understood in the sense in which it is defined but in the absence of any definition being given in the enactment the meaning of the term in common parlance or commercial parlance has to be adopted. Apparently, the deciding factor is the predominant or ordinary purpose or use. It is not enough to show that the article can be put to other uses also. It is its general or predominant user which seems to determine the category in which an article will fall. The test, is not whether the articles are capable of being used as furniture; the test is whether they are ordinarily so used and can be accepted as such according to the general or popular notion of what furniture is. Sales tax is a liability which affects the mercantile community and the consumer public. The list of items mentioned in the notification must be construed according to the understanding popular in that community and section of the people. To impose a technical or artificial meaning will result in defeating or stultifying the intention behind the provision. According to the general or popular notion of what furniture is, whether the article can be described as furniture turns upon its definition in relation to daily needs of a convenient living. It is the general or predominant user which determines the category in which an article will fall and therefore, the nomenclature given to an article is not decisive. Input tax paid by an assessee in purchasing the goods on set out in V Schedule are not eligible for input tax deduction. That rule has an exception. That is, if the goods mentioned in V Schedule are resold then Section 11 is not attracted. Similarly when the goods mentioned in the V Schedule are used for manufacture or any other process of other goods for sale, even then Section 11 is not attracted. Work stations may be a computer or device such as computer work station, a high performance desktop computer as may be designed for scientific or engineering applications or a music work station. The work station or a cubicle is used to sit and operate a computer with all attendant accessories. It is a nature of accessory for use in the manufacture or processing of goods for sale and those are used in computing etc. In common parlance it is not understood as a furniture for a convenience or a decoration. It is not used as chairs, tables, cupboards etc. The purpose for which the said work station is used is in reality for a manufacturing process as a part of manufacturing process. At any rate, it is so understood in the trade. A work station includes a cubicles, a computer on the top of cubicle and chair in front of the computer to sit and work on the computer and also electrical connections for getting electricity as well as internet connections. Therefore, a work station is not used as a convenience or for decoration in a dwelling place or used to furnish a place of business. Therefore, it is not possible to accept the view of the revenue that a cubicle or a work station would fall within the meaning of the word 'Furniture' and therefore, the assessee is not entitled to the benefit of input tax paid for acquiring such work stations. - Decided against Revenue.

Summary

Issues Involved:
1. Classification of "work stations" as accessories to computer peripherals or as furniture.
2. Entitlement to 'input tax credit' for work stations under the Karnataka Value Added Tax Act, 2003 (KVAT Act).
3. Applicability of input tax restrictions under Entry No.5 of V Schedule read with Section 11(a)(2) of the KVAT Act.

Issue-wise Detailed Analysis:

1. Classification of "work stations" as accessories to computer peripherals or as furniture:
The primary issue was whether the goods purchased under the nomenclature of "Work Station" should be classified as furniture or as accessories to computer peripherals. The Karnataka Appellate Tribunal had held that work stations are accessories to computer peripherals and not furniture. The Tribunal's decision was based on the understanding that work stations are used as aids or accessories to computers and related equipment, which fall under Entry No.3 of the V Schedule of the KVAT Act.

2. Entitlement to 'input tax credit' for work stations under the Karnataka Value Added Tax Act, 2003 (KVAT Act):
The assessee, engaged in the development and sale of computer software, claimed input tax credit for work stations. The assessing authority disallowed this claim, considering work stations as restricted goods under Entry No.5 of the V Schedule. However, the Tribunal allowed the input tax credit, classifying work stations as accessories to computers, thus falling under Entry No.3 of the V Schedule. The Tribunal's decision was challenged by the revenue, asserting that work stations are furniture and hence not eligible for input tax credit.

3. Applicability of input tax restrictions under Entry No.5 of V Schedule read with Section 11(a)(2) of the KVAT Act:
Section 11(a)(2) of the KVAT Act restricts input tax deductions for goods specified in the V Schedule. Entry No.5 of the V Schedule includes furniture, among other items. The revenue argued that work stations are furniture and thus fall under this entry, making them ineligible for input tax credit. The Tribunal, however, held that work stations are not furniture but accessories to computers, which are not restricted under Entry No.5.

Judgment Analysis:

Understanding of 'Furniture':
The court examined various judgments and definitions of 'furniture' from different sources, including the Allahabad High Court, the Apex Court, and the High Court of Gujarat. It was noted that furniture is generally understood as articles of convenience or decoration used to furnish a place of business or a dwelling. The predominant or ordinary use of an article determines its classification.

Interpretation of Work Stations:
The court considered the nature and use of work stations, noting that they are used in the manufacturing or processing of goods for sale and are not merely for convenience or decoration. Work stations include cubicles, computers, chairs, and necessary electrical connections, which are integral to the manufacturing process and not typically classified as furniture.

Conclusion:
The court concluded that work stations do not fall within the meaning of 'furniture' as understood in common parlance or commercial practice. Therefore, they are not subject to the input tax restrictions under Entry No.5 of the V Schedule. The court upheld the Tribunal's decision, allowing the assessee to claim input tax credit for the work stations.

Final Order:
The petitions by the revenue were dismissed, and the substantial question of law was answered in favor of the assessee, affirming their entitlement to input tax credit for work stations.