2023 (6) TMI 57 - HC - VAT and Sales Tax

Classification of goods - applicable rate of tax - LAN Connection Cable (CAT-5, CAT-6) - taxable under S. No. 3 or 24 of Part A of Entry No. 65 of Schedule-IV or at General Rate as per Schedule-V appended to the Rajasthan Value Added Tax Act, 2003? - HELD THAT - The word computer system and peripheral is not defined anywhere in the RVAT Act. At this juncture, it would be apt to consider the way in which it has been interpreted by different Courts. In the case of KORES (INDIA) LIMITED VERSUS ASSISTANT COMMISSIONER, COMMERCIAL TAXES, ANTI EVASION 2016 (2) TMI 1363 - RAJASTHAN HIGH COURT , Coordinate Bench of this Court observed that That as a matter of fact, the entry is wider, which includes not only computer printers, but computer peripherals also. This Court finds no justification in the contention raised by the learned counsels for the Revenue, that the word peripherals has to be construed narrowly to limit and include only accessories like, mouse, webcam or keyboard, as computer peripherals, to be taxed @ 4% under the said entry, and not to include therein the Multi Functional Devices. Further, in the case of M/S SHARP BUSINESS SYSTEMS (INDIA) LTD. VERSUS THE ASSISTANT COMMISSIONER ANTI-EVASION, ZONE-I, THE RAJASTHAN TAX BOARD, KAR BHAWAN, THE ASSISTANT COMMISSIONER ANTI-EVASION AND (VICE-VERSA) 2017 (5) TMI 1808 - RAJASTHAN HIGH COURT , Co-ordinate Bench of this Court observed that Merely because FM specifically has not been included in entry 7, is no reason to infer that it will fall in Schedule-V. Once the claim of the assessee is that it fall under entry 7 Schedule- IV, then the revenue has to bring material on record, which has not been brought on record. From the analysis of the aforesaid judgments, it is clear that the term peripheral has been given an expansive meaning and is not restricted to input/output devices, as contended by the Revenue. It is also clear that even if the goods in question can have different applications independent of computer, the same would not preclude them from being considered computer peripheral if they are also being used in computer system to expand the capabilities of computer system. The Entry No. 3 and 24 of Part-A of Schedule IV to the RVAT Act was subsequently amended to specifically include networking items in Entry 3 and networking cables of different types such as Flat Cables, CAT 3 cables, CAT 5 cables, CAT 6 cables in Entry 24. What is significant is that the amendment was brought into force the same day of the introduction of State Budget for the year 2013-2014, wherein while introducing the Budget, the Hon ble Chief Minister specifically acknowledged the difficulties faced by different businesses engaged in the sale of computer related items and resolved to set a clear rate of tax on such items - HSN can only be used for limited purpose of aid and assistance in matters pertaining to RVAT Act as the HSN has not been adopted under RVAT Act and it thus lacks statutory force. In the given case, for the reasons as stated above, it can safely be concluded that the goods in question would fall under Part-A of Schedule IV to the RVAT Act and therefore resort to HSN is not necessary. The question(s) of law framed have to be answered in favour of the petitioner-assessee and against the Revenue - Revision allowed.

Summary

Issues Involved:
1. Classification and Taxability of LAN Connection Cable (CAT-5, CAT-6).
2. Classification and Taxability of Networking Products such as Routers, Switches, Hubs, LAN Cards, and LAN Cables.

Summary:

Issue 1: Classification and Taxability of LAN Connection Cable (CAT-5, CAT-6)

The primary issue was whether the LAN Connection Cable (CAT-5, CAT-6) is taxable under S. No. 3 or 24 of Part A of Entry No. 65 of Schedule-IV or at the General Rate as per Schedule-V appended to the Rajasthan Value Added Tax Act, 2003 (RVAT Act). The petitioner argued that these cables should be classified as 'computer peripherals' under Entry 3 of Part A of Schedule IV of the RVAT Act, contending that they are primarily used for data transmission in computer systems. The petitioner emphasized that the revenue had not discharged its onus to prove that CAT-5 / CAT-6 cables would not be included in the definition of 'computer peripherals'. The petitioner also cited various judgments to support their claim that a specific entry should override a general entry, and that the cables should be classified under the specific entry for 'computer peripherals'.

Issue 2: Classification and Taxability of Networking Products such as Routers, Switches, Hubs, LAN Cards, and LAN Cables

The petitioner also challenged the Tax Board's decision that networking products like Routers, Switches, Hubs, and LAN Cards are not computer peripherals and thus taxable at a higher rate of 12.5% / 14% instead of 4% / 5%. The petitioner argued that the definition of 'computer peripherals' should not be limited to input and output devices but should include networking products as they expand the capabilities of computer systems. The petitioner cited various judgments to argue that the term 'peripheral' has been given an expansive meaning and is not restricted to input/output devices. The petitioner also pointed out that subsequent amendments to the RVAT Act specifically included networking items and cables under the relevant entries, indicating that the legislature intended these items to be taxed at the lower rate.

Court's Analysis and Conclusion:

The court held that the term 'peripheral' has been given an expansive meaning in various judgments and is not restricted to input/output devices. The court noted that CAT-5/CAT-6 cables are essential for wired connection of a computer to a local network or the Internet, and thus should be considered as 'computer peripherals'. The court also observed that the burden to prove that a product falls within a particular tariff is always on the revenue, which the revenue failed to discharge in this case. The court further noted that subsequent amendments to the RVAT Act clarified that networking items and cables were intended to be included under the relevant entries, and thus should be taxed at the lower rate. The court quashed the orders of the Tax Board and the authorities below, allowing the Sales Tax Revisions in favor of the petitioner.

Final Orders:

The court allowed all the Sales Tax Revisions, quashed and set aside the orders of the learned Tax Board and the authorities below, and disposed of any pending applications.