M/S SHARP BUSINESS SYSTEMS LTD v. THE ASSISTANT COMMISSIONER ANTI-EVASION

Judgmentp

1. All the instant petitions are directed against order dt 20.10.2016 passed by the Rajasthan Tax Board, Ajmer, and relates to the assessment years 2005-06 to 2008-09.

2. The brief facts noticed are that the assessee is a Limited Company and is, inter alia, carrying on sale of Multi Functional Devices (MFD) and Facsimile Machine (FM). A survey came to be conducted on the business premises of the assessee on 18.12.2006 and 14.2.2007, wherein certain discrepancies were noticed and investigation was carried out. The assessee claimed that the product which is being manufactured and sold by the assessee, namely MFD and FM, on which rate of 4% is applicable, whereas the Assessing Officer was of the view that it entails a rate of 12.5%. Accordingly, a show cause notice was given and taking into consideration the objections and reply filed on behalf of the assessee the claim of the assessee was not accepted and the AO vide assessment orders levied tax @ 12.5%. (4 of 11) [STR-185/2016] Simultaneously interest was also levied and also penalty u/s 61 was imposed by the AO.

3. The matter was carried in appeal by the assessee before the DC(A), who upheld the levy of tax and interest but insofar as the penalty u/s 61 is concerned, he directed it to be deleted.

4. The matter was carried in appeal, both by the assessee as well as the Revenue.

5. The Tax Board in the impugned order took up all the appeals in between the parties and insofar as issue about Multi Functional Device is concerned, allowed the claim of assessee in the light of judgment rendered by this court in the case of M/s Kores (India) Ltd v. Assistant Commissioner, Commercial Taxes [SB STR 24/2015] and M/s Hewlett-Packard India Sales Pvt. Ltd v. Dy. Commissioner (Appeals) [SB STR 21/2010] decided on 19.2.2016 [reported in 2016 (44) Tax- Update 145]. However, the Tax Board was not satisfied insofar as the claim of assessee that FM also fall part in the same category/entry but held that it is not covered by entry 7 of Schedule-IV of the VAT Act and thus, upheld the levy of tax @ 12.5% on FM. The Tax Board also, however, did not accept the appeals preferred by the Revenue on deletion of penalty and thus, dismissed the appeals filed by the Revenue.

6. While the assessee has challenged the levy of rate of tax to be 12.5% on FM, the Revenue has challenged the holding by the Tax Board on photocopier as MFD falling under the (5 of 11) [STR-185/2016] category of computer peripheral and holding them liable to tax as per Schedule-IV i.e. @ 4% and also challenged the deletion of penalty.

7. Since the issues are arising out of the same impugned order, therefore, all the petitions were heard finally and are being disposed of. Heard finally.

8. Learned counsel for the assessee vehemently contended that FM as it stand, would certainly fall as entry 7 of Schedule-IV as it is an electrical apparatus and FM as they are cannot function unless there is a telephone connection and entry 7 envisages electrical apparatus for line telephony or line telegraphy, and therefore contends that taking into consideration the plain & simple language and functions of FM it would be appropriate to hold it as falling in entry 7 rather than Schedule-V for which there is no basis by the Revenue. Learned counsel contends that the Tax Board grossly erred in holding that merely because FM does not find place in entry 7 as aforesaid, is no reason but inference can always be drawn because of the fact that FM can be installed or operative only because of telephone line/connection and thus, contends that the claim of assessee deserves to be allowed.

9. Learned counsel also contends that insofar as the petitions preferred by the Revenue are concerned, the issue of photocopier came up before this court in the case of M/s Kores (India) Ltd v. Assistant Commissioner, Commercial Taxes and M/s Hewlett-Packard India Sales Pvt. Ltd v. Dy. Commissioner (6 of 11) [STR-185/2016] (Appeals) (supra), and this court taking into consideration detailed reasoning held that these are MFD and a rate of only 4% can be applied. Learned counsel further contends that the Special Leave to Appeal preferred by the Revenue against the judgment & order of this court in the case of M/s Hewlett-Packard India Sales Pvt. Ltd v. Dy. Commissioner (Appeals) (supra) stands dismissed by the Apex Court in Special Leave to Appeal (C) Nos.15953- 15958/2016 vide order and judgment dt 13.4.2017 and thus, the issue being covered, the petitions deserve to be dismissed.

10. Insofar as penalty is concerned, learned counsel for the assessee contends that admittedly it is a case of classification and merely because the Revenue applies a rate of 12.5% against 4%, is no reason to impose or levy penalty and relied on the judgment rendered by Apex Court in the case of M/s Shree Krishna Electricals v. State of Tamil Nadu & Others (2009) 23 VST

249 (SC).

11. Per contra, learned counsel for the Revenue, insofar as the petitions preferred by the assessee is concerned, contended that by no stretch of imagination the FM can be covered under entry 7 which is electrical apparatus and contends that the finding reached by all the three authorities in unison is required to be upheld. Learned counsel further contends that it was for the assessee to prove that it falls within entry 7 and merely making a claim unsupported by any material or evidence, is not required to be considered and looked into by this court as it is a finding of fact. (7 of 11) [STR-185/2016]

12. Insofar as the petitions preferred by the Revenue are concerned, learned counsel contends that FM/photocopier cannot be covered as MFD falling under the category of computer peripheral and thus tried to distinguish the judgment rendered by this court in the case of M/s Kores (India) Ltd v. Assistant Commissioner, Commercial Taxes and Hewlett Packard India Sales Pvt. Ltd. v. Dy. Commissioner (Appeals) (supra). Learned counsel contends that admittedly it is a case where assessee was paying lower rate of tax @ 4% only when claim was disallowed/rejected by all the three authorities and, therefore, once all the three authorities upheld a rate of 12.5% then it is certainly a case of evasion and penalty is justified and the Tax Board was not justified in deleting the same and contended that the issue requires consideration.

13. I have heard learned counsel for the parties and perused the material on record. It would be appropriate to quote entry 7 of Schedule-IV :- Electrical apparatus for line telephony or line telegraphy, including line telephone sets with cordless handsets and telecommunication apparatus for carriage-current line systems or for digital line systems; video phones.

14. In my view, the functioning of FM becomes operative only when there is a telephone line/connection and unless there is a telephone line/connection, FM as it stands, will not be viable. Learned counsel for the assessee has placed functioning of FM [3 dictionaries have defined FM] and it reads as under :- (8 of 11) [STR-185/2016] Transmission of images over a telecommunications link, usually the telephone network. When placed on a fax machine, the original image is scanned by a transmitting device and converted into coded signals, which travel via the telephone lines to the receiving fax machine, where an image is created that is a copy of the original. Photographs as well as printed text and drawings can be sent. Device for the transmission and reproduction of documents by digitized signals sent over telephone lines. Fax machines scan printed text and graphics and convert the image into a digital code: 1 for dark areas, 0 for white areas. The code is transmitted through the telephone network to similar devices, where the documents are reproduced in close to their original form. Though the concepts for fax technology were developed in the 19th century, widespread use did not occur until the 1970s, when inexpensive means of adapting digitized information to telephone circuits became common. A fax machine usually consists of an image scanner, a modem, and a printer combined into a single package. The scanner converts the content printed on a physical document into a digital image, the modem sends the image date over a phone line to another device, and the printer at the far end produces a copy of the transmitted document. Some fax machines can be connected to a computer, and the individual components the scanner, printer, and occasionally the modem can be used independtly. Such devices are usually called multifunction printers or MFPs. Fax capabilities are also offered as options for many high-volume workgroup printers and photocopiers.

15. On perusal of the above and taking into consideration the entry 7, in my view, the FM would certainly can be said to be covered under entry 7 of Schedule-IV reproduced hereinbefore. It is a case where FM as noticed hereinbefore becomes operative only when there is a telephone line/connection and unless and until there is a telephone line/connection, FM does not operate. Therefore, it has been held to be falling in the entry 7 of Schedule-IV of the RVAT Act, and I concur with the reasoning of this court (supra). 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 (9 of 11) [STR-185/2016] entry 7 Schedule-IV, then the revenue has to bring material on record, which has not been brought on record.

16. In my view, the finding reached by all the three authorities appear to be unjust and accordingly the finding reached by all the three authorities is reversed and it is held that FM will fall in entry 7, and the claim of assessee is just and proper and allowed.

17. Insofar as the petitions preferred by the Revenue are concerned, the Tax Board has rightly taken into consideration the judgment of this court in the case of M/s Kores (India) Ltd v. Assistant Commissioner, Commercial Taxes and Hewlett Packard India Sales Pvt. Ltd. v. Dy. Commissioner (Appeals) (supra) which had considered the self same question about the issue at length relying on several other authorities of various courts, and it would be appropriate to quote the relevant paras of the judgment :-

27. The other judgments / orders of the learned Tax Board in the case of RICOH India Ltd.(supra) against which the revision petition filed before this Court is said to have been dismissed for want of prosecution, the detailed judgment of the learned Tax Board was also not placed before this Court for consideration and only the order of the Additional Commissioner was so placed, which also is of no assistance to the Revenue, in the present cases. On the contrary, in the case of same Company [RICOH India Ltd. Vs. Commissioner, (2012) 52 VST 49 (Delhi)], the Delhi High Court held as under [vide quote from the judgment of Madras High Court in the case of Canon India (P) Ltd. Vs. State of Tamil Nadu (supra)] :-

16. The question, therefore, which is raised and has to be answered, is whether the multi functional machines or printers are computer peripherals or not? The term "peripheral" has not been defined in the VAT Act and, therefore, has to be given its natural and common sense meaning. A computer mainly consists of Central Processing Unit, which cannot operate and function without peripherals like monitor, keyboard, printer etc. Some of the peripherals may be mounted or housed in the (10 of 11) [STR-185/2016] computer cabinet itself like Hard Disc, CD ROM, Mic etc. Sometime peripherals can be separate and have to be attached to the Central Processing Unit. The term "peripheral" has been defined in Oxford Dictionary to mean as under:- (of a device) able to be attached to and used with computer, though not an integral part of it.

17. A multi functional machine can be a computer peripheral, if its principal or sole purpose is to be attached and function as a computer ancillary. A multi functional machine will be and qualify as a computer peripheral when its main/predominant purpose is to scan documents, load data or work as an input devise of the computer or work as an output device to take printouts etc. from the computer. At the same time, there can be photocopiers, whose main purpose is to copy or act as a duplicating machine to make copies of documents. Incidentally, they may also be used as a printer. This would require elucidation and examination of factual matrix in each case and the machine in question on case to case basis. Therefore, upon a detailed analysis and with reference to various technical literature and material, the case laws in favour of the Assessees, this Court is satisfied that the commodity in question, namely, Multi Functional Device could not be taxed by the Assessing Authority under the Residuary Entry for the period from 01.04.2006 ri 09.03.2010, and the said commodity would fall within the ambit and scope of entry relating to computer printers and computer peripherals, taxable @ 4% in Schedule IV of the VAT Act.

28. The levy of tax in the Residuary Entry @ 12.5% / 14% therefore, cannot be upheld, and to that extent, the order impugned of the learned Tax Board and the authorities below deserve to be quashed and set aside. They are accordingly set aside.

18. The Special Leave to Appeal preferred by the Revenue having been dismissed by the Apex Court vide judgment & order dt 13.4.2017, rests the controversy in hand and is no more res integra and accordingly the departmental petitions insofar as computer photocopier is concerned, stands dismissed.

19. Insofar as the penalty is concerned, once the claim of assessee has been accepted that it was liable to a rate of 4% only, (11 of 11) [STR-185/2016] therefore, question of penalty does not arise. Even otherwise, it is case where the matter was relating to classification of entries. The Apex Court in the case of Shree Krishna Electricals (supra) and this court in CTO v. M/s. Bambino Agro Industries Ltd. (2016) 90 VST 22 (Raj) and in some other cases, has also taken a consistent stand that in a case of classification, question of penalty does not arise. Admittedly, though survey has been conducted, but the Revenue has not been able to pin point or find any defect in the sales version, except whether rate of 4% is leviable or 12.5%, thus, the petitions of Revenue in this regard also stands dismissed. This court in the case of CTO v. M/s. Bambino Agro Industries Ltd. (supra), has held penalty not leviable.

20. In view of what has been observed hereinabove, the petitions preferred by the assessee stand allowed, while the petitions preferred by the Revenue stand dismissed, with no order as to costs. (JAINENDRA KUMAR RANKA)J. 106-112 & 17