While entertaining the Sales Tax Revision petition, the Rajasthan High Court quashed the additional tax and interest order. A Single Bench of Justice Sameer Jain observed that the burden to prove that a specific product falls within a particular tariff is always on the revenue.
Since the issue of the revision appeals was related to the common question of classification of ‘CAT-5 / CAT-6 cable products, the bench, with the consent of all parties, heard the case together.
The petitioner/companies were engaged in the business of selling computer and computer-related products, including networking cables (CAT-5/CAT-6) whose primary function is data transmission.
The counsel for the petitioner-assessee argued that the assessee was correctly classifying the product networking cables as “computer peripherals” and that this allowed it to discharge its Value Added Tax (VAT) liability by treating them as computer systems and peripherals, which are classifiable under Entry 3 of Part A of Schedule IV of the Rajasthan Value Added Tax Act (RVAT).
Added that the tax authorities had wrongly assessed additional tax and interest to the petitioner-assessee by incorrectly classifying the networking cables under the residuary head rather than the specific head.
The bench noted that the petitioner-assessee was self-classifying the product networking cables as per the entries mentioned in Part A of Schedule IV to the RVAT Act and paying tax accordingly at the rate of 4% / 5%.
After the survey conducted by the Revenue, the differential tax, interest and penalty was imposed upon the petitioner-assessee as according to the revenue the networking cables had to be classified in the residuary entry which attracted tax at the rate of 12.5% / 14%.
The High Court opined that the tax board erred in law by not applying the correct ratio of the quoted judgments in their true sense. Further clearly stated that “The burden to prove that a specific product falls within a particular tariff is always on the revenue, more so when the revenue is trying to classify products in the residual entry as against the specific entry. I.”
Moreover, in the instant case, the revenue has utterly failed to adduce any evidence, technical or otherwise, to substantiate its claim that CAT-5 or CAT-6 cables are not covered in Part-A of Schedule IV to the RVAT Act which specifically deals with IT Products.
Thus, the bench while allowing the Sales Tax Revisions, quashed the additional tax and interest order.
V. K. Gogra, Siddharth Ranka with Muzaffar Iqbal, Mr. Saurabh Harsh and Ms. Apeksha Bapna appeared for the Petitioner/ companies. And Punit Singhvi with Mr. Ayush Singh represented the department.
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