Burden To Prove That A Specific Product Falls Within A Particular Tariff Is Always On The Department: Rajasthan High Court

The Jaipur Bench of the Rajasthan High Court has held 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.

The bench of Justice Sameer Jain has observed that the department 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.

The petitioners are in the business of selling computers and computer-related products, including networking cables (CAT-5 and CAT-6) whose primary function is data transmission. The petitioner-assessee has classified the networking cables as ‘computer peripherals’ and discharged its VAT liability by treating them as computer systems and peripherals, as classifiable under Entry 3 of Part A of Schedule IV of the RVAT Act.

The department classified the networking cables under the residuary head and not the specific head and imposed additional tax and interest upon the petitioner-assessee.

The assessees contended that the department has not discharged its onus to prove that CAT-5 and CAT-6 cables would not be included in the broad and expansive definition of ‘computer peripherals’. Neither an expert or technical opinion was sought, nor was any evidence brought on record to prove their point. As per settled law, the onus or burden to show that a product falls within a particular tariff item is always on the department.

The assessees submitted that as the CAT-5 and CAT-6 cables are primarily and predominantly used to physically connect the computer system to a network, they would necessarily have to be included in the broad definition of ‘computer peripheral’, as per the common parlance test and end usage test.

The department contended that CAT-5 or CAT-6 cables are essentially networking cables whose use and application are not restricted to computer networking and are used in a wide array of services, including telecommunication, cable networks, CCTV cameras, etc. The authorities below have rightly restricted the definition of computer peripherals to those hardware apparatus whose usage is confined to the operation of computers only.

The court noted that Entry Nos. 3 and 24 of Part-A of Schedule IV to the RVAT Act were 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, and CAT 6 cables" in Entry 24.

"What is significant is that the amendment was brought into force the same day of the introduction of the 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. Subsequently, the amendment, as stated above, was brought into force, and the networking items and networking cables were specifically mentioned in Part-A of Schedule IV to the RVAT Act," the court said.

The court quashed the orders of the Tax Board.

Case Title: M/s Compuage Infocom Limited Versus The Assistant Commissioner

Citation: 2023 LiveLaw (Raj) 48

Case No.: S.B. Sales Tax Revision / Reference No. 182/2017

Date: 30/05/2023

Counsel For Petitioner: V. K. Gogra, Siddharth Ranka, Muzaffar Iqbal, Saurabh Harsh, Apeksha Bapna

Counsel For Respondent: Punit Singhvi, Ayush Singh

Click Here To Read The Order