VAT Appeal No.68 of 2009 [ 1 ] IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH VAT Appeal No.68 of 2009 Date of Decision: 15.3.2010 Goyal Motor Parts, Budhlada, through its Partner..................................................... Appellant Versus The State of Punjab and another ..................... Respondents CORAM: Hon'ble Mr. Justice Ashutosh Mohunta Hon'ble Mr. Justice Mehinder Singh Sullar Present: Mr. Sandeep Goyal, Advocate for the appellant. Mr. Piyush Kant Jain, Addl. A.G. Punjab. for the respondents. ... ASHUTOSH MOHUNTA, J. The present appeal is directed against the order dated 18.5.2009 passed by the Punjab VAT Tribunal wherein the appeal filed by the State of Punjab against the present appellant (Assessee) had been accepted and it was held that the Uninterrupted Power supply (UPS) sold by the appellant does not fall in Entry 60 of Schedule B and hence the same would be chargeable @ 12.5% and not 4% which is applicable to the items given in Schedule B. The Tribunal had restored the order of Assessing Authority and had set aside the order of 1st appellate VAT Appeal No.68 of 2009 [ 2 ] authority, wherein it was held that the item being sold by the appellant i.e. UPS is taxable @ 4% and it is not an unclassified item. Briefly the facts of the case are that the appellant is a dealer duly registered under the provisions of the Punjab VAT Act, 2005 and is engaged in the business of purchase and sale of electrical goods including UPS, Inverters and Batteries etc. As far as the sale of Inverters and Batteries is concerned, the appellant- dealer has paid tax at the rate of 12.5% but on the sale of UPS, tax was paid at the rate of 4% in accordance with entry 60 of Schedule-B attached to the Punjab VAT Act, 2005. The appellant was selling microtek digital Inverters manufactured by Microtek International. Initially, upto the first quarter of 2006-07 the appellant had been selling microtek brand digital inverters and after that the same manufacturer started using the name as UPS- EB as certain new changes had been installed in the UPS device mode and an extra facility of UPS had been added to run computers. As the dealer had started selling inverters with UPS facility, therefore he claimed that the sale of UPS was covered under entry 60 sub-entry 27 of Schedule-B which was liable to be taxed at the rate of 4%. The designated officer found that UPS-EB was not covered under entry 60 sub-entry 27 of Schedule-B and, thus, was liable to be taxed at the rate of 12.5% as per Schedule-F of goods being not mentioned in any other Schedule. The Deputy Excise & Taxation Commissioner (A) while relying on reports of VAT Appeal No.68 of 2009 [ 3 ] certain laboratories held vide order dated 10.1.2008 that the goods in question sold by the dealer were covered under Entry 60 Sub-entry 27 of Schedule-B and hence were liable to be taxed at the rate of 4%. The Department filed an appeal before the Value Added Tax Tribunal, Punjab, challenging the order of the DETC(A) dated 10.1.2008 which has been allowed vide the impugned order (Annexure P-4) dated 18.5.2009 and it has been held that only such interrupted power supply (UPS) products which were information and technology products were to fall in Entry 60 of Schedule-B and any other product even if named UPS would be goods chargeable at the rate of 12.5%. It is this order that has been challenged in the present appeal. On the basis of the aforementioned facts the following substantive questions of law arise for determination by this Court:- (i) Whether on the facts and circumstances of the case, the product, i.e .UPS-EB sold by the assessee falls under Sub-Entry 27 of Entry 60 of Schedule-B attached to Punjab VAT Act, 2005 and hence taxable @ 4%? (ii)Whether on the facts and circumstances of the case, the Tribunal was justified in brushing aside the reports of technical experts who have reported that the goods in question are UPS and fulfil the requirements of that product? VAT Appeal No.68 of 2009 [ 4 ] (iii) Whether on the facts and circumstances of the case, the Tribunal was justified in putting the product of the assessee, i.e. UPS-EB in the residual Entry despite the fact that there is proper entry for classification of such goods and there is no other entry under which it can fall? Mr. Sandeep Goyal, counsel for the appellant- assessee has argued that the goods in question, i.e. UPS have been found to be UPS even by the Assessing Authority and as such the same has to be taxed @ 4% which is applicable for sub- Entry (27) of Entry 60 of Schedule B attached to the Punjab Vat Act. According to the appellant, the Entry contains the description ‘Uninterrupted Power Supply’ and there is no condition attached to the same which shows that the same is required to be used only for IT products. According to the appellant, a reading of Entry 60 and Sub-entries mentioned therein shows that each item has to be determined on its own and there is no condition attached with regard to its usage so as to disqualify the UPS being sold by appellant from the UPS which is meant solely for IT products. Another argument of the appellant is that the Tribunal was wrong in holding that the usage would determine the classification of goods. According to the appellant, he is selling the goods in the market through the retailers and is not in a position to determine as to what use the goods would be put into as it would be entirely at the discretion of the purchaser and the VAT Appeal No.68 of 2009 [ 5 ] same cannot be determined at the time of sale in the hands of appellant-assessee. Learned counsel has placed reliance on the decision in the case of State of Tamil Nadu vs Vinyl Cable Industries, (1993)88 STC 430, wherein a Division Bench of Hon’ble Madras High Court has held that if PVC Cables are sold to dealers in automobile parts that itself does not make them as motor accessories and it continues to be electrical goods for all purposes. The Hon’ble Madras High Court has approved the judgment of the Tribunal wherein it was held that usage for the purposes of automobile is only one of the manifold uses and therefore it cannot be said that cable sold by the appellants are to be treated as an accessory of motor vehicle. The observation of the Hon’ble High Court are as under: “It is well-settled that a particular use to which a single article is put alone is not conclusive to know the real nature or character of the article that will determine how to identify it for the tax purpose. As noticed by the Tribunal, the Revenue authorities identified these cables as electrical goods for all purposes, except that in the matter of sale of such cables to automobile parts dealers, they wanted to impose a tax rate of 13 per cent treating only such sales as sale of parts and accessories of motor vehicles and trailers in entry 3 of the First Schedule. The revenue authorities evidently committed an error of law in so dividing the PVC cables for tax purposes into electrical goods and parts and accessories of motor vehicles. The Tribunal has taken a correct view in holding that the assessment originally made was in VAT Appeal No.68 of 2009 [ 6 ] order and the reassessment at 13 per cent on a portion of turnover is not justified. There is no merit in these petitions. These petitions are accordingly dismissed. No costs.” Another argument which is raised by the appellant is that if an item can be reasonably covered by one of the specified entries, then the same should not be put under the category of residual goods which is meant for only those goods which cannot be covered under the specified entry by any stretch of imagination. In this regard the reliance is placed upon the following judgments: (i)In the case of Hindustan Poles Corporation vs Commissioner of Central Excise, Calcutta, 2006 (196) ELT 400 (SC), the Hon’ble Apex Court has held in para 37 as under: “(3) The residuary entry is meant only for those categories of goods which clearly fall outside the ambit of specified entries. Unless the Department can establish that the goods in question can by no conceivable process of welding be brought under any of the tariff items, resort cannot be had to the residuary item.” (ii) In the case of Bharat Forge & Press Industries vs Collector of Central Excise, 1990 (45) ELT 525 (SC), the Hon’ble Apex Court has held in para 3 as under: “(3) The question before us is whether the Department is right in claiming that the items in question are dutiable under tariff entry no. 68. This, as mentioned already, is VAT Appeal No.68 of 2009 [ 7 ] the residuary entry and only such goods as cannot be brought under the various specific entries in the tariff should be attempted to be brought under the residuary entry. In other words, unless the department can establish that the goods in question can by no conceivable process of reasoning be brought under any of the tariff items, resort cannot be had to the residuary item….” (iii) In the case of Dunlop India Ltd & Madras Rubber Factory Ltd. vs Union of India and others, 1983) (13) ELT 1566 (SC), the Hon’ble Apex Court has held in para 37 as under: “37. …. When an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause. The question of competition between two rival classifications will, however, stand on a different footing.” There is yet another argument of the appellant which is dependent upon reports of technical experts which have been obtained by him during the course of this litigation. According to the appellant, two of the renowned institutes of the country, namely IIT Delhi and Punjab Engineering College, Chandigarh have tested these very goods and have found the same to be UPS and by no stretch of imagination it can be assumed to be VAT Appeal No.68 of 2009 [ 8 ] Inverter which do not fulfil the requirement of UPS. According to the appellant, once there is a technical opinion given by the expert, then the same cannot be brushed aside so easily unless and until there is a contrary view given by similarly placed technical experts who deny the earlier report. According to the appellant in the present case, the Ld. Tribunal has committed a patent illegality by not adhering to the expert opinion which has found the items in question to be UPS. For this purpose, he has relied upon the judgment of Hon’ble Supreme Court in the case of Commissioner of Central Excise Ghaziabad vs International Tobacco Co. Ltd., 2008(231) ELT 207 (SC). Reliance is also placed upon the judgment of Hon’ble Apex Court in the case of Commissioner of Sales Tax UP vs Bharat Bone Mill, 2007 (210) ELT 6 (SC). It has been held in para 11 of the said judgment as under: “11. Moreover, it is well-known that the question as to whether a commodity would be exigible to sales tax or not must be considered having regard to its identity in common law parlance. If, applying the said test, it is to be borne in mind that if one commodity is not ordinarily known as another commodity; normally, the provisions of taxing statute in respect of former commodity which comes within the purview of the taxing statute would be allowed to operate. In any event, such a question must be determined having regard to the expert opinion in the field. We have noticed hereinabove the difference between ‘bone meal’ and ‘crushed bone’. VAT Appeal No.68 of 2009 [ 9 ] Different utilities of the said items has also been noticed by the Allahabad High Court itself. The High Court or for that matter, the Tribunal did not have the advantage of opinion of the expert to the effect as to whether crushed bones can be used only for the purpose of fertilizer or whether crushed bones are sold to the farmers for use thereof only as fertilizer.” Yet another argument of the appellant is that once there is an ambiguity or confusion with regard to classification of the goods, then the same is required to be decided in favour of the assessee as the benefit of such an ambiguity should be resolved in favour of subject as has been held by various courts. Reliance in this regard is placed upon the judgment of Hon’ble Supreme Court n the case of Commissioner of Central Excise, Calcutta vs Calcutta Springs Ltd., 2008 (229) ELT 161 (SC), wherein a Bench of Hon’ble Mr. Justice S.H.. Kapadia and Hon’ble Mr. Justice B.Sudershan Reddy have held that in classification dispute the benefit should go to the assessee. The observation of the Hon’ble Apex Court is reproduced hereunder: “4. Lastly, in the present case, the Commissioner has himself stated that on interpretation of the above two Entries, that it is quite possible that the liner in question is capable of falling simultaneously under both the Entries quoted above. If that be the case, then, in a classification dispute, the benefit should go to the VAT Appeal No.68 of 2009 [ 10 ] assessee.” The arguments raised by the counsel for the appellant have been vehemently controverted by the counsel appearing for the State. Mr. Piyush Kant Jain, Additional AG Punjab, has argued that the eligibility to tax of any item is required to be decided solely on the basis of the provisions of the taxing statute. Schedule `B' of the VAT Act list the items taxable at the rate of 4%. Entry 60 of this Schedule provides that “telephones, cell phones, teleprinter wireless equipment and parts thereof, digital video disc & compact disc and information technology products” shall be taxable at the rate of 4%. The items described in Sub entries of entry 60 of Schedule`B' must be relevant to the main entry. Uninterrupted power supply i.e. UPS is mentioned at sub- entry 27. It is contended that this would mean that UPS used only for the above purposes could be taxed at a lesser rate. This entry does not provide all UPS even in used for any other purpose to be taxed accordingly at a lesser rate. Such UPS would be taxable at the rate of 12.5% i.e. General rate of tax. In support of his contention, learned counsel has placed reliance on The Commissioner of Sales Tax , Maharashtra v. East Asiatic Commercial Co. (1985) 59-SCT 10 (Bombay) wherein it has been held “ A taxing statute cannot be interpretated in a manner which requires the event which attracts the tax dependant upon the state of mind of the tax giver.” It is argued that all types of UPS could not be taxed at a lesser rate under the VAT Act. VAT Appeal No.68 of 2009 [ 11 ] Learned counsel for the State has also placed reliance on Commissioner of Sales Tax, U.P. v. Modi Sugar Mills Ltd., (1961) 12-STC-SC-182 wherein it has been held that “The words of a statute are to be squarely looked into- nothing could be implied. Nothing could be imported into any provision so as to supply an assumed deficiency.” It is thus contended by the learned counsel that the UPS used for purposes other than information and technology could not be taxed at a lesser rate by giving it a wider consideration. Counsel for the State has also contended that the test reports given by the Indian Institute of Technology, Delhi, and the Punjab Engineering College, Chandigarh, could not be the basis for coming to the conclusion that the goods being sold by the appellant were UPS. Learned counsel has contended that the provisions of the statute cannot be ignored and the test reports with regard to the product being sold by the appellant could not get precedence over what has been mentioned in the statute. We have heard the counsel for the parties at length and have perused the record. The product in question is UPS-EB. This product is an electronic power source which stores the energy in batteries connected to it when the AC source is present and converts this energy automatically to AC power when the input AC source fails and automatically feeds so generated AC powers to loads connected and returns to main when the AC source comes back to the input side. The appellant deals with inverters and UPS VAT Appeal No.68 of 2009 [ 12 ] supplied by the company having trademark of “Microtec”. Schedule `B' attached to the VAT Act pertains to the list of goods taxable at the rate of 4%. Entry 60 and sub-entry 27 of the aforementioned Schedule are as under:- 60. Telephones, cell phones, tele-printer, wireless equipment and parts thereof, Digital Video Disc & Compact Disc and Information Technology products as given hereunder:- 27.Uninterrupted power supply. The product being sold by the appellant i.e. Microtec UPS-EB 600, Microtec UPS-EB 850 and Microtec UPS-EB 1400 were sent for testing to the Indian Institute of Technology (IIT), Delhi. As per the certificate issued by the Department of Electrical Engineering, Indian Institute of Technology (IIT), Delhi, the aforementioned products were UPS. Similar was the report given by the Punjab Engineering College, Chandigarh. A perusal of the certificate issued by these institutes makes it abundantly clear that during testing, the devices fulfilled all the conditions of uninterrupted power supply. There was no rebooting under different conditions when the device was put to use on UPS mode. This device could be used both as inverters as well as in computers. Thus, in our considered view would fall within sub- entry 27 of entry 60 of Schedule`B' attached to the VAT Act and would not fall under the residuary entry and thus, would be taxable at the rate of 4% and not at the rate of 12.5%. Apart from the above, the appellant sells the goods in VAT Appeal No.68 of 2009 [ 13 ] the market through retailers and is not in a position to determine as to what use the goods would be put into as the usage of the goods would be entirely at the discretion of the purchaser. In State of Tamilnadu v. Vinyl Cable Industries, 1988 STC 430 it has been held as under:- “that it is well-settled that a particular use to which an article is put alone is not conclusive to determine the real nature or character of the article for tax purposes. The Revenue authorities identified the PVC cables as electrical goods for all purposes. They were, therefore, not correct in dividing the PVC cables for tax purposes into electrical goods and parts and accessories of motor vehicles, merely on the basis that some of the cables were sold to dealers in automobile parts.” Further more in Hindustan Poles Corporation (supra) the Supreme Court has held that a residuary entry is meant only for those categories of goods which fall outside the ambit of specified entries. In the present case, sub-entry 27 of Entry 60 specifically lays down that UPS would be taxed at the rate of 4%. As noticed above, the product being sold by the appellant is UPS. This has also been certified to be so by the Engineering Department of IIT, Delhi, and by the Punjab Engineering College. Thus, the product being sold by the appellant cannot fall in the residuary category but would be covered by sub-entry 27. In Bharat Forge & Press Industries (supra) the VAT Appeal No.68 of 2009 [ 14 ] Apex Court has held that merely because goods after processing become different commercial commodity or have a distinctive name does not change excise classification if they continued to be goods of same species. In view of the above, we hold that the goods in question sold by the appellant fulfill all the conditions of an UPS and hence they are taxable at the rate of 4%. In view of the aforementioned discussion, the answer to question (i) is that the product i.e. UPS-EB sold by the assessee falls under Sub-Entry 27 of Entry 60 of Schedule-`B' attached to the Punjab VAT Act,2005 and is therefore taxable at the rate of 4%. This issue is accordingly decided in favour of the assessee. As far as question (ii) is concerned, we are of the opinion that the Tribunal fell in error in brushing aside the reports of the Technical Experts of the Engineering Department of IIT and the Punjab Engineering College who categorically opined that the goods in question were UPS. Hence, this question is also answered in favour of the assessee and against the revenue. As far as question (iii) is concerned, the Tribunal erred in putting the product of the assessee i.e. UPS-EB in the residual entry despite the fact that there is a proper entry i.e. Sub- Entry 27 of Entry 60 of Schedule-B attached to the Punjab VAT Act, 2005 which clearly deals with UPS. Hence, this question is also answered in favour of the assessee and against the revenue. In the light of the aforesaid reasons, the appeal is VAT Appeal No.68 of 2009 [ 15 ] accepted. We set aside the order (Annexure A4) passed by the VAT Tribunal, Punjab, and the order (Annexure A2) passed by the Deputy Excise and Taxation Commissioner (Appeals), Faridkot Division is accordingly restored. ( ASHUTOSH MOHUNTA ) JUDGE 15.3.2010 ( MEHINDER SINGH SULLAR ) Rupi JUDGE