Read:- 1. Application dated 10th June,2005 under
Section 56 of the Maharashtra Value Added Tax Act,2002 by
M/s. Thakral Computers Pvt. Limited., holder of Registration
Certificate No.400018/S/1283 and No. 400018/S/982 under
Bombay Sales Tax Act,1959 and Central Sales Tax Act,1956
respectively.
2. Letters dated 12th August, 2005 and 31st
October, 2005 from the applicant.
3. This office letter dated 14-10-2005 calling the
applicant for hearing on 18-10-2005.
Heard :- Shri. P. V. Sodha, Chartered Accountant.
PROCEEDINGS
(Under section 56 of the Maharashtra Value Added Tax Act,
2002)
No.DDQ-11-2005/Adm-5/25/B-01 Mumbai,dt.
12th Jan. 2006
An application is received from M/s. Thakral
Computers Pvt Limited., having its office situated at 8,
Sumer Kendra, P. B. Marg, Worli, Mumbai-400 018, and holding
Registration Certificate No.400018/S/1283 and No.
400018/C/982 under Maharashtra Value Added Tax Act, 2002 and
Central Sales Tax Act,1956 respectively for determination of
the tax rate applicable to their product “ IPOD 4 GB
Mini Green –FAF (M9434FE/A)” sold by Invoice No. PLAS/2005-06/015
dated 7th May, 2005. The applicant has described
his product coterminous as hard disk in which data can be
stored. The product is mainly used as an audio player. The
latest version of the product also plays videos. The
applicant has collected tax @ 4% on the sale of the said
product being under impression that the product falls under
Schedule Entry C-56 of the Maharashtra Value Added Tax Act,
2002 pertaining to Information Technology products but he,
is yet, doubtful about his opinion and hence seeking
clarification about same by this application.
BACKGROUND OF THE CASE
:
02.
The applicant has recently started trading activity in PC
based product (MAC + PC) more specifically - Apple I-Pod.
The product is mainly used as an audio player. Some
versions are also capable to play videos. The data can be
stored only from the computer. The device has a very huge
memory and can store up to 20,000 songs. The applicant is
of the view that the product being fully dependent on
computer it would fall under Schedule Entry C-56 of the
Maharashtra Value Added Tax Act, 2002, attracting 4% tax.
DETAILS SUBMITTED ALONGWITH THE APPLICATION :
03.
The applicant has submitted the following details in support
of the claim of the product being covered by Schedule Entry
C-56 of the Maharashtra Value Added Tax Act, 2002 attracting
tax @ 4%.
[1] Copy of purchase invoice. [Purchase is from M/s. Apple
Computer International Private Limited, Bangalore @ 4% tax
under Central Sales Tax Act, 1956].
[2] Copy of sale invoice.
[3] Copy of product Information Guide containing features
and technical Specification.
[4] Copy of proof of payment of application fees.
CONTENTION OF THE APPLICANT :
04.
The applicant highlights the following features of the
product on the basis of which the product according to him
falls under Schedule Entry C-56 of the Maharashtra Value
Added Tax Act,2002:-
1)
The product is fully dependant on computer and the
data can be stored only through computers.
2)
It is as good as “Hard Disk” in which data can be
stored and accessed and audio songs can also be stored and
played.
3)
It falls under the notification on Information
Technology products for the purpose of Schedule Entry C-56
of the Maharashtra Value Added Tax Act, 2002 and covered by
the Excise heading 84.71.
PRODUCT DESIGN AND SPECIFICATION :
05.
Before going through the application and deciding as to the
rate applicable to the product, let me first have a clear
understanding of the product in terms of its design,
specifications and use.
PRODUCT DETAILS
06.
It is a recent invention. It is one type of a digital audio
player. It was introduced first in 2001 by Apple
Computers. It has a built in hard disk which stores songs
which could be played as per individual’s wish by a scroll
disk or click wheel. Normally Disk stores up to 15000 songs
and 20,000 photos. The recent version of the ipod also
allows viewing the videos and downloading it from computer.
The ipod models are sleek, compact and portable. The new
ipod boasts of up to 20 hours of battery life.
PRODUCT FEATURES
The product helps to -
(a)
Put all music in a pocket, Browse the photo slide
shows with music, Watch video pod casts, music video and TV
shows, Consult calendar or look up by an email address,
Check the time in another city, Access to entire music,
video and photo library, Play video or photo slides on TV
via the optional Dock .
The purchase and sale bill of the applicant
describes the product as highlight “ IPOD 4 GB Mini Green –FAF
(M9434FE/A)” i.e. the applicant has traded in the product
“IPOD Mini”. The product information guide submitted by the
applicant gives features and technical specifications of the
following products :-
ipod shuffle, ipod Mini, ipod, ipod photo, ipod U2, Airport
Express.
The impugned product is described as – ipod
mini – available on Mac and Windows.
The features of the impugned product are the
same as mentioned above.
HEARING :
07.
The case was fixed for hearing on 18-10-2005. Shri. P. V.
Sodha, Chartered Accountant duly authorized to attend on
behalf of the applicant attended the hearing. He argued
that the impugned product gets covered by the Central Excise
Tariff Heading 84.71 which is included in the notification
on Information Technology products for the purpose of
Schedule Entry C-56 of the Maharashtra Value Added Tax Act,
2002, thereby attracting tax @ 4%
The product is claimed to be an “Information
Technology Product” by the applicant’s representative. The
applicant was asked to submit a copy of the exact
description of the excise classification applicable to his
product. The applicant is a trader and not a manufacturer.
In a supplementary letter dated 12-08-2005 to
their application of dt. 10-06-2005, the applicant claims
that the product is covered by the Excise Tariff Heading
84.71 and also that it is as good as hard disk in which data
can be stored and accessed and audio songs also can be
stored and played.
In a communication to this office dated
31-10-2005 i.e. after hearing, the applicant has sought to
drive my attention to the new notification on Information
Technology products dated 17-10-2005. He claims that he
gets covered by this notification under Central Excise
Tariff Heading No. 8471.50 and accordingly would be taxed @
4% under the Maharashtra Value Added Tax Act, 2002.
The applicant is making a two fold argument.
Since the device has a hard disk and is capable of storing
data, it is to be called a storage device. Alternatively,
it is prayed that the product may be classified as a data
processing unit.
The applicant has not provided the exact
classification, “description” applicable to his product
neither in the application nor during hearing. Even after
hearing, the applicant was requested by letter dt. 7th
Dec.2005 to furnish evidence as to under which heading the
impugned product “i-Pod” has been cleared by the Excise
Department. The applicant was also provided with the
alternative that if it was not possible to furnish a copy of
bill of entry, a certificate from the importer mentioning
the excise or customs code of the said product, may be
furnished. The applicant expressed his inability either to
produce the copy of Excise invoice or a certificate from an
importer.
OBSERVATIONS :
08.
I have carefully gone through the submissions and product
description provided by the applicant in support of his
claim of the impugned product being covered by the
notification on Information Technology products.
From the details as regards the product
submitted by the applicant, I proceed to form an opinion
about the product as thus :-
I have referred to various sources to get an
idea about the product such as the news paper reports, the
information available on internet, etc., product
information guide giving features and technical
specifications of the products as submitted by the
applicant.
The applicant has sold the product “iPOD Mini”
by his invoice dated 7-5-2005. The product description
guide as submitted by the applicant on “ipod mini” describes
the product as “lets you bring along music for a three
day weekend getaway in a package so small you’ll forget
you‘re carrying it until people ask you about it”.
This introduction itself brings the product
under the ambit of an “audio player”, digital to be precise.
All the information about the product describes the product
to be used as to listen to a certain number of songs which
otherwise cannot be possible on a normal audio player. Its
features are that of an extended version of an audio
player. The product can also be used to listen to songs
even when one is moving as it can be attached to the arm.
All the description and information available about the
product project it to be an audio video player of an
advanced technology and configuration with only limitation
that the data can be stored from computer only.
The product is very popular among the younger
generation with its utility. It is a one type of “digital
audio player”. Its popularity is based on the fact that a
small, sleek compact box can store up to 15000 songs, 20000
photos which can be carried in pocket.
The applicant in his letter dated 12-08-2005
describes the product as “hard disk since the data can
be stored in it.” Though at the end of the above
description, but the applicant admits the use of the product
as regards storing and playing songs.
Going by the popularity of the product, its
use, common parlance, product description, data about the
product available from the newspaper cuttings as well as
from the internet, I treat the impugned product as higher
version (by virtue of technology used therein) of a digital
audio video player.
09.
Having formed a opinion of the product, I proceed to
ascertain its coverage by the notification on Information
Technology products issued for the purpose of Schedule Entry
C-56 of the Maharashtra Value Added Tax Act, 2002.
The Schedule Entry C-56 of the Maharashtra Value Added Tax
Act, 2002 is for Information Technology [IT] products as may
be notified by the State Government. The items in the
notification are the items covered by the headings or
sub-headings of tariff of the Central Excise Tariff Act,
1985. The notification need not be a replica of the Central
Excise Tariff Classification. It covers only those products
as notified by the Government.
The applicant in his submission dated 12-08-2005 claims the
product to be covered by Tariff Heading 84.71 and in his
letter dt. 31-10-2005 claims the Excise Heading to be
8471.50.
Now let us take a look at the Excise Tariff Heading 84.71
and 8471.50 as appearing in the Central Excise Act and in
the notification on IT products for the purpose of Schedule
Entry C-56 of the Maharashtra Value Added Tax Act, 2002.
EXCISE TARIFF HEADING: 84.71
|
Excise Tariff Heading |
As per Central Excise Act :
|
As per notification dt. 1.4.2005 :
|
|
84. 71 |
Automatic data processing machines and units thereof;
magnetic or optical readers, machines for transcribing
data on to data media in coded form and machines for
processing such data, not elsewhere specified or
included. |
Automatic data processing machines and units thereof,
magnetic or optical readers, machines for transcribing
data onto data media in coded form and machines for
processing such data.
Analogue or hybrid automatic data processing machine,
Electronic Diaries , Portable digital automatic data
processing machine, personal computer, computer systems
including personal computers, other Digital automatic
data processing machines comprising in the same housing
at least a central processing unit and an input and
output unit whether or not combined, micro
computer/processor, large/ mainframe computer, computer
presented in form of systems, digital processing units,
storage units, input units, output units.
Teletypewriter, Data entry terminal, Line printer, Dot
Matrix printer, Letter quality daisy wheel printer,
Graphic printer, Plotter, Laser Jet printer, Key board,
Monitor, storage units, floppy disc drive.
Winchester/ hard disc drives, Removal/ exchangeable disc
drives, magnetic tape drives, Cartridge tape drive,
other units of automatic data processing machines,
Uninterrupted power supply units (UPS). |
EXCISE TARIFF HEADING:
8471.50
|
Excise Tariff Heading |
As per Central Excise Act :
|
As per notification dt. 17.10.05 :
|
|
8471 50 00 |
Digital processing units other than those of
sub-heading 8471 41 or 8471 49, whether or not
containing in the same housing one or two of the
following types of unit : storage units, input units,
output units. |
Digital processing units other than those of
sub-headings 8471 41 or 8471 49, whether or not
containing in the same housing one or two of the
following types of unit : storage units, input
units, output units. |
Let me discuss both the notifications i.e. dated 1.4.2005
and 17.10.2005 in the light of the applicant’s claim.
(A) NOTIFICATION dt. 01.04.2005 :
10.
The applicant claims that his product is covered by Excise
Heading 84.71 of the notification dated 1-4-2005. Let us
take a look at Excise heading 84.71 as per both the Central
Excise Act, and the notification dated 1-4-2005 under
Maharashtra Value Added Tax Act, 2002 as reproduced above.
The notification is not an exact replica of the
Central Excise Tariff heading 84.71. The words “not
elsewhere specified or included” as appearing the
Central Excise Tariff Heading are not found in the
notification.
Also not all items from the sub-heading 8471.10
to 8471.90 00 of the main heading 84.71 are covered in the
notification as can be seen from the sub-headings reproduced
below. Only the items highlighted are the ones covered
in the notification dated
1-4-2005
SUB HEADINGS FROM 8471.10 TO 8471.90 UNDER CENTRAL EXCISE :
|
8471 10
00 |
Analogue or hybrid automatic data processing machines. |
|
8471 30 |
Portable digital automatic data processing machines,
weighing not more than 10 kg, consisting of at least a
central processing unit, a keyboard and a display : |
|
8471 30
10 |
Personal computer |
|
8471 30
90 |
- Other
-
Other digital automatic data processing machines : |
|
8471 41 |
Comprising in the same housing at least a central
processing unit and an input and output unit, whether or
not combined : |
|
8471 41
10 |
Micro computer |
|
8471 41
20 |
Large or main frame computer. |
|
8471 41
90 |
Other |
|
8471 49
00 |
Other, presented in the form of systems. |
|
8471 50
00 |
Digital processing units other than those of
sub-heading 8471 41 or 8471 49, whether or not
containing in the same housing one or two of the
following types of unit : storage units, input units,
output units. |
|
8471 60 |
Input
or output units, whether or not containing storage units
in the same housing : |
|
8471 60
10 |
-
Combined input or output units.
-
Printer : |
|
8471 60
21 |
Line
Printer |
|
8471 60
22 |
Dot
matrix printer |
|
8471 60
23 |
Letter quality daisy wheel printer |
|
8471 60
24 |
Graphic printer |
|
8471 60
25 |
Plotter |
|
8471 60
26 |
Laser jet printer |
|
8471 60
27 |
Ink jet
printer. |
|
8471 60
29 |
Other |
|
8471 60
30 |
Monitor |
|
8471 60
40 |
Keyboard |
|
8471 60
50 |
Scanners |
|
8471 60
60 |
Mouse |
|
8471 60
90 |
Other
|
|
8471 70 |
Storage units. |
|
8471 70
10 |
Floppy disc drives |
|
8471 70
20 |
Hard
disc drives |
|
8471 70
30 |
Removable or exchangeable disc drives |
|
8471 70
40 |
Magnetic tape drives |
|
8471 70
50 |
Cartridge tape drive. |
|
8471 70
60 |
CD ROM
drive. |
|
8471 70
70 |
Digital
video disc drive |
|
8471 70
90 |
Other |
|
8471 80
00 |
Other units of automatic data processing machines |
|
8471 90
00 |
Other |
Hence as per notification dated 1-4-2005 wherein all the
items of Excise Heading 84.71 were not covered, the
applicant’s claim that his product is covered vide Excise
classification 84.71 is not acceptable. Also the applicant
has failed to submit the proof of excise description
applicable to his product.
(B) NOTIFICATION DATED 17-10-2005 :
11.
Now the applicant claims that his product is covered by the
notification dated 17-10-2005 under Excise classification
No. 8471.50.
The heading description as per central excise as well as the
notification does not differ. What this means is that if
the Excise Tariff heading 8471.50 applies to the applicant’s
product then his product falls under the notification
thereby getting covered by Schedule Entry C-56 of the
Maharashtra Value Added Tax Act, 2002 attracting tax @ 4%.
The above finding now leads to the discussion as to whether
the description of excise classification 8471.50 is
applicable to the applicant’s product or not. I, therefore,
proceed to decide the same.
The wording could be reproduced thus :
|
8471.50 |
Digital processing units
other than those of sub-heading 8471 41 or 8471 49,
whether or not containing in the same housing one or two
of the following types of unit : storage units, input
units, output units. |
Heading 84.71 pertains to
automatic data processing machines and units thereof;
magnetic or optical readers, machines for transcribing data
on to data media in coded form and machines for processing
such data, not elsewhere specified or included.
The explanatory note to Chapter 84.71 of HSN speaks as
follows - Appliances such as measuring or checking
instruments adapted by the addition of devices (signal
converters, for example), which enable them to be connected
directly to a data processing machine, are, in particular
not to be regarded as of a kind solely or principally used
in automatic data processing systems. Such appliances fall
to be classified in their own appropriate heading. This
means that
Ø
a machine which is used for more than one purpose is, for
the purposes of classification, to be treated as if its
principal purpose were its sole purpose.
12.
Now let me decide whether the product can be classified as a
data processing unit. The head note 5(A)(a) to the Chapter
84 of Central Excise Tariff defines digital data processing
machines as a machine capable of fulfilling simultaneously
the following conditions:-
1)
Storing the processing program or programs and at
least the data immediately necessary for the execution of
the program ;
2) Being freely programmed in accordance with the
requirements of the user ;
3) Performing arithmetical computations specified by the
user ;
4) Executing, without human intervention, a processing
program which requires them to modify their execution, by
logical decision during the processing run.
Thus machines which operate only on fixed
programs, that is programs which cannot be modified by the
user, are excluded even though the user may be able to
choose between a number of such fixed programs.
Digital data processing machines usually
consist of a number of separately housed interconnected
units. They then form a “system”. A complete digital data
processing system must comprise, at least :
1)
A central processing unit capable of performing
arithmetical algorithms.
2)
An input device, and
3)
An output device.
In the context of the above discussion on
automatic data processing machines, we could take a look at
the decisions given under CET Act, which supports my above
view point.
[1]
Master Minds v/s. Commissioner of Central
Excise,
Nagpur [dt. 7-6-2001, 2001 (131) E.L.T 621 (Tri. – Del.)]
:
Time recording terminal (TRT) working as a time recorder for
recording the attendance of personnel in offices/industries
was held classifiable under heading 84.73 of Central Excise
Tariff Act, 1985 Since classification of similar item is
ruled out under heading 84.71 ibid in earlier case in 2000
(119) E.L.T. 375 (Tribunal). The TRT can note late comings
and early going and absentee of an employees. It reads
the unique code punched on a plastic card issued to each of
the employees, when inserted into it and also records the
time at which the card is inserted. These two informations
are clubbed and can be communicated to a computer for
further processing. The TRT also has a capacity to store
this data for a period of about 24 hours. The machine thus
processes data in coded form appearing on each different
plastic card specially designed for working with TRT. The
mode of installation of the TRT to a computer works through
cables and TRT could not be used for programming and thus
did not perform any independent functions without attaching
to a computer. The Tribunal held that the classification of
TRT would be under the heading 84.73 and not 84.71 which is
for the automatic data processing machines.
[2] H.C.L Limited V/s. Commissioner of
Customs,New
Delhi [dated 14-09-1998 - 108 ELT 765] :
The question involved in the present appeal is whether a
machine described as “Canofile 510”, a desktop electronic
filing system falls under Tariff Heading 84.71 or under
Tariff Heading 84.72.
It is
observed by the Tribunal that heading No. 84.71 includes
only, such digital machines which fulfill the conditions as
mentioned in Note 5A(a) of Chapter 84. It is noted that
“CANOFILE” is not freely programmable. It is having a fixed
programme designed by the manufacturer keeping in view the
ultimate use. Further it is not able to make arithmetical
computations. Digital machines of heading 84.71 pertains to
data processing machines do not include machines which
operate only on fixed programs. The Tribunal therefore held
that “Canofile” merits classification under heading 8472.90
as “other office machines” because canofile has a base for
fixing or for placing on table, is used for keeping and
retrieving files to save space in offices. It was further
observed that the catalogues produced by the appellants
showed that the “Canofile 510” is only a machine for
management of documents that saves time, space and money.
It does not satisfy the definition of automatic data
processing machine given in the Chapter Note 5A(a) to
Chapter 84. This tariff entry is aligned with HSN and,
therefore, HSN Explanatory Notes will be of high persuasive
value which has excluded fixed programme machines from the
scope of Tariff Entry 84.71.
[3] Indchem Electronics Ltd. V/s.
Commissioner of Central Excise, Chennai (dated 10-7-1997 –
1997 (95) ELT 580 Tribunal )
:
The question involved
was of classification of Add-on-Cards and Mother Board
whether data processing machines falling under Excise
heading 84.71.
It was held that
the goods are not capable of performing any automatic data
processing function on their own, but need to be linked up
with certain other components to perform such functions. As
such, they are not automatic data processing machines of
Excise heading 84.71. Instead they were classified under
Excise heading 84.73.
The applicant mentions in his application that
his product fully depends on and runs through computer.
Here, I would like to mention that the item ‘modem’ so
integral to a computer which modulates in transmittable form
over a telephone network, information obtained from an
automatic data processing machine and reconverts it into
digital form is also excluded from sub-heading 84.71.
Thus, as discussed above, the applicants
product cannot be termed as a data processing unit, so as to
be covered by the notification to schedule entry C-56 of
Maharashtra Value Added Tax Act, 2002.
The applicant’s alternate argument that since
it has a hard disk and is capable of storing the data, the
product is to be called a “storage device” which is also
covered by Central Excise Sub-heading 84.71.
Let us analyze the first claim of the applicant
as regards the product being a “hard disk” and hence to be
called a “storage device”. The dictionary meaning of “storage”
is “a storing or being stored, space for storing, the
charge for storing.” Also the word “device”
means “something designated or adapted for a special
purpose”. Hence storage device means a device
designed or adapted to store or having space for storing.
Now let us look at the product and its characteristics. Can
we say that the product is solely used as a storage device
as a Floppy disk or CD? Is the product used only as a
means of storing data? The answer to this question must be
given in negative. The Explanatory Note-7, to Chapter-84 of
the Central Excise Tariff states that “if
a machine is used for more than one purpose then for the
purpose of classification, it is to be treated as if its
principal purpose were its sole purpose”.
The word “ipod”,in common parlance, being used
more popularly as a digital audio player. The applicant’s
effort to treat the product as a “storage device” only
because it has a storage unit and capable of storing the
data. I am of the opinion that it is not a storage device.
We could also take a look at the reports
published in the news papers regarding i-pods. All of them
convey the same message of i-pod being a digital music
player. A statement from an article in the Times of India dt.
20.12.2005 on ‘i-Pod’ reads thus, “Users of i-pods and other
personal digital music players have been warned that they
risk permanent damage to their hearing”. Here an i-pod is
treated as another personal digital music player. In the
Times of India, dt. 9-12-2005 the term ‘podcast’ has been
declared word of the year by the new Oxford American
Dictionary. The term is defined as “digital recording of a
radio broadcast or similar programme, made available on the
internet for downloading to a personal audio player. The
word is derived from the combination of “broadcasting” and i-pod.
Besides the product being a fairly new
introduction, one finds no mention of the same in the
Harmonized Commodity Description and Coding System. Now the
product not being specifically mentioned in either the
notification on Information Technology products or in the
Central Excise Tariff Headings, it goes without saying that
the impugned product is not eligible to be covered by the
notification on IT products for the purpose of Schedule
Entry C-56 of the Maharashtra Value Added Tax Act, 2002.
The notification seeks to bestow concessional rate of tax on
products meant for IT industry and hence the words and
description in the Schedule Entry as well as the
notification needs to be construed strictly.
CONCLUSION
:
13.
In view of the deliberations mentioned hereinabove, I am of
the opinion that the product does not fall in the excise
heading 8471.50 and therefore not covered by the scope of
schedule entry C-56 of the Maharashtra Value Added Tax
Act,2002 to be termed either as an automatic data processing
machine or a storage device. It would be covered by
schedule entry E-1 of the Maharashtra Value Added Tax Act,
2002 attracting tax @ 12.5%.
ORDER
(Under
Section56(1)(e) of the Maharashtra Value Added Tax Act,2002)
No.DDQ-11-2005/Adm-5/25/B-01 Mumbai,dt.
12th Jan. 2006
The applicant’s question as regards the product
“IPOD 40 GB Mini Green –FAF (M9434 FE/A)” being
covered by Excise Tariff Heading No. 8471.50 under
notification on Information Technology products for the
purpose of Schedule Entry C-56 of the Maharashtra Value
Added Tax Act,2002, thereby attracting tax @ 4%, is hereby
answered in the negative. The product would attract tax @
12.5% as per schedule entry E-1 of the Maharashtra Value
Added Tax Act, 2002.
( B. C. KHATUA )
Commissioner of Sales Tax,
Maharashtra State, Mumbai.
