GUEST COLUMN

 

Advance Ruling by the ARA, Maharashtra u/s 55 of the MVAT Act, 2002 & u/r 63 of MVAT Rules, 2005 in the case of Data Care Corporation

 

R C PILLAI M.Com., FCMA

Head of Tax - Lenovo Group in India

 

The Advance Ruling Authority (ARA) of Maharashtra vide its ruling 2017-VIL-01-ARA in the case of Data Care Corporation, Pune has held that the commodities namely Back Bag, Adapter and Tablet do not find place in the entries of other schedules (A, B, C or D). Hence, they are covered under the residual entry E-1 of MVAT Act, 2002 and are liable to VAT at the rate of 13.5%.

 

In this regard, I would like to provide a different perspective as elucidated below for all the three products covered under the above ruling.

 

 

1. Back Bag

This is the item generally given along with the Lap top without consideration Section 6(1) of the MVAT Act provides that VAT shall be levied on the turnover of sales of goods as per the rate of tax provided in the schedule. Further, section 2(33) of the MVAT Act defines turnover of sales to mean the aggregate of the amounts of sale price received and receivable by a dealer in respect of any sale of goods made during a given period.

 

In other words, VAT under the MVAT Act is levied on the sale price of the goods sold. Courts in the following cases have held that VAT / Sales tax applies when goods are sold for a consideration, i.e., in other words VAT cannot be levied on goods which are sold free of cost:

 

- State of Madras v Gannon Dunkerley & Co (Madras) 1958-VIL-01-SC

- Mapra Laboratories Pvt Ltd v State of Bihar and others 2003-VIL-15-PAT

 

Had the above position been taken during arguments perhaps the conclusion could have been different. Of course, when such bags are sold separately, only the higher VAT Rate of 13.5% shall be applicable.

 

2. Tablet computers

(i) Tablet computers are nothing but Automatic Data Processing Machines and / or Personal computers which are classified under Excise Tariff sub-heading 8471 30 as explained by the CBEC. The description against heading 8471 and sub heading 8471 30 includes Tablet computers.

 

(ii) Tablet computers are classified under Excise Tariff sub-heading 8471 30 by the CBEC vide the Circular No.20/2013-Customs dated 14.5.2013

 

From the above discussion it would become very clear that Tablet computers are squarely covered under Entry 4 of the Schedule to the Notification No. 1505/CR-237/Taxation-1 dated 17.10.2005. The relevant entry reads as follows.

 

 

Having concluded that Tablet computers are automatic data processing machine and/or personal computers. The following would be the conclusion.

(i) The Tablet computers would be covered under main heading 8471 as automatic data processing machines;

(ii) The Tablet computers would be covered under portable digital automatic data processing machines under sub heading 8471 30;

(iii) The Tablet computers would also be covered within the meaning of personal computers under tariff sub heading 8471 30.

 

From the above it can be held that products at issue meet all the requirements stipulated in Note 5 (A) to Chapter 84. Therefore, it is decided that machines commercially referred to as Tablet Computers are more appropriately classifiable in heading 8471, subheading 847130, by application of General Rules for Interpretation (GRI) of Import Tariff, 1 (Note 3 to Section XVI and Note 5 (A) to Chapter 84) and 6. This decision is consistent with WCO HSC decision to classify certain machines commercially referred to as Tablet Computers in heading 8471, sub-heading 847130.

 

It is a settled issue in various case laws that when an item can be perfectly fitted under the specific entry, bringing it under the residual entry does not arise.

 

Had the above position been taken during arguments perhaps the conclusion could have been different

 

3. AC Adapters

(i) An important feature of a laptop AC Adapters is that the AC adapter only converts AC current or one voltage to another voltage. It is a step down voltage conversion from 220 240 volts to 20 volts where both the input and output are AC current only. Please note that the correct classification entry for AC adapter is 8504 3100 under heading transformers. Tariff Heading 8504 covers Electrical Transformers, Static Converters and Inductors. AC adapters are covered within the meaning of Electrical Transformers. This is for the reason that AC adapters only convert AC current on one voltage to AC current of another voltage.

 

(ii) We may also refer to the Explanatory Note to the Harmonized System of Nomenclature where the distinction between the electrical transformers, static converters and inductors has been explained.

 

Electrical transformers have been explained as : Electrical transformers are apparatus which, without having any moving parts, transform, by means of induction and using a preset or adjustable system, an alternating current into another alternating current of different voltage, impedance, etc.

 

(iii) AC adapters are accordingly classified under Tariff Entry No. 8504 3100 and imported under the said entry. Considering the classification and use of the AC adapters, it is proved that that AC adapters are nothing but transformers. Transformers are covered under Entry C-97 of Schedule C liable to tax at the rate of 5% / 5.5%. The said entry from 01-02-2006 onwards reads as follows.

 

Entry 97 - Transformers and components and parts thereof

It may kindly be noted that ARA also has concluded that the AC adapter is nothing but Transformer (refer to last para of the page no.44 of the Ruling). Although, it is not directly falling under notification issued for the purpose of schedule entry C-56, it is definitely falling under Entry C-97 liable to tax at the rate of 5%/5.5%.

 

Apparently this fact/alternative argument has not been brought to the attention of the Honble members of ARA. Had this argument been advanced during the hearing perhaps the decision of the ARA could have been different

 

(Views expressed are strictly personal)