NETFINITY SOLUTIONS (P) LTD. Vs. STATE OF ANDHRA PRADESH

JUDGEMENT

(1.) THE appellant is a trader in accessories of Computers like racks, trays, stands etc., which facilitate the functioning of the Computer and he is on the rolls of Commercial Tax Officer, Khairatabad Circle. The assessing authority completed the assessment for the year 2003 -04 (APGST) of the appellant on the gross turnover of Rs. 92,55,579/ - in an order dated 30.5.2006 and levied tax @ 12% on the goods as they fall under VII Schedule to the APGST Act, 1957. He preferred appeal against the said order before the Appellate Deputy Commissioner (CT), Punjagutta Division, Hyderabad, and contended that they are liable to tax @ 4% as per Entry 38 of the I Schedule to the Act and the appellate authority allowed the appeal in an order dated 28.2.2007. But, the revisional authority i.e., the Additional Commissioner (CT)(Legal), Hyderabad, issued notice on 30.1.2010 stating that they are not computer accessories and they are used to house the computers, peripherals etc., therefore the appellate authority erred in classifying the racks, trays etc., as parts and accessories of computers. The appellant submitted his objections and stated that the goods were specifically designed and manufactured in which only a complex of networking switches, telecommunications and patch panels including servers can be integrated/bring into existence. This integration is not like a cover made either with plastic sheet or a cloth which encases a suitcases and alike, so as to easily misunderstood as not parts/accessories of computer system by a common man. The trays and racks sold by the appellant carry the inbuilt mechanism for insertion of the cables, wires, power/thermal management devices and they enclosed photographs of the goods sold by the appellant for easy understanding of the nature of the goods. He further stated that the racks were made as per international standards IEC 297 (International Economics Commission) and DIN 41494 (Deanedshe Industry norms) and they are tailor made and suited only for various computer systems and requested the revisional authority to drop the proposed revision but he has not appreciated the facts properly and passed an order on 30.4.2010 by confirming the proposed revision. Aggrieved by the orders of the revisional authority, he approached the Tribunal. Heard both sides and also perused the record including the enclosures submitted by the appellant's counsel. The Commercial Tax Officer, Khairatabad Circle, in his order dated 30.5.2006 observed that the usage may be for accommodating the computer net working devices purpose, but the very goods i.e., racks are manufactured separately and they are not part and parcel of the computers and thus they will not fall under the category of component parts, sub -assembly parts or intermediate parts and they were not specified in any of the Schedules from I to VI of the APGST Act, 1957 and hence they fall under VII Schedule to the Act liable to tax @ 12%. The appellate authority extracted the purport of Entry 38 of the I Schedule and observed when consumables of the computers and printers like ribbons, printer cartridges, etc., and also computer cleaning kits fall under Entry 38A of the I Schedule, the goods dealt in by the appellant i.e., 1) Wall Mount Rocks, 2) Floor Standing racks, 3) All Steel Frame Floor standing Racks, 4) Equipment Trays, 5) Stationery Trays, 6) Sliding Trays, 7) Blank Panels, 8) CPU Stands & 9) Fans & Fan Trays, which have no usage except for housing of the computer peripherals and net -working devices also fall within the ambit of entry 38A of the I Schedule and set aside the order of the assessing authority. But, the revisional authority discussed the definitions of parts and accessories and observed that 'part' is something which is essential for the functioning of any product and without the part the product will not function and 'accessory' is something which adds to the functioning of the product like pen drive, CD drive etc., and held that the racks and trays are not essential to the functioning of the computers to call them as parts of computers and they will not add any additional functionality to the computers and thus they are not accessories and they will not fall under Entry 38A of the I Schedule.

(2.) THE appellant argued that the racks, trays and stands sold by them are accessories to the computers and they facilitate easy function of the computers/net working systems. In fact, specifically designed and manufactured to bring out complex of networking. The racks and trays sold carry the inbuilt mechanism for insertion of cables, wires, power/thermal management devices. They are integrally connected with the networking switches, patch panels, telecommunication and servers and in order to integrate their net works has to necessarily acquire the racks and trays. Therefore, they should be treated as parts and accessories of the computer peripherals and liable to tax @ 4% under Entry 38A of the I Schedule.

(3.) NOW , it is for the Tribunal to see whether it falls under parts or accessories. The revisional authority rightly held that part is essential for functioning of any product and the racks and trays are not essential to the functioning of the computers as such they are not parts of the computers. As far as the reasoning stated by the revisional authority that they are not accessories on the ground that they will not add any additional functionality to the computers cannot be accepted. The counsel for the appellant argued that in normal parlance the cover of the cell phone is called as an accessory to the cell phone but it will not add any additional functionality to the cell phone. So also so the car accessories will not in any way add additional functionality to the car. It is well settled law that classification of commodities has to be determined how the customer in the usual course call it in the commercial parlance or use it. The commodity we dealt with is an enclosure to computer networking devices and it is tailor -made item 'accessory' reads as "a thing which can be added to something else in order to make it more useful, versatile, or attractive." The product like racks and trays sold by the appellant are tailor made to suit the various computer systems and they were designed on international standards and apart from that they were also provided with inbuilt mechanism for insertion of the cables, wires, power/thermal management devices and admittedly these racks cannot be used for any other purpose except for insertion of the computers and other related devices. The products of the appellant are designed to facilitate effective space, power cable and thermal management within the rack. The components and elegantly designed and power coated for durability. With case of installation these enclosures assure high strength to withstand loads of various capacities while providing excellent aesthetics. All the products are exclusively designed for the better usage of the computer components adding of these HCL Peripherals makes them more useful, versatile or attractive and thus they clearly fall under definition of accessories and thus they fall within the ambit of Entry 38A of the I Schedule and liable to levy tax @ 4%, when there is a specific entry it overrides general entry as there is a specific entry in 38A of I Schedule and the analogy of the assessing authority i.e., that it falls under VII Schedule to the Act cannot be accepted. In the result, the appeal is allowed by setting aside the impugned order of the revisional authority and confirmed the order of the appellate authority.