Supreme Court Upholds Allahabad HC Decision That Chargers Sold With Cell Phones Cannot Be Taxed Separately Under UP VAT Act 2008

The Supreme Court recently upheld the decision of the Allahabad High Court which observed that the charger sold with a cell phone under the MRP cannot be taxed separately under the UP VAT Act 2008. 

The bench of Justice BV Nagarathna and Justice SC Sharma was hearing a challenge to the order of the Allahabad High Court which held that a mobile charger contained in a composite package with the cell phone cannot be taxed separately under Entry 28 Part B Schedule II U.P. VAT Act 2008. 

The Entry States ( List of IT Products taxed at 5%) : Cell Phones and its parts but excluding Cell Phones with M.R.P. exceeding rupees ten thousands.

The bench upheld the findings of the High Court and rejected the submission of the counsel for the Commercial Tax Commissioner that the Top Court's ratio in State of Punjab Vs. Nokia India Pvt Ltd applies to the present case. 

The Court in its order recorded, "We have considered the arguments advanced at the bar, in light of the judgment of this Court in Nokia India Private Limited's case (supra) and in light of the detailed discussion made by the High Court distinguishing the aforesaid judgment. We do not find any reason to interfere with the impugned order."  

However, it clarified that the present order is not applicable to cases where a charger is sold without a mobile phone, separately. 

"We clarify that this order is not applicable to a case where a charger is sold de hors a mobile phone and separately by itself"

In State of Punjab Vs. Nokia India Pvt Ltd, the Supreme Court held that merely by packaging the mobile phone and its charger together would not make them composite goods. Notably, this observation was made in regard to provisions of Rule 3(b) of the General Rules for Interpretation of the harmonized system

The High Court distinguished the Nokia Case from the present one as in the former the issue raised before the Apex Court was whether the charger is a composite part of the cell phone, where the Court held that the charger was an accessory to the mobile phone.

However, in the instant case, the issue is rather different. The High Court observed that presently the argument raised is that "the sale of the mobile phone along with its charger in a single retail package constitutes a composite contract and requires the application of the dominant intention test was neither urged nor considered by the Supreme Court." 

What Were The Key Findings Of The High Court? 

The bench of Justice Yashwant Varma was considering the following issues : 

“A. Whether the Tribunal ought to have held that the entire composite set having a mobile phone and mobile charger having a single MRP was liable to assessed to a single classification under Entry No. 28 of Schedule-II, Part B of the UP VAT Act?" 

 B. Whether the Tribunal erred in applying the judgment dated 17.12.2014 by the Hon'ble Supreme Court in the case of State of Punjab V. Nokia Private Limited to the Applicant's facts and circumstances and in view of the fact that Entry No.28 of Schedule-II, Part-B of the Act reads differently from the entry considered by the Hon'ble Supreme Court?”

Here the Court under Sales/Traderevision jurisdiction was examining the challenge to an order of the Tribunal dated 12 January 2017 which has affirmed the view taken by the assessing authority that the charger although sold as part of a composite package was not liable to be taxed at the rate of 5% as contemplated under Entry-28 appearing in Part-B of Schedule-II but as an accessory and therefore liable to be treated as an unclassified item and chargeable to tax @ 14%.

The High Court distinguished the Nokia Case from the present one as in the former the issue raised before the Apex Court was that whether the charger is a composite part of the cell phone, where the Court held that charger was an accessory to the mobile phone. 

However, in the instant case, the issue is rather different. The Court observed that presently the argument raised is that "the sale of the mobile phone along with its charger in a single retail package constitutes a composite contract and requires the application of the dominant intention test was neither urged nor considered by the Supreme Court." 

The High Court further clarified that in Nokia, the Supreme Court did not declare as law that the sale of a mobile phone and its charger in a single retail package would not constitute a composite contract. The Court refused to take Nokia as applicable case law in the present case. 

It further observed that Entry No. 28 of Schedule II, Part B expressly clarifies that the MRP written on the cell phone box containing the charger also becomes the sole basis on which tax is levied. The Charger cannot 'disjunctively' be read to mean as a separately taxable item. It held : 

"It is with reference to this singular MRP only that a tax can be imposed. The State respondents do not dispute that the single retail package does not carry or bear a separate MRP for the charger included therein. It is also not their case that the charger is invoiced separately even though it may form part of the composite package. A holistic reading of Entry 28 clearly establishes an inseparable link between the cell phone and its MRP. It is this which forms the basis and measure for taxability. In view thereof, the Court holds that the disjunctive reading to the Entry which is sought to be urged on behalf of the State respondents does not commend acceptance and would not enable the charger contained in a composite package to be held to be exigible to tax separately." 

Case Details: COMMISSIONER, COMMERCIAL TAX, U. P. LUCKNOW vs. M/S SAMSUNG (INDIA) ELECTRONICS PVT. LTD.| Diary No. - 20066/2021 

Click here to read the order