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Synopsis

The Karnataka High Court recently held that the charger which is sold along with the mobile phone in one set is a composite part of the package, and tax cannot be levied differently on each of the components of the package.

The bench of Justice P.S. Dinesh Kumar and Justice T.G. Shivashankare Gowda, therefore, held that the charger, which is sold along with the mobile phone in one set, is taxable at the rate of 5%.

The division bench was adjudicating upon the issue of the rate of tax applicable on the charger which is sold along with mobile phones.

The substantial question of law which was before the bench to answer was:

"Whether on the facts and in the circumstances of the petitioner's case, the Appellate Tribunal was right in law in holding that "mobile phone chargers" sold along with mobile phone in a composite pack attracts tax at the same rate as applicable to "mobile phone" only and it cannot be taxed at a higher rate as unscheduled goods under Section 4(1) (b) (iii) of the Karnataka Value Added Tax Act, 2003 (KVAT Act)?"

The bench observed that the decision in State of Punjab & Others Vs. Nokia India Pvt. Ltd (Nokia India Case) delivered by the Supreme Court was not applicable to the present case.

The division bench highlighted that the decision in Nokia India Case was based on Entries of the Punjab VAT Act wherein the prime issue for consideration was whether the mobile charger is an accessory or not, however, in the case at hand, the issue involved was, when the mobile phone is sold along with the charger what must be the rate of tax.

Referring to a judgment of the Allahabad High Court where the court had distinguished the Nokia India Case, the division bench held that in Entry No. 60(6)(g) of the Punjab VAT Act, the expression used is ‘cellular telephone’ whereas, in the Notification issued under KVAT Act, the words used were ‘and parts thereof’.

The bench underscored that the battery charger which falls under Entry 8504 40 30 under the Central Excise Tariff Act, 1985, and the Customs Tariff Act, 1975 has not been excluded in the notification. 

Therefore, the bench held that the charger is a composite part of the package.

In light of the same, the bench held that the intention of the Revenue was unambiguous that the Notification was applicable for telephone sets and parts thereof which includes chargers.

"Therefore, in our considered view, the Entries in Punjab VAT Act and the KVAT Act are different and the Entry under the Punjab VAT Act is limited only to cellular telephones in contradistinction to the Notification under KVAT Act," the bench observed. 

Court was essentially dealing with a batch of revision petitions filed by the Revenue department.

Dealers registered under KVAT, 2003 and engaged in trading mobile phones, parts and accessories had filed appeals against the order of the Assessing Officer who had passed an order under Section 39(1) of the KVAT Act subjecting to tax, the sales turnover of the mobile charger at the rate of 13.5% to 14.5% for A.Y.4 2010-11 to 2013-14.

The appeals were dismissed by the Joint Commissioner of Commercial Taxes (Appeals). But on further appeal, Karnataka Appellate Tribunal allowed the assessees’ (Dealers) appeal. Feeling aggrieved, the Revenue preferred the present revision petitions before the high court. 

Case Title: Batch of petitions

Statute: Karnataka Value Added Tax Act, 2003