2010 (11) TMI 872 - HC - VAT and Sales Tax

Whether battery charger sold in a package along with the cell phone without any extra charges is covered by entry of cell phone to which concessional rate of tax was applicable? Held that - In the present case, the battery charger is sold as composite package along with cell phone. Compared to the value of the cell phone, value of the charger is insignificant. Cell phone cannot be used without the charger. On these undisputed facts, the charger cannot be excluded from the entry for concessional rate of tax which applies to cell phones and parts thereof. Accordingly, we answer the question in favour of the assessee and against the Revenue. The appeal is allowed.

Summary

Issues:
Classification of battery chargers under the Punjab Value Added Tax Act, 2005 and the levy of interest under section 32(1) of the PVAT Act.

Analysis:
The case involved V.A.T. Appeal Nos. 54 and 55 of 2010 concerning the classification of battery chargers under the Punjab Value Added Tax Act, 2005. The appellant, a registered dealer selling cell phones and accessories, contested the tax rate applicable to battery chargers sold along with cell phones. The assessing authority held that the battery charger, being a separate item, should be taxed at the general rate of 12.5%, not the concessional rate for cell phones. This decision was upheld by the appellate authority and the Tribunal. The Tribunal reasoned that chargers, although sold with cell phones, were accessories and not part of the cell phone itself. It was noted that maintaining separate sales records for goods sold at different tax rates was obligatory under Rule 53(c) of the Punjab VAT Rules.

The appellant argued that the battery charger was sold in a composite package with the cell phone, and its cost was insignificant compared to the cell phone's price. They contended that, as part of a composite package, the chargers should not be taxed separately unless sold independently. The appellant relied on the General Rules for Interpretation of the Harmonized System and various legal precedents to support their position. The Revenue, however, maintained that the charger was an accessory, not an integral part of the cell phone, and could be used independently. They cited legal judgments to distinguish between "part of goods" and "accessories" that could be sold and used separately.

The key question for consideration was whether the battery charger sold with the cell phone without extra charges fell under the entry for cell phones subject to a concessional tax rate. The court analyzed the relevant entry, which included cell phones and parts thereof. It was concluded that when a cell phone is sold in a composite package without additional charges for the charger, the charger is considered part of the cell phone. The court distinguished the legal precedents cited by the Revenue, emphasizing that in the present case, the charger was an essential component of the cell phone, and its value was insignificant compared to the cell phone's value. Therefore, the charger could not be excluded from the entry for the concessional tax rate applicable to cell phones and their parts.

In light of the above analysis, the court ruled in favor of the appellant, concluding that the battery charger sold in a composite package with the cell phone should be taxed at the concessional rate applicable to cell phones and their parts. The appeal was allowed, overturning the decision of the Tribunal and the appellate authority regarding the classification and tax rate of the battery chargers.