MOBILE CHARGER - AN ACCESSORY TO MOBILE PHONE

[Mr. M. GOVINDARAJAN]

The usage of mobile phone is at the highest in India.   Mobile charger is highly required for the operation of the mobile phone.   The mobile phone manufacturers sell the charger along with the mobile phone.  The issue to be discussed in this article is whether the mobile charge while selling the mobile phone would attract VAT with reference to decided case law in ‘State of Punjab V. Nokia India Private Limited’ - 2014 (12) TMI 836 - SUPREME COURT.  The facts of the case run as follows:

M/s Nokia India Private Limited is a dealer registered under the Punjab Value Added Tax Act, 2005 (‘Act’ for short) in the District Mohali.   It is selling mobile phones and their accessories.   The assessee had sold 1072679 pieces of mobile phones for the year 2005 - 06 and 1807725 pieces of mobile phones for the year 2006 - 07 along with mobile charges.   The assessee paid VAT @ 4% on the mobile phone including the mobile charger as a composite one.

The Revenue initiated scrutiny proceedings under Section 26 of the Act read with Rules 36 and 43 of the Punjab Valued Added Tax Rules, 2005 by issuing notices to the assessee for both the years.  The Revenue found that the assessee quoted the price for the mobile charger as ₹ 120/-.  The Revenue came to the conclusion that the mobile charger was an accessory and therefore chargeable to tax @ 12.5%.   Since the assessee paid the tax @ 4% the Revenue calculated the difference tax @ 8.5% to the mobile phones sold and arrived at a sum of ₹ 10941325/- for the year 2005 - 06 and ₹ 18438795.   The Revenue also levied interest under Section 32(1) of the Act for ₹ 21,25,491/- for the year 2005 - 06 and ₹ 25,24,175/- for the year 2006 - 07.    The Revenue also proposed to levy penalty @ 2% per month which amount to ₹ 85,01,964/- for the year 2005 - 06 and 1,00,96,750/- for the year 2006 - 07.

The assessee filed reply to the Adjudicating authority contending that the product was sold as  mobile phone under a single solo pack unit and was covered under Entry No. 60 of Schedule B of the Act and that no separate amount for mobile charger was being claimed from the customers. Only amount charged is for handsets.   The assessee further submitted that they deposited the tax @ 12.5% subsequently for the mobile charger.

The Assessing Authority held that the mobile charger being a separate item and was liable to be taxed at general rate @ 12.5% and not at concessional rate applicable to the mobile phones.   The Assessing Authority further held that the assessee was selling more than one product which were eligible in different rate of tax in a single pack and themselves admitted the battery charger as a separate commodity was liable to payment of tax @ 12.5% applicable to the goods in residuary schedule ‘F’ to the Act.   The Entry of 60 of Schedule B includes only the mobile phone and not accessories thereof.

The assessee filed appeal before the Deputy Excise &Taxation Commissioner (Appeals) who dismissed the appeal.   The assessee then filed appeal before the Tribunal, Chandigarh against the order of first appellate authority.   The Tribunal dismissed the appeal filed by the assessee.  The Tribunal observed that the mobile charger is not a part of the mobile phone.   The Tribunal noticed that as per the information available in the web site of Nokia, the company has invariably put the mobile charger in the category of an accessory which means that in the common parlance also, the mobile charger is understood as an accessory. The Tribunal set aside the penalty imposed by the Assessing Authority.

Not satisfied with the findings of the Tribunal the assessee filed appeal before the High Court.   The High Court allowed the appeal filed by the assessee holding that the mobile charger is a part of the composite package of the mobile phone.  Therefore the Revenue filed the present appeal before the Supreme Court.

Before the Supreme Court the assessee demonstrated the composite package of the mobile phone, mobile charger and some other accessories like head phone.  The assessee contended that the mobile charger is not independently sold and sold only with the mobile phone in same packing and hence charge at the rate of 4% and the same has been paid.   As such the assessee was not liable to pay tax @ 12.5% on the mobile charger in the composite package.

The Revenue contended that the mobile charger is not a part of the mobile phone but merely an accessory thereof and the same was not covered under Entry 60 of Schedule B of the Act and was liable to be taxed @ 12.5% on its value under Schedule F of the Act which covers all residuary items not falling in any of the classification of other Schedules of the Act.

The Supreme Court observed that the Cellular phone is in Schedule B at Entry No. 60(6)(g) vide HSN Code No. 8525.20.17.   The Tariff No. 8525.20.17 only relates to cellular phone and not the accessories.   The Schedule B does not include that the cellular phone includes the accessories like mobile chargers either in the HSN Code or by elaborating in words.  The Supreme Court held that the Assessing Authority, Appellate Authority and the Tribunal rightly held that the mobile charger is not a part of the mobile phone.   If the charger was a part of mobile phone, the mobile phone could not have been operated without using the mobile charger.   But in reality, it is not required at the time of operation.  Further the battery in the mobile phone can be charged directly from the other means also like lap top without employing the mobile charger, implying that it is nothing but an accessory.

The Supreme Court further observed the findings of the Tribunal that the Nokia make mobile charger is compatible to many models of Nokia mobile phones and also many models of Nokia make mobile chargers which are compatible to a particular model of Nokia mobile phone, imparting various levels of effectiveness and convenience to the users.

The Supreme Court did not accept the contentions of the assessee that it is composite pack as it cannot be held that the mobile charger is an integral part of the mobile phone making it a composite good.   Merely, making a composite package of mobile phone charger will not make it composite goods for the purpose of interpretation of the provisions.   The word ‘accessory’ is defined in the Webster’s Comprehensive Dictionary (International) Volume I as -

• A person or thing that aids subordinately; an adjunct; appurtenance; accompaniment;
• Such items of apparel as complete an outfit, as gloves, a scarf, hat or handbag;
• A person who, even if not present is concerned either before or after, in the perpetration of a felony below the crime of treason.

In view of the above the Supreme Court upheld the findings of the Assessing Authority and confirmed by the Appellate Authority and the Tribunal and set aside the order of the High Court.

From the above decision of the Supreme Court it is clear that the mobile charger is an accessory and liable to VAT @ 12.5% under VAT Act of Punjab and the rules made there under.