2025 (4) TMI 751 - HC - VAT / Sales Tax

Failure to appreciate the entries made in the Schedules of the HP VAT Act 2005 in respect of goods / articles / commodities/items to be taxed as per the rates prescribed in the Schedules appended to the H.P. VAT Act 2005 - failure to interpret the contents of the judgment in Nokia India Pvt. Ltd. 2014 (12) TMI 836 - SUPREME COURT case by the Hon ble Supreme Court and the orders passed by the Authorities below without adhering to the legal proposition settled down by the Hon ble Supreme Court - wrongful treatment of mobile battery charger - entry No. 60 (f) (vii) of part-II A of schedule-A of the HP VAT Act. 2005 - cell phone charger is an accessory to the cell phone or not. HELD THAT - It is not in dispute that in Nokia India Pvt. Ltd. s case 2014 (12) TMI 836 - SUPREME COURT the Hon ble Supreme Court had rendered judgment in context of Punjab Vat Act wherein entry 60 (6) (g) of Schedule B did not mention accessories for the purpose of taxing the item/product @4% and thus are liable for being charged @ 12.5%. The pivotal issue before the Allahabad High Court in M/s Samsung India s case 2018 (1) TMI 911 - ALLAHABAD HIGH COURT revolved around whether a mobile charger when sold as part of a composite package with a mobile phone could be made subject to separate taxation under the U.P. VAT Act 2008. The Department contended that the charger should be taxed separately based on the judgment of Hon ble Supreme Court in Nokia s case whereas the petitioner argued that the composite package should be treated as a single entity for tax purposes. In the case before the Allahabad High Court Entry No.28 of the U.P. VAT Act was under consideration which provides cell phones and its parts but excluding cellphones with MRP exceeding Rs. 10, 000/- and the VAT charged was @4% therefore the plea of the U.P. State that the charger should be charged at higher rate was held to be misconceived as a charger was part of the cellphone. The petitioner therein a prominent manufacturing company was engaged in the production of consumer electronics IT and telecom products operates multiple offices across India. The petitioner therein had filed a writ petition challenging two notices issued under the U.P. VAT Act on February 2 2016 and March 18 2016. These notices were issued for reassessment of tax liability for the same period and products previously assessed by the tax department. The impugned order resulting from these notices was passed on March 30 2016. Division Bench in aforesaid case had failed to notice number of judgments rendered by learned Single Judge of the same High Court in case titled as M/s Lava International Ltd. versus State of Karnataka and others 2016 (12) TMI 60 - KARNATAKA HIGH COURT upholding the separate rate of tax on the Mobile Battery Chargers (MBC) sold alongwith the mobile phones itself under the provisions of the Karnataka Value Added Tax act 2003. As regards the dominant nature test as heavily stressed upon by learned counsel for the respondent and taken note in the case before Allahabad High Court is conceptually flawed in application. The dominant nature test or degree of intention or overwhelming component test or decree of labour and service tax came to be developed with the progress of law and applies to dominant composite contracts goods plus service tax as evolved over to determine whether the contract is a work contract or a contract for sale of goods or both. Whether the contract could be treated as divisible or not. In the instant case what is sold is a phone with the charger which is a pure sale of goods and containing no self-service element. It is common knowledge that today majority of the mobiles are being sold with charger and wherever there are two different products being sold in same retail package. Conclusion - i) The learned Tribunal failed to appreciate the entries made in the Schedules of the H.P. VAT Act 2005 in respect of goods/ articles/commodities/ items to be taxed as per the rates prescribed in the Schedules appended to the H.P. VAT Act 2005 in its right perspective and thereby reached at a wrong conclusion. ii) The learned Tribunal wrongly interpreted the judgment in Nokia India s case and thereby reached at a wrong conclusion. iii) The order passed by the learned Tribunal is perverse and contrary to the provisions of law laid down in the VAT Act and law settled by the Hon ble Supreme Court in Nokia India s case. iv) The learned Tribunal has wrongly treated the mobile battery charger taxable @5% instead of 13.75%. v) The learned Tribunal was not justified in passing the impugned order ignoring entry No. 60 (f) (vii) of part-II A of schedule-A of the H.P.Vat Act 2005 which does not include mobile charger and other accessories. vi) The learned Tribunal erred in not considering the cellphone charger as an accessory to the cellphone and is not a part of the cellphone. Therefore battery charger cannot be held to be a composite part of cellphone but is an independent product which can be sold separately without selling the cellphone. Petition allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment were:

A. Whether the Tribunal properly appreciated the entries in the Schedules of the HP VAT Act, 2005, regarding the taxation rates for goods, articles, commodities, and items.

B. Whether the Tribunal misinterpreted the Supreme Court's judgment in the Nokia India Pvt. Ltd. case and the orders passed by lower authorities without adhering to the established legal propositions.

C. Whether the Tribunal's orders were perverse and contrary to the VAT Act provisions and the law settled by the Supreme Court in the Nokia case.

D. Whether the Tribunal correctly treated the mobile battery charger as taxable at 5% instead of 13.75%, aligning it with the cellphone's tax rate.

E. Whether the Tribunal was justified in its order, given that entry No. 60 (f) (vii) of part-II A of schedule-A of the HP VAT Act, 2005, does not include mobile chargers and other accessories.

F. Whether the cellphone charger is an accessory to the cellphone and not a part of it, as it can be sold independently of the cellphone.

ISSUE-WISE DETAILED ANALYSIS

Legal Framework and Precedents

The legal framework revolves around the Himachal Pradesh VAT Act, 2005, and its interpretation in light of the Supreme Court's judgment in the Nokia India Pvt. Ltd. case. The core issue was the classification of mobile chargers as accessories or integral parts of cellphones, impacting their tax rates.

Court's Interpretation and Reasoning

The Court analyzed the statutory provisions of the VAT Acts of Punjab, Himachal Pradesh, and other states to determine the classification of mobile chargers. The Supreme Court in the Nokia case had held that mobile chargers are accessories and not integral parts of cellphones, thus subject to different tax rates.

Key Evidence and Findings

The Court noted the Supreme Court's reasoning that mobile chargers are not essential for the operation of cellphones, as they can be charged through other means. The Court also considered the different statutory entries under various state VAT Acts and their interpretations.

Application of Law to Facts

The Court applied the Nokia judgment to the Himachal Pradesh VAT Act, noting that the statutory entries were similar to those in Punjab. It concluded that the Tribunal erred in treating mobile chargers as part of cellphones for tax purposes.

Treatment of Competing Arguments

The Court addressed arguments from both sides, including the respondent's reliance on other high court judgments and government memos. It found these arguments unpersuasive, given the binding nature of the Supreme Court's decision in Nokia.

Conclusions

The Court concluded that the Tribunal misapplied the law by not recognizing mobile chargers as accessories, leading to incorrect tax treatment. It set aside the Tribunal's orders and affirmed the higher tax rate for mobile chargers.

SIGNIFICANT HOLDINGS

The Court preserved the Supreme Court's reasoning that mobile chargers are accessories, not parts of cellphones, and thus subject to different tax rates. It established that the Tribunal's interpretation was flawed and contrary to established legal principles.

Core Principles Established

The judgment reinforced the principle that statutory entries must be interpreted in line with the Supreme Court's rulings, especially when similar provisions exist. It emphasized the importance of distinguishing between accessories and integral parts for tax classification.

Final Determinations on Each Issue

The Court determined that the Tribunal failed to appreciate the statutory entries correctly, misinterpreted the Nokia judgment, and wrongly classified mobile chargers, leading to incorrect tax treatment. It set aside the Tribunal's orders and upheld the higher tax rate for mobile chargers as accessories.