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TMI Blog2018 (1) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... age along with the mobile phone, the primary intent is the purchase of the mobile phone. The supply of the charger is clearly only incidental. In any view of the matter, there does not appear to be any separate or distinct intent to sell the charger. The Court is considering the case of a composite package, which bears a singular MRP. The charger is admittedly neither classified nor priced separately on the package. It is also not invoiced separately. The MRP is of the composite package. The respondents therefore cannot be permitted to split the value of the commodities contained therein and tax them separately. This especially when one bears in mind that entry 28 itself correlates the article to the MRP. Revision allowed - decided in favor of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... try-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 relevant entry of the Schedule reads thus:- "Cell phones and its parts but excluding cell phone with MRP exceeding ₹ 10,000/-." Both the assessing authority as well as the Tribunal have rested their decisions on the judgment of the Supreme Court in Nokia to hold that a charger is liable to be treated and viewed as an accessory and not an integral part of the mobile phone. It is in the above backdrop that these revisions have travelled to this Court. Shri Tarun Gulati, learned counsel appearing for the revisionist has urged the following submissions. Shri Gulati would contend that Nokia is not an authority for the proposition that a charger when sold as a part of a composite package is liable to be treated and taxed as an accessory. This submission is advanced by Shri Gulati since according to him the decision in Nokia came to be rendered in light of the submission advanced before the Court that the charger and mobile phones are composite goods. Shri Gulati submits that it has never been the contention of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly be evident that the charger could not have been taxed separately. It was his submission that the sale of the charger along with the mobile phone in a composite package would fall within the specie of a composite contract and therefore tax could have been levied only in terms of Entry-28. Shri Gulati referring to the decision of the Supreme Court in Bharat Sanchar Nagam Limited Vs. Union of India 2006 (3) SCC 1 ["BSNL"] submitted that only a particular category of composite contracts covered specifically by Article 366 (29-A) of the Constitution were liable to be bifurcated and taxed separately. Taking the case of the revisionist further Shri Gulati then submitted that Entry-28 was itself indicative of the linkage between the article in question and the maximum retail price. In his submission since the composite package carried and bore a single MRP, it was not permissible for the respondents to levy tax separately on the charger and the mobile phone. Referring to the provisions of the Legal Meteorology Act, 2009 2009 Act as well as the Legal Metrology (Packaged Commodities) Rules, 2011 2011 Rules Shri Gulati submits that only one MRP of the product could be mentione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he customs Act, 1962 (52 of 1962], the Central Government hereby makes the following rules, namely: - 1. These rules may be called the Accessories (Condition) Rules, 1963: 2. Accessories of and spare parts and maintenance or repairing implements for, any article, when imported alongwith that article shall be chargeable at the same rate of duty as that article, if the proper officer is satisfied that in the ordinary course of trade:- (i) such accessories, parts and implements are compulsorily supplied along with that article; and (ii) no separate charge is made for such supply, their price being included in the price of the article." According to Sri Gulati, these provisions, rules and clarifications were never brought to the attention of the Supreme Court when it decided Nokia. Sri Gulati then invited the attention of the Court to the decision rendered by the Himachal Pradesh Tax Tribunal to underline his submission that the Nokia decision has been understood entirely out of context. This position, in his submission was accepted by the Tribunal as would be evident from the following extracts of its judgment: - "13.Therefore, it is clear that mobile phone and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms at the same rate at which typewriter was taxed which plea was rejected by the Hon'ble Apex Court. Similarly in the I.A.S. products Vs. Commissioner Tax, Uttarakhand (2010) 29 VST 507, the LPG regulator was taxed at higher rate and plea of the assessee for applying concessional rate applicable to gas cylinder was rejected by holding that even though LPG regulator may be part and parcel of the connection, but the same was separable from the cylinder. There was nothing to show that the regulator sold was part of composite package without any extra charges along with cylinder. 19. It is clear that the entries in the H.P. VAT Act, are distinct from the Punjab VAT entries. Tax on VAT items cannot be charged differentially, i.e. @ 5% when a charger comes as a prepackaged product as part of a telephone or at the residuary rate of 13.75% when a stand alone purchase is made of a charger. Such an interpretation of a same product being charged differentially will not be conducive to a healthy tax environment. Therefore, the revenue to contend that the appellant paid tax @ 13.75% on sale of stand alone chargers, cannot be accepted. Therefore, reliance is to be placed on rule 3 (a) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the charger is clearly an accessory since it does constitute an adjunct, addition and accompaniment for convenient or comfortable use of the main article. In his submission, the Department therefore has rightly subjected the charger to tax @ 15% treating it to be an unclassified item. Sri Tripathi also laid stress on the language employed in Entry 28 to submit that the expression "Cell phones and its parts...." cannot be said to include a charger since it is not a part of the cell phone. At the outset the Court notices the submission of Sri Gulati that the issues raised stand concluded in light of the decision of the Division Bench in Samsung. In order to appreciate this submission it would be apposite to extract the following observations from the decision of the Division Bench: - "10. In the facts of this case, it cannot be said that there was any fresh material nor any tangible material which would permit the authorities to reassess or issue said notice. Decision of Nokia will not apply to facts of this case. The factual scenario in the case on hand are as under: (a) The judgment has been rendered in context of Punjab VAT Act. The entry in the Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct can be mentioned on the package and that MRP will be that of entire package. There is no possibility of splitting the value of different products and subjecting them to classification and assessment separately. (f) There is no mechanism in the Act or Rules to split consideration in the case of a composite contract. Where there is no machinery created under statutory provisions for computation of the tax, it has to be presumed that statute did not contemplate a tax on the subject matter (CC v. Larsen & Toubro, (2016) 1 SCC 170 and CIT v. BC Srinivasa Shetty, (1981) 2 SCC 460). In the present case, neither there is a separate price for the mobile charger nor can it be determined under the Act/Rules and, therefore, it has been merely estimated at ₹ 180/- per piece in a most arbitrary manner. As the Act/Rules do not provide for a mechanism to disintegrate a composite contract, no tax can be charged separately on a mobile charger. These arguments were never raised or considered in Nokia's case." This Court however notes that this decision was rendered and the observations extracted herein above made in the context of an exercise of reassessment sought to be initiate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that whenever the Company sells chargers separately then 12.5% tax is charged which is applicable to goods in residuary Schedule F of the Act. 16. The learned counsel for the respondent referred to general rules for interpretation of the First Schedule of the Import Tariff under the Customs Tariff Act, 1975. The classification of the goods in the Schedule for the purpose of Rule 3(b) in the General Rules for Interpretation of Import Tariff reads as follows: "3. (b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable." 19. In view of the aforesaid facts, we find that the assessing authority, appellate authority and the Tribunal rightly held that the mobile/cellphone charger is an accessory to the cellphone and is not a part of the cellphone. We further hold that the battery charger cannot be held to be a composite part of the cellphone but is an independent product which can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions raised, upon which the case is decided. [Also see Ambica Quarry Works v. State of Gujarat [(1987) 1 SCC 213] and CIT v. Sun Engg. Works (P) Ltd. [(1992) 4 SCC 363] ] In other words, the "law declared" in a judgment, which is binding upon courts, is the ratio decidendi of the judgment. It is the essence of a decision and the principle upon which the case is decided which has to be ascertained in relation to the subject-matter of the decision. 70. Each case entails a different set of facts and a decision is a precedent on its own facts; not everything said by a Judge while giving a judgment can be ascribed precedential value. The essence of a decision that binds the parties to the case is the principle upon which the case is decided and for this reason, it is important to analyse a decision and cull out from it the ratio decidendi. In the matter of applying precedents, the erudite Justice Benjamin Cardozo in The Nature of the Judicial Process, had said that "if the Judge is to pronounce it wisely, some principles of selection there must be to guide him among all the potential judgments that compete for recognition" and "almost invariably his first step ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations: (SCC p. 719, para 2) "2. ... The ratio decidendi of a judgment has to be found out only on reading the entire judgment. In fact, the ratio of the judgment is what is set out in the judgment itself. The answer to the question would necessarily have to be read in the context of what is set out in the judgment and not in isolation. In case of any doubt as regards any observations, reasons and principles, the other part of the judgment has to be looked into. By reading a line here and there from the judgment, one cannot find out the entire ratio decidendi of the judgment." (emphasis supplied) This settled position has been reiterated more recently by the Supreme Court in Roger Shashoua Vs. Mukesh Sharma & others 2017 SCC online SC 697. 52. At this juncture, we think it necessary to dwell upon the issue whether Shashoua principle is the ratio decidendi of BALCO and Enercon (India) Ltd. (supra) and we intend to do so for the sake of completeness. It is well settled in law that the ratio decidendi of each case has to be correctly understood. In Regional Manager v. Pawan Kumar Dubey [(1976) 3 SCC 334], a three-Judge Bench ruled: "7. ... It is the rule deducibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h constitutes the true ratio decidendi of the judgment. Each and every conclusion or finding recorded in a judgment is not the law declared. The law declared is the principle which emerges on the reading of the judgment as a whole in light of the questions raised. It is on these basic principles that the Court proceeds to ascertain the ratio decidendi of Nokia. A careful reading of the entire decision establishes beyond doubt that the Court found that a charger and mobile phone are not composite goods. This evidently because a charger cannot possibly be recognized as an integral part or constituent of a mobile phone. A mobile phone is not an amalgam of various products and a charger. Since the submission advanced before the Court was that these were composite goods, the Supreme Court proceeded to recognize a charger to be an accessory to a mobile phone. The contention which is urged before this Court namely 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 Supreme Court consequently in Nokia did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in goods. It was consequently not permissible to deconstruct a particular contract and all specie of hybrid contracts were liable to be viewed as one entire and indivisible transaction. In view of the law so declared it was not permissible for taxing authorities to subject composite contracts involving elements of sale to tax. In terms of the recommendations made by the Law Commission in 1974, it was ultimately decided by Parliament to amend Article 366 (29A). The Constitution (Forty-sixth) Amendment Act, 1982 introduced a definition of the expression "tax on the sale or purchase of goods" and this marked a paradigm shift in the manner in which hybrid or composite contracts would henceforth be liable to be viewed and taxed. By virtue of the amendments effected certain contracts which involved an involuntary sale element became subject to taxation. The shift in the legal position is elaborately noticed in BSNL itself and was explained as follows: - 35. To answer the questions formulated by us, it is necessary to delve briefly into the legal history of Article 366(29-A). Prior to the Forty-sixth Amendment, composite contracts such as works contracts, hire-purchase con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In a building contract which is, as in the present case, one, entire and indivisible--and that is its norm, there is no sale of goods, and it is not within the competence of the Provincial Legislature under Entry 48 to impose a tax on the supply of the materials used in such a contract treating it as a sale." 36. Following the ratio in Gannon Dunkerley that "sale" in Entry 48 must be construed as having the same meaning which it has in the Sale of Goods Act, 1930, this Court as well as the High Courts held that several composite transactions in which there was an element of sale were not liable to sales tax." As a consequence of the amendments introduced, certain contracts from which the elements of sale as understood under the provisions of the 1930 Act were absent were brought within the bounds of sales and purchases for the purposes of levy of a sales tax. Composite contracts of the character encompassed in Article 366 (29A) consequently came to be recognized as embodying elements of a "deemed sale" of goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplier and the recipient of the supply of goods. Now such transactions are deemed sales. Sub-clause (f) pertains to contracts which had been held not to amount to sale in State of Punjab v. Associated Hotels of India Ltd. [(1972) 1 SCC 472]. That decision has by this clause been effectively legislatively invalidated. 42. All the sub-clauses of Article 366 (29-A) serve to bring transactions where one or more of the essential ingredients of a sale as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purchase and sales for the purposes of levy of sales tax. To this extent only is the principle enunciated in Gannon Dunkerley Ltd. (sic modified). The amendment especially allows specific composite contracts viz. works contracts [sub-clause (b)]; hire-purchase contracts [sub-clause (c)], catering contracts [sub-clause (e)] by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax. 43. Gannon Dunkerley survived the Forty-sixth Constitutional Amendment in two respects. First with regard to the definition of "sale" for the purposes of the Constitution in general and for the purposes of Entry 54 of List ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of contract and intention. The seller and such purchaser would have to be ad idem as to the subject-matter of sale or purchase. The court would have to arrive at the conclusion as to what the parties had intended when they entered into a particular transaction of sale, as being the subject-matter of sale or purchase. In arriving at a conclusion the court would have to approach the matter from the point of view of a reasonable person of average intelligence. Proceeding then to the doctrine of "dominant intention" or the "dominant nature" test [as the Supreme Court chose to describe it in BSNL], what it basically bids the Court to do is to identify and recognize the "substance of the contract" and the true intent of parties. The enquiry liable to be undertaken must pose and answer the question whether in a composite contract there exists a separate and distinct intent to sell. While BSNL dealing with the dominant nature test was concerned with the splitting of the element of sale and service, in the facts of the present case, the application and invocation of that principle requires the Court to consider whether there was a separate and distinct intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graft any provision which may empower the assessing authority to severe or bifurcate the assessable value of articles comprising a purchase and sale of composite packages. This more so in the absence of a specific, independent and identifiable element to sell. In the absence of any procedure or provision in the 2008 Act conferring such authority, the Court concludes that in the case of a sale of composite packages bearing a singular MRP, the authorities under the 2008 Act cannot possibly assess the components of such a composite package separately. Such an exercise, if undertaken, would also fall foul of the principles enunciated by the Supreme Court in Commissioner of Commercial Tax Vs. Larsen & Toubro (2016) 1 SCC 170 and CIT v. BC Srinivasa Shetty (1981) 2 SCC 460. The Court additionally must also bear in mind that in the case of a composite contract, the true enquiry which must be undertaken is to cull out what the parties intended to buy and sell. As has been noted hereinabove, in the facts of the present case there does not appear to have existed any intention of the assessee to affect a separate or distinct sale of the charger. The Court notes that no separate price was fix ..... X X X X Extracts X X X X X X X X Extracts X X X X
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