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TMI Blog2025 (4) TMI 751X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the orders passed by the Authorities below without adhering to the legal proposition settled down by the Hon'ble Supreme Court. C. Whether the orders of the Ld. Tax Tribunal are perverse and contrary to the provisions laid down in the VAT Act and the law settled by the Hon'ble Supreme Court in Nokia's case. D. Whether the order of the Ld. Tax Tribunal has wrongly treated the mobile battery charger taxable@5% instead of 13.75% at par with cell phone chargeable @5%. E. Whether the Ld. Tax Tribunal is justified in passing the impugned order especially when as per entry No. 60 (f) (vii) of part-II A of schedule-A of the HP VAT Act., 2005, does not include mobile charger and other accessories. F. Whether the cell phone charger is an accessory to the cell phone and is not a part of the cell phone. The battery charger cannot be held to be a composite part of the cell phone, but it is an independent product which can be sold separately, without selling the cell phone. The Ld. H.P. Tax Tribunal has miserably failed to appreciate this aspect and wrongly held that the battery charger is a part of the cell phone. 2. Since all these questions are intrinsically interlinke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.11.2015 wherein it was clarified by the government that the mobile charger has to be considered as compulsory to be supplied with the mobile and would therefore, attract same rate of duty, whereby the State was advised to consider the accessory to be part of main item when they are bundled and sold together. 7. We have heard the learned counsel for the parties have also gone ground through the records of the case carefully. 8. In order to appreciate the controversy in issue, it would be necessary to set out the statutory provisions of the states of Punjab, Himachal and U.P. with regard to cellular phones/cellphones. The interpretation, tax statement and legal basis are as under:- Parameter Punjab (Nokia case) HP UP Karnataka Statutory text "Cellular Phones" Entry 60 (6) (g) Punjab VAT Act, 2005 "Cellular phone" Entry 60 (f) (vii) HP VAT Act, 2005 "Cell phones and its parts but excluding cellphones with MRP exceeding Rs. 10,000" Entry 28 UP VAT Act, 2008 "IT products including telecommunication equipment as may be notified" Entry 53 of Karnataka VAT Act, 2003 Interpretation Supreme Court held that Charger is an accessory of a cellphone. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accessory thereof even as per the respondents themselves, who had separately paid tax @12.5% on the battery chargers sold separately. According to the State, the battery chargers were not covered under Entry No. 60 (6) (g) in Schedule 'B' of the Punjab VAT Act and thus liable to be taxed at the rate of 12.5% on its value under Schedule 'F' of the Punjab VAT Act which covers all residuary items not falling in any of the classification of other Schedules of the Act. Dealing with this contention, the Hon'ble Supreme Court in Nokia's case held as under:- "11. On the other hand, according to the counsel for the appellant-State a battery charger is not a part of the cell phone but merely an accessory thereof even as per the respondents themselves, who had separately paid tax at the rate of 12.5% on the battery chargers sold separately. According to him, the battery charges are not covered under Entry 60 (6) (g) in Schedule 'B' of the Act and was thus liable to be taxed at the rate of 12.5% on its value under Schedule 'F' of the Act which covers all residuary items not falling in any of the classifications of other Schedules of the Act. 12. We have heard rival content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If the charger was a part of cell phone, then cell phone could not have been operated without using the battery charger. But in reality, it is not required at the time of operation. Further, the battery in the cell phone can be charged directly from the other means also like laptop without employing the battery charger, implying thereby, that it is nothing but an accessory to the mobile phone. The Tribunal noticed that as per the information available on the website of Nokia, the Company has invariably put the mobile battery charger in the category of an accessory which means that in the common parlance also, the mobile battery charger is understood as an accessory. It has also been noticed by the Tribunal that a Nokia make battery charger is compatible to many models of Nokia mobile phones and also many models of Nokia make battery chargers which are compatible to a particular model of Nokia mobile phone, imparting various levels of effectiveness and convenience to the users. 17. 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 Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be sold separately, without selling the cell phone. The High Court failed to appreciate the aforesaid fact and wrongly held that the battery charger is a part of the cell phone. 20. In view of the finding recorded above, we have no other option but to set aside the impugned orders dated 17th November, 2010 in VAT Appeal Nos.54 & 55 (O&M) of 2010 passed by the High Court of Punjab and Haryana at Chandigarh. The order passed by the Tribunal is affirmed. The appeals are allowed. No costs." 14 It would thus be noted from the aforesaid decisions that:- (i) the respondent, Nokia India (P) Ltd., a registered dealer under the Punjab Value Added Tax Act, 2005, is engaged in selling cellphones and their accessories; (ii) the issue in contention is whether a cellphone battery charger, sold in a package, should be considered a part of the cellphone or merely an accessory; (iii) the Tribunal initially dismissed both appeals, stating that the battery charger is not a part of the cellphone; (iv) the Division Bench of the High Court later allowed the appeals filed by the respondent, holding that the battery charger is part of the composite package of the cellphone; (v) the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterials and goods put up in sets for retail sale. (d) For all three categories, text for classification is that goods are classified as if they consisted of material or component which gives "essential character". The only finding given by the Court is that merely because goods are sold in a composite pack, it does not become "composite goods", perhaps because it was argued that cellphone and battery charger are composite goods. Petitioner in present case has never argued that two are composite goods. Instead it's case is that these goods are put up in sets for retail sale and fall under category (c) noticed above. There is no finding of the Court that if goods fall in category (c), they cannot be classified according to essential character test. By use of words, "as if" Rule 3 (b) applies a fiction by which it is assumed that component which gives essential character is only component which is relevant and common classification of all goods put up in the set has to be classification of component which gives the set its essential character. Undoubtedly, in a set or a composite box containing the cellphone and the battery charger, the essential character of set is that of cel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut nor recognized without due consideration being conferred on the aforementioned factors. While these principles are well settled, it would be relevant to notice the following observations as made by the Supreme Court in Natural Resources Allocation, (2012) 10 SCC 1:- "69. Article 141 of the Constitution lays down that the "law declared" by the Supreme Court is binding upon all the courts within the territory of India. The "law declared" has to be construed as a principle of law that emanates from a judgment, or an interpretation of a law or judgment by the Supreme Court, upon which, the case is decided. (See Fida Hussain v. Moradabad Development Authority [(2011) 12 SCC 615 : (2012) 2 SCC (Civ) 762].) Hence, it flows from the above that the "law declared" is the principle culled out on the reading of a judgment as a whole in light of the questions 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the facts; and (iii) judgment based on the combined effect of the above. A decision is an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically flows from the various observations made in the judgment." 73. It is also important to read a judgment as a whole keeping in mind that it is not an abstract academic discourse with universal applicability, but heavily grounded in the facts and circumstances of the case. Every part of a judgment is intricately linked to others constituting a larger whole and thus, must be read keeping the logical thread intact. In this regard, in Islamic Academy of Education v. State of Karnataka [(2003) 6 SCC 697], this Court made the following observations: (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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared. It is also necessary to read the judgment in entirety and if any principle has been laid down, it has to be considered keeping in view the questions that arose for consideration in the case. One is not expected to pick up a word or a sentence from a judgment de hors from the context and understand the ratio decidendi which has the precedential value. That apart, the Court before whom an authority is cited is required to consider what has been decided therein but not what can be deduced by following a syllogistic process." (emphasis supplied) 25. As has been succinctly explained in the decisions noticed above, the ratio is the principle deducible from the application of the law to the facts of a particular case and it is this which 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. 26. A careful reading of the entire decision establishes beyond doubt that the Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed reliance on the judgment of this Court in the case of State of Punjab others vs. Nokia India Private Limited (2014) 16 SCC 410. We have considered the said judgment relied upon by learned counsel for the petitioner(s) in light of Entry 28 Part B Schedule II of the Uttar Pradesh Value Added Tax Act, 2007, which, for the sake of immediate reference, is extracted and reads as under: SCHEDULE-II PART-B List of IT Products taxed at 5% 28 Cell Phones and its parts but excluding Cell Phones with M.R.P exceeding rupees ten thousands. We have heard learned counsel for the respondent(s)-assessees, who have supported the impugned judgment and have contended that the judgment of the Allahabad High Court is just and proper and has correctly distinguished the judgment of this Court in Nokia India Private Limited's case (supra). It was submitted that when a cell phone is sold along with a charger, there is only one Maximum Retail Price (MRP) stated on the packaging and therefore, Entry 28 has to be read in the context of the said facts. We have considered the arguments advanced at the bar, in light of the judgment of this Court in Nokia India Private Limited's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether mobile charger should be excluded from the entry of concessional rate of tax which applies to cellphones under the Entry 60 (6) (g) of Schedule B of the Punjab VAT Act. The said Entry reads as follows: "Telephones, cell phones, tele-printer, wireless equipment and parts thereof, Digital Video Disc and STRP NO. 08 OF 2022 AND CONNECTED MATTERS Compact Disc and Information Technology products as given hereunder - 6. Transmission apparatus other than apparatus for radio or TV broadcasting: (g) Cellular telephone" 9. In Nokia India Case, the Apex Court has held that: "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 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 be sold separately without selling the cellphone. The High Court failed to appreciate the aforesaid fact and wrongly held that the battery charger is part of the cellphone." 10. It is relevant to note that the decision in Nokia India Case is ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted without using the battery charger. But in reality, it is not required at the time of operation. Further, the battery in the cell phone can be charged directly from the other means also like laptop without employing the battery charger, implying thereby, that it is nothing but an accessory to the mobile phone." 15. In Madhav Rao Jiwaji Rao Scindia Bahadur and Ors. Vs. Union of India MANU/SC/0050/1970: 1971 SCR (3) 9, the Apex Court has observed that: "...It is difficult to regard a word, a clause or a sentence occurring in a judgment of this Court, divorced from its context, as containing a full exposition of the law on a question when the question did not, even fall to be answered in that judgment." 16. Para 14 of the judgment in Nokia India Case, clearly indicates that the said decision is based on Entries of the Punjab VAT Act, wherein the prime issue for consideration was whether the mobile charger is an accessory or not. But in the case on hand, the issue involved is, when the mobile phone is sold along with the charger what must be the rate of tax?" 25. Thereafter, after placing reliance on the judgment passed by the learned Single Bench of Allahabad High Court, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Schedule III, which reads as under:- IT Products including telecommunication equipments as may be notified covered with the notification dated 01.04.2007. 27. As already extracted above, it provides for telephone sets, including telephones cellular networks, or for other wireless networks. Therefore, judgment is of no avail to the respondent. 28. In addition to the aforesaid, we may notice that the Division Bench in aforesaid case had failed to notice number of judgments rendered by learned Single Judge of the same High Court in a writ petition No. 55790-801/2016(T-RES) in case titled as M/s Lava International Ltd. versus State of Karnataka and others, decided on 10.11.2016 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, ('KVAT Act, 2003') following the judgment of Hon'ble Supreme Court in Nokia's case (supra) and it was held as under:- "3. The main question involved in the present case is also about the rate of tax applicable under the Karnataka Value Added Tax Ac, 2003, on the sale of mobile battery chargers, which are sold in the same packa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as part of the mobile phones itself and the battery is only accessory of the mobile phone and are to be taxed separately irrespective of their packing in the common package with mobile phone. It was further held that the judgment of Hon'ble Supreme Court is binding on all Courts/ authorities in the Country. It was further held that the judgment was not based on particular entry for tax rate under any particular State. Therefore, court was not inclined to entertain this contention of the assessee. 30. The essential character test, legal and functional analysis are as follows:- A. Classification Hierarchy under Customs Rules: Rule Application Relevance to present case Rule 3(a) Primary classification by HSN (Harmonised System of Nomenclature) codes Phones (8517) and chargers (85044030) have distinct codes under the Custom Tariff Act Rule 3(b) Residual application only Inapplicable when specific codes exist B. Functional and Commercial Reality: Interchangeability: i) Chargers work across multiple phone models. ii) Phones can be charged through various methods (for eg, by using USB, power banks) I. Refutation of Essential Character Test (Rule 3(b)) Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of residual entries. This would encourage unscrupulous companies to resort to packaging different commodities under the same retail package thereby bypassing the residual entries and defeating their significance. This would become a tax evasion tactics. The phrase 'goods sold in sets for retail' can be exploited by companies to evade the residuary tax. The 'goods sold in sets for retail' has to qualify some form of test of being composite or the part of the main product. That is not the case in a mobile and a charger as has been conclusively held by the Hon'ble Supreme Court in Nokia's case. 33. Further, even if the customs tariff interpretation rule 3 is followed, even then the battery charger and mobile phones have distinct HSN code under the Custom Duty Tariff Act 1975, therefore, rule 3b won't be applicable. It can therefore be stated that the essential test argument relied on in the Allahabad High Court case was advanced relying on rule 3b. However, when rule 3a holds ground, no reliance can be placed on 3b and the subsequent essentiality test becomes void and futile. 34. As regards, the office memo dated 30.11.2015, the same at best can be said to be prospective as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith charger and wherever we have two different products being sold in same retail package, it essentially attracts different rates of tax and the following example could be illustrative on the subject:- Product Bundle Tax Treatment Rationale Toothbrush+ Paste Separate taxation Different HSN codes Camera+ Lens Kit Separate taxation Lens is accessory Phone + Charger Should be separate Parallel to above 38. As regards the judgments passed by Division Bench of this court and authored by one of us (Justice Tarlok Singh Chauhan) in Nokia India Sales Pvt. Ltd. versus Excise and Taxation Commissioner, 2017 (VIL) 16 TRV, no doubt, this court had observed that in the given facts and circumstances, the order passed by learned Tribunal on 14.06.2017 is neither erroneous nor does it amount to non-decision of question of fact but evidently, the civil revision was dismissed on technical grounds of being barred by limitation and therefore, cannot be treated to be binding precedent upon this court. 39. Questions of law are answered accordingly in favour of the Revenue/State by concluding that- (a) the learned Tribunal failed to appreciate the entries made in the Schedules ..... X X X X Extracts X X X X X X X X Extracts X X X X
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