M/s Nokia India Pvt. Ltd v. State of Punjab & Ors.

Judgment

1. This order will dispose of VAT Appeal Nos. 54 and 55 of 2010 as common questions of law are involved therein.

2. VAT Appeal No. 54 has been filed under Section 68 of the Punjab Value Added Tax Act, 2005 (in short “the Act”) against the order of the VAT Tribunal, Punjab (Constituted under the Act ibid), in Appeal (VAT) No. 657 of 2009 decided on 11.2.2010, proposing to raise following substantial questions of law:- “A. Whether the Hon'ble Tribunal was legally justified in classifying the battery charges under Schedule F (unclassified goods taxable @ 12.5%), when battery chargers are sold in a package along with cellular telephones affixed with MRP and the cost of the battery charger is VAT Appeal No. 54 of 2010 -2- insignificant in comparison to the price of cellular telephones? B. Whether Entry 60(6)(g) of Schedule B (January 25, 2006 and onwards) - “Cellular telephone

8525.20.17” will include battery chargers when supplied along with cell phones in a composite package? C. Whether the Hon'ble Tribunal was legally justified in classifying battery chargers under the residuary Schedule F of PVAT Act thereby taxing battery chargers @ 12.5%? D. Whether the Hon'ble Tribunal was legally justified in upholding the levy of interest under Section 32(1) of PVAT Act?”

3. The appellant is a dealer registered under the Act and is doing business of sale of cell phones and their accessories. It sold cell phone with battery charger and paid tax at the rate of 4% on the sale value at concessional rate of tax for cell phone falling under Entry 60(6) (g) in Schedule B to the Act. The assessing authority held that battery charger being a separate item was liable to be taxed at general rate i.e.

12.5% and not at concessional rate applicable to cell phone. This view was upheld by the appellate authority as well as in the second appeal by the Tribunal. The Tribunal observed as under:- “Charger is an accessory not mentioned in the Schedule B anywhere nor there is any explanation that the interpretation which may be put to cellular VAT Appeal No. 54 of 2010 -3- phones mentioned in HSN Code 8525.20.17 under the Excise Act will be applicable. During arguments it was even admitted that charger is not part but is an accessory. Merely because chargers are put in the box in which cell phone is sold and separate price for the charger is not shown in the box or not charged in the invoice, that does not mean that the charger will be taxed at the same rate of tax as the cell phone is taxed. Rule 53(c) of the Punjab VAT Rules makes it obligatory for a person/dealer to maintain accounts showing sale record separately of goods sold at different tax rates. Under these circumstances, the Assessing Authority had rightly charged differential amount of tax @ 8.5% i.e. 12.5% minus 4% on the value of the battery chargers, sold during the respective years.”

We have heard learned counsel for the parties. Learned counsel for the assessee submits that battery charger was sold in a composite package along with cell phone and compared to the price of cell phone, cost of battery charger was insignificant. The price of battery chargers was included in the sale price of the cell phones. Being part of composite package, the battery chargers could not be taxed at separate rate except when sold separately. Learned counsel for the assessee relied upon Rule 3(b) of the General Rules for interpretation of Harmonized System appended to VAT Appeal No. 54 of 2010 -4- the Customs Tariff Act, 1975 to the following effect:- “(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 (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.”

6. About the relevance of the said rule as principle of interpretation for classification, reliance has been placed on Commissioner of C. Ex. Bhubaneswar-I v. Champdany Industries Ltd., 2009 (241) ELT 481 (SC), Moorco (India) Ltd. v. Collector of Customs, Madras 1974 (74) ELT 5 (SC), Naffar Chandra Jute Mills Ltd. v. Assistant Collector of C. Ex. 1993 (66) ELT 574 (Cal.) and Collector of Central Excise, Shillong v. Wood Craft Products Ltd. 1995 (77) ELT 23 (SC). Relying upon Sprint R.P.G. India Ltd. v. Commissioner of Customs-I, Delhi, 2000 (116) ELT 6 (SC) it was submitted that essential character of the goods in question in a composite transaction comprising of different components has to be determined with reference to main component of higher value.

7. Learned counsel for the revenue on the other hand supported the finding recorded by the Tribunal and submits that the charger was not integral part of the cell phone and was an accessory. Cell phone could be used even without charger. In such a situation, mere fact that the chargers were sold in a composite package along with cell phone did not make any exclude to the taxability of charger at a VAT Appeal No. 54 of 2010 -5- higher separate rate of tax. He further submits that distinction has to be drawn in a 'part of goods' and 'accessories' which could be independently sold and used. He placed reliance on following judgments:-

3. State of Uttar Pradesh and another v. Kores (India) Ltd.(SC) [1977] 039 STC 0008 I.A.S. Products v. Commissioner, Commercial Tax, Uttarakhand at Dehradun [2010] 29 VST 507 (Uttara) V. Govindarajan & Brother v. The Government Pondicherry (Madras) [1977] 040 STC 0169 Holding that carbon paper ribbon accessories of typewriter and not part thereof. Holding that LPG Regulator was accessory of LPG Cylinder and not part thereof. Holding that leather case and battery transistor were not part thereof but accessories.

8. The question for consideration is 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.

9. In order to determine the controversy, we may refer to the Entry in question which is as under:- “60. Telephones, cell phones, tele-printer, wireless equipment and parts thereof, Digital Video Disc and Compact Disc and Information Technology products as given hereunder: XX XX XX XX XX XX

6. Transmission apparatus other than apparatus for radio or TV broadcasting: XX XX XX VAT Appeal No. 54 of 2010 -6- XX XX XX (g) Cellular telephone

8525.20.17” Prior to 25.1.2006, the said Entry reads as under:- “60. IT products including computer, telephone, cell phones, Digital Video Disk and Compact Disk Teleprinter and Wireless Equipment and parts thereof.”

10. A perusal of above Entry shows that even part of products mentioned in the Entry was covered therein. When cell phone is sold in a composite package without any extra charges for the battery charger, the battery charger is a part of cell phone. Mere fact that battery charger was not affixed to the cell phone will not mean that it is different item. The Entry in question cannot be read as excluding battery charger which is necessary for use of the cell phone. The judgments relied on behalf of the revenue are distinguishable.

11. In Kores (India) Ltd. case (supra) the question was whether turnover of ribbon could be subjected to tax at rate prescribed for typewriter as part thereof, there is nothing to show that the ribbon and carbon papers were sold without extra charges along with the typewriter. The plea of the assessee was that the items were sold separately and that carbon papers and ribbon were taxable at lower rate. The revenue wanted to assess the carbon papers, ribbon and other items at the same rate at which typewriter was taxed which plea was rejected by the Hon'ble Supreme Court.

12. In I.A.S Products case (supra), the LPG regulator was taxed at higher rate and plea of the assessee for applying concessional VAT Appeal No. 54 of 2010 -7- 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 is nothing to show that regulator sold was part of composite package without any extra charges along with cylinder.

13. In V. Govindarajan & Brother case (supra) also though battery cells were held to be separately taxable without benefit of concessional rate applicable to transistor, there is nothing to show that sale of battery cells was part of composite package along with the transistors.

14. On the other hand, 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.

15. Accordingly, we answer the question in favour of the assessee and against the revenue. The appeal is allowed. (ADARSH KUMAR GOEL) JUDGE November 17, 2010 (AJAY KUMAR MITTAL) JUDGE VAT Appeal No. 54 of 2010 -8- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH M/s Nokia India Pvt. Ltd. Versus State of Punjab and others VAT Appeal No. 55 of 2010 (O&M) Date of Decision: 17.11.2010 ....Appellant. ...Respondents. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. V.Lakshmikumaran, Advocate with Mr. Amarpratop Singh, Advocate for the appellant. Mr. Piyush Kant Jain, Additional Advocate General, Punjab. ADARSH KUMAR GOEL, J. For orders, see VAT Appeal No. 54 of 2010 (M/s Nokia India Pvt. Ltd. v. State of Punjab and others). (ADARSH KUMAR GOEL) JUDGE November 17, 2010 (AJAY KUMAR MITTAL) JUDGE