2018 (1) TMI 911 - HC - VAT and Sales Tax

Taxation of Mobile Charger in Composite Package under U.P. VAT Act 2008

M/s Samsung (India) Electronics Pvt. Ltd. Versus Commissioner Of Commercial Taxes U.P. Lucknow

The High Court held that a mobile charger sold with a mobile phone in a composite package should be taxed as a single unit under the U.P. VAT Act 2008. It ... Taxability - mobile charger - whether a mobile charger when sold as part of a composite package comprising the said article as well as a mobile phone is liable to be taxed separately treating it to be an unclassified item under the provisions of the U.P. VAT Act 2008? Held that: - Admittedly, the mobile phone and charger are sold as part of a composite package. The primary intent of the contract appears to be the sale of the mobile phone and the supply of the charger at best collateral or connected to the sale of the mobile phone. The predominant and paramount intent of the transaction must be recognized to be the sale of the mobile phone. In the case of transactions of the commodity in question, the Court must also bear in mind that a charger can possibly be purchased separately also. However in case it is placed in a single retail package 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. Issues Involved:1. Whether a mobile charger sold as part of a composite package with a mobile phone is liable to be taxed separately under the U.P. VAT Act 2008.2. Whether the Tribunal erred in applying the Supreme Court's judgment in State of Punjab Vs. Nokia India Pvt Ltd to the applicant's case.3. Whether the dominant intention test applies to the sale of composite packages.4. Whether the provisions of the Legal Metrology Act, 2009 and the Legal Metrology (Packaged Commodities) Rules, 2011 affect the taxability of composite packages.5. Whether the Tribunal failed to consider the decision of the Himachal Pradesh Tax Tribunal and the circular issued by the Union Government.Issue-Wise Detailed Analysis:1. Taxability of Mobile Charger as Part of Composite Package:The primary issue was whether a mobile charger sold with a mobile phone in a composite package should be taxed separately. The Department argued that the charger is an accessory and should be taxed separately at 14%, while the assessee contended that it should be taxed under a single classification at 5% as per Entry No. 28 of Schedule-II, Part B of the U.P. VAT Act 2008. The Tribunal and assessing authority relied on the Supreme Court's decision in State of Punjab Vs. Nokia India Pvt Ltd, which held that a charger is an accessory and not an integral part of the mobile phone. However, the High Court noted that the Supreme Court's decision in Nokia was based on the specific facts and submissions in that case, where the charger and mobile phone were argued to be composite goods.2. Application of Supreme Court's Judgment in Nokia:The High Court found that the Tribunal erred in applying the Nokia judgment without considering the factual differences and the specific provisions of the U.P. VAT Act. The Nokia judgment was based on the classification under the Punjab VAT Act, which differed from the U.P. VAT Act. The High Court emphasized that the Nokia decision should not be blindly applied to cases where the assessee does not claim the goods to be composite.3. Dominant Intention Test:The High Court considered whether the sale of a mobile phone and charger in a single retail package constitutes a composite contract and requires the application of the dominant intention test. The dominant intention test, as explained in Bharat Sanchar Nagam Limited Vs. Union of India, involves identifying the primary intent of the contract. The High Court concluded that the primary intent in the sale of a composite package with a single MRP is the sale of the mobile phone, with the charger being incidental. Therefore, there was no separate intent to sell the charger.4. Legal Metrology Act and Rules:The High Court referred to the Legal Metrology Act, 2009, and the Legal Metrology (Packaged Commodities) Rules, 2011, which mandate that only one MRP be mentioned on the package. This supports the assessee's argument that the entire composite package should be taxed as a single unit. The Court noted that there was no provision in the U.P. VAT Act that empowered the authorities to bifurcate the contents of a composite package for separate taxation.5. Consideration of Himachal Pradesh Tax Tribunal's Decision and Union Government's Circular:The High Court noted that the Tribunal failed to consider the decision of the Himachal Pradesh Tax Tribunal in Nokia India Sales Pvt Ltd Vs. Excise and Taxation Commissioner, Himachal Pradesh, which supported the assessee's position. The Court also referred to a circular issued by the Union Government on 30 November 2015, which clarified that accessories bundled with the main article should be treated as part of the main article for tax purposes.Conclusion:The High Court concluded that the Nokia judgment did not apply to the facts of the present case, and the sale of a mobile phone and charger in a composite package with a single MRP should be taxed as a single unit under Entry No. 28 of Schedule-II, Part B of the U.P. VAT Act 2008. The revisions were allowed, and the orders of the Tribunal were set aside. The questions framed were answered in favor of the assessee and against the Revenue.