Classification of Mobile Handset Batteries for GST: Impact of Heading 85 vs. Heading 8507

The batteries for mobile handsets, when sold to mobile handset manufacturers, are classified under heading 85 as "Parts for manufacture of Telephones for cellular networks or for other wireless networks," attracting a GST rate of 12%. On the other hand, when these batteries are sold to customers other than mobile handset manufacturers, they are classified under heading 8507 as "Electric accumulators," attracting a higher GST rate of 28%.

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Issues Involved:
1. Classification of "Battery for Mobile Handset" when sold to mobile handset manufacturers.
2. Classification of "Battery for Mobile Handset" when sold to customers other than mobile handset manufacturers.

Issue-wise Detailed Analysis:

1. Classification of "Battery for Mobile Handset" when sold to mobile handset manufacturers:

The applicant, a manufacturer of batteries for mobile phones, sought an advance ruling on whether the batteries, when sold to mobile handset manufacturers, qualify to be classified under heading 85 with the description "Parts for manufacture of Telephones for cellular networks or for other wireless networks," attracting a GST rate of 12%.

The applicant argued that the batteries, whether detachable or non-detachable, should be classified under heading 85, attracting a GST rate of 12% as per Serial No. 203 of Schedule II of the relevant notifications under the CGST Act, Haryana GST Act, and IGST Act. They supported their contention with a judgment from the Hon'ble Tribunal in the case of Commissioner of Cus. Bangalore v. Nl Micro Technologies Pvt. Ltd., which held that a cellular phone cannot function without a battery, thus considering the battery as an accessory or part/component of the cellular phone.

The Authority for Advance Ruling examined the classification under the Customs Tariff Act, 1985, and concluded that lithium-ion mobile phone batteries are covered under chapter heading 8507, which is more specific than heading 8517. The Authority noted that while mobile phones and their parts are classifiable under heading 8517, it does not imply that other goods not covered by heading 8517 would cease to be parts of mobile phones. The Authority cited the CBEC circular and the Supreme Court ruling in the case of State of Punjab v. Nokia India Pvt. Ltd. to support that a mobile phone cannot operate without a battery, thus qualifying it as a part of the mobile phone.

The Authority ruled that the batteries, when sold to mobile handset manufacturers, qualify to be classified under heading 85 with the description "Parts for manufacture of Telephones for cellular networks or for other wireless networks," attracting a GST rate of 12%.

2. Classification of "Battery for Mobile Handset" when sold to customers other than mobile handset manufacturers:

The applicant also sought a ruling on the classification of batteries when sold to customers other than mobile handset manufacturers. They contended that in such cases, the batteries should be classified under heading 8507 with the description "Electric accumulators, including separators therefor, whether or not rectangular (including square)," attracting a GST rate of 28%.

The Proper Officer, Rewari, in his comments, stated that the rate of tax on the manufacturer of lithium-ion batteries, whether sold to mobile handset manufacturers or otherwise, would be covered under heading 8507, attracting a GST rate of 28%.

The Authority for Advance Ruling agreed with this classification, noting that when the batteries are sold to customers who do not use them in the manufacture of mobile handsets, they qualify to be classified under heading 8507 with the description "Electric accumulators, including separators therefor, whether or not rectangular (including square)," attracting a GST rate of 28%.

Advance Ruling:

5.A. The product "Battery for Mobile Handset," whether separable or non-separable, when sold to mobile handset manufacturers, will qualify to be classified under heading 85 with the description "Parts for manufacture of Telephones for cellular networks or for other wireless networks," attracting a GST rate of 12% (CGST rate 6%, SGST rate 6%, IGST rate 12%).

5.B. The product "Battery for Mobile Handset," when sold to customers other than mobile handset manufacturers, will qualify to be classified under heading 8507 with the description "Electric accumulators, including separators therefor, whether or not rectangular (including square)," attracting a GST rate of 28% (CGST rate 14%, SGST rate 14%, IGST rate 28%).

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