Composite retail packs of mobile phones and chargers attract the phone's tax rate; charger value cannot be split separately.

Mobile phones sold in a composite retail pack with chargers were treated as goods put up in sets for retail sale under the Karnataka VAT Rules, 2005. Applying the essential character test, the phone was held to be the dominant component and the charger merely incidental, so the composite sale attracted the same tax rate as the mobile phone. The Court distinguished the Nokia India principle because the relevant Karnataka entry covered telecommunication equipment and parts thereof, unlike the narrower Punjab VAT entry. It also rejected artificial segregation of component value in a composite transaction, with the result that the charger was not taxed separately as unscheduled goods.

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Issues: Whether mobile phones sold in a composite pack with chargers are taxable at the same rate as mobile phones under the Karnataka Value Added Tax Act, 2003, or whether the chargers are liable to be taxed separately as unscheduled goods.

Analysis: Entry 53 of the Third Schedule to the Karnataka Value Added Tax Act, 2003 and the notification issued thereunder covered IT products and telecommunication equipment as notified, including telephone sets and parts thereof. The Court distinguished the principle applied in the Nokia India case on the ground that the Punjab VAT entry there was limited to cellular telephones and did not include parts thereof. It held that a retail package containing a mobile phone and charger answers the description of goods put up in sets for retail sale under Rule 3(b) of the Karnataka Value Added Tax Rules, 2005. Applying the essential character test, the mobile phone was treated as the dominant component of the set, and the charger was regarded as incidental to the composite sale. The Court also found that the charging and computation provisions did not permit artificial segregation of the value of individual components in such a composite transaction.

Conclusion: The charger sold along with the mobile phone in one set was taxable at the same rate as the mobile phone, and the Revenue's challenge failed.

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