TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 911
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....td 2014 (16) SCC 410. The principal questions of law as framed and upon which the rival submissions centered read thus: "A. Whether the Tribunal ought to have held that the entire composite set having a mobile phone and mobile charger having a single MRP was liable to assessed to a single classification under Entry No. 28 of Schedule-II, Part B of the Act? B. Whether the Tribunal erred in applying the judgment dated 17.12.2014 by the Hon'ble Supreme Court in the case of State of Punjab V. Nokia Private Limited to the Applicant's facts and circumstances and in view of the fact that Entry No.28 of Schedule-II, Part-B of the Act reads differently from the entry considered by the Hon'ble Supreme Court?" The position in the different revisions would be evidenced from the following: Sr. No STRP No. Period Amount 1 457/15 April-2014 17,36,705/- 2 458/15 May-2014 22,83,121/- 3 459/15 June-2014 26,84,895/- 4 460/15 July-2014 26,91,838/- 5 461/15 August-2014 34,78,058/- 6 46215 September-2014 33,67,562/- 7 463/15 October-2014 36,27,700/- 8 464/15 November-2014 20,27,655/- 9 114/16 December-2014 13,24,229/- 1....
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....ration of the Supreme Court was that the charger and the mobile phone were composite goods and thus liable to be taxed bearing in mind the principles enshrined in the General Rules for Interpretation of the First Schedule of Import Tariff appended to the Customs Tariff Act 1975. The submission of Shri Gulati was that the reference to Rule 3 (b) of the General Rules of Interpretation is clear evidence of the nature of contentions which were urged before the Supreme Court namely of the charger and the mobile phone being composite goods. Shri Gulati submitted that it was in the context of the submissions advanced that the Court proceeded to hold that the charger is not an integral part of the mobile phone so as to bring it within the ambit of the expression 'composite goods'. He submits it was in light of the nature of the contentions urged that the Court proceeded to hold that the charger is an accessory to a mobile phone and not a part thereof. In view of the above, Shri Gulati has submitted that the decision in Nokia cannot be blindly applied to the facts of a case where the assessee does not claim them to be composite goods. Shri Gulati then placed reliance upon a decisio....
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....ntents of a composite package in this fashion nor were there any machinery provisions which contemplated such an exercise being undertaken. Sri Gulati further submitted that the issue of taxing of composite packages was considered and decided by the Union Government itself and clarifying the position a circular came to be issued on 30 November 2015 mandating the treatment of an accessory when bundled together to be treated as part of the main article. According to Sri Gulati this was noticed by the Himachal Pradesh Tax Tribunal in Nokia India Sales Pvt Vs. Excise and Taxation Commissioner, Himachal Pradesh and another 2017VIL16TRB when the following observations came to be made: "10.Reliance has been placed on a Ministry of Finance, Department of Revenue (State Taxes Division) circular dt 30.11.15, whereby attention of all State Commercial Tax Commissioners, has been drawn to the Hon'ble Apex Court decision (Nokia case) holding that a charger is not a part of a mobile but an accessory That the judgment has been interpreted by some states to imply that mobile chargers sold as a single unit with the mobile phone is to be taxed separately. That para 2 and 3, of the circular fur....
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....ox put up in sets for retail sale are to be classified as if they consisted of the material or component which gives them their essential character i.e the telephone set. The Hon'ble Supreme Court in Kemrock Industries V. CCE Vadodara, 2007 (210) ELT 497 (SC), held that the composite box is to be classified as "telephone set" and the appellant has correctly paid the tax under the Act and no further demands can be made from them. Thus, by this reasoning the composite goods or goods put up in sets for retail sale of the mobile phone and battery charger can only fall in the classification of the cell phone. 18. The answers to the questions as posed in para 5 (supra) are as follows, the Hon'ble Apex Court has in the Micromax judgement stated that the Nokia case is distinguishable; the Nokia judgment is not ratio decendi for provisions under the H.P. VAT Act, wherein entries No.57 of Schedule-A clearly state that 5% concessional rate of tax will apply to "mobile phones" and "parts thereof". Similarly Rule 3 (a) and (b) of the General Rules for interpretation of Harmonished System appended to the Customs Tariff Act, 1975, stipulates that the essential character of the goods in ....
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....bunal without delving into the issue of a charger being a part thereof or a separate accessory, in view of the Apex Court findings. However, in view of the rules of interpretation for HSN, it is clear that the Maximum Retail Price (MRP) is already affixed on these retail packages at the time of import or sale. If separate tax is to be levied on chargers then the revenue should also tax the pre packed batteries separately. I cannot accede to such proposition. It is not appropriate to tax differently the individual components, which have entered into a determination of the price of the goods, and more specifically composite goods. The said charger is of zero value, without a particular brand or model of a cell phone. Therefore, in view of the specific entries in entry 57 of the H.P. VAT Act, the clarification regarding interpretation of the General rules of interpretation of HSN appended to Customs Tariff Act, 1975, given by Ministry of Finance, dated 30.11.2015 (post the Nokia judgement), various judicial pronouncements on the common parlance text, and essential characteristic test of composite goods. I am inclined to hold that a charger ought to be levied a tax equivalent to the ra....
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....) of the General Rules of Interpretation of Ist Schedule of Customs Tariff. Rule 3 (b) applies to three distinct categories of goods being mixtures, composite goods consisting of different materials 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 c....
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.... of the Court in Nokia. They are, for the sake of convenience, extracted herein below: - "9. The learned counsel appearing on behalf of the respondent demonstrated the composite package of cellphone, cellphone and battery charger and some other accessories like headphone. The contention of the respondent had been that battery charger not being independently sold, was sold with the cellphone in same packing and hence tax chargeable was @ 4% and proper tax had been paid and, therefore, there was no good ground to charge tax @ 12.5% on sale of those battery chargers which are free with the cellphone in the composite package. 10. On the other hand, according to the counsel for the appellant State a battery charger is not a part of the cellphone but merely an accessory thereof even as per the respondents themselves, who had separately paid tax @ 12.5% on the battery chargers sold separately. According to him, the battery chargers are not covered under Entry 60(6)(g) of Schedule B of the Act and was thus liable to be taxed @ 12.5% on its value under Schedule F of the Act which covers all residuary items not falling in any of the classifications of the other Schedules of the Act. 11....
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....omposite goods. This finding was returned in light of the provisions of Rule 3 (b) of the General Rules for Interpretation. It is pertinent to bear in mind that a decision rendered by a Court primarily has three basic postulates. The first, of course, is the facts in the backdrop of which the decision is rendered. The second comprises of the submissions and the issues of law or fact which are urged for the consideration of the Court. The third pillar of the judgment is the principle of law which the Court ultimately formulates and declares. The quest to discern and identify the ratio of a precedent requires the judgment to be read in its entirety, not to be misled by every singular observation as also to bear in mind always the factual backdrop in which it comes to be rendered as well as the questions which are raised for the consideration of the Court. The ratio of a decision can neither be culled out 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 14....
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....n fashion law for the litigants before him. In fashioning it for them, he will be fashioning it for others. The classic statement is Bacon's: ''For many times, the things deduced to judgment may be meum and tuum, when the reason and consequence thereof may trench to point of estate. The sentence of today will make the right and wrong of tomorrow.'" 71. With reference to the precedential value of decisions, in State of Orissa v. Mohd. Illiyas [(2006) 1 SCC 275 : 2006 SCC (L&S) 122] this Court observed: (SCC p. 282, para 12) "12. ... According to the well-settled theory of precedents, every decision contains three basic postulates: (i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by 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 ju....
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....declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. ..." 56. From the aforesaid authorities, it is quite vivid that a ratio of a judgment has the precedential value and it is obligatory on the part of the Court to cogitate on the judgment regard being had to the facts exposited therein and the context in which the questions had arisen and the law has been 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 co....
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.... the Division Bench in Samsung. The Court must also additionally note that the submissions urged by Shri Gulati namely that a single retail package which bears one MRP cannot be severed and the articles contained therein assessed separately was also one which was neither urged nor canvassed in Nokia and therefore consequently not considered. On an over all consideration of the aforesaid aspects, this Court finds itself unable to hold that Nokia is a precedent at all on the question of a composite contract being subjected to tax. The Court then proceeds to consider the submission of Sri Gulati with regard to the applicability of the dominant intention test. In order to appreciate the core of the doctrine of "dominant intention" it would be apposite to revisit the historical background which resulted in the amendments to the Constitution and Article 366 (29A). Initially it was Gannon Dunkerley State of Madras Vs. Gannon Dunkerley AIR 1958 SC 560, which held the field and had declared that for the purposes of a tax on the sale or purchase of goods, the expression "sale" would have to be understood in the manner in which it stood defined under the Sales of Goods Act, 1930. As a resu....
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.... was held that there was no sale. Therefore, a contract under which a contractor agreed to set up a building would not be a contract for sale. It was one contract, entire and indivisible and there was no separate agreement for sale of goods justifying the levy of sales tax by the provincial legislatures. "Under the law, therefore, there cannot be an agreement relating to one kind of property and a sale as regards another." (AIR p. 573, para 33) Parties could have provided for two independent agreements, one relating to the labour and work involved in the execution of the work and erection of the building and the second relating to the sale of the material used in the building in which case the latter would be an agreement to sell and the supply of materials thereunder, a sale. Where there was no such separation, the contract was a composite one. It was not classifiable as a sale. The Court accepted the submission of the assessee that the expression "sale of goods" was, at the time when the Government of India Act, 1935 was enacted, a term of well-recognised legal import in the general law relating to sale of goods and must be interpreted in Entry 48 of List II of Schedule VII of th....
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....tood and recognized is that the power to deconstruct composite contracts stands restricted only to such categories of contracts, which are specifically covered by the various sub clauses of Article 366 (29A) and none other. Article 366 (29A) in that sense is not a general essay or provision which empowers authorities to tax all kinds of composite contracts. This is evident from the following observations as they appear in BSNL: - 41. Sub-clause (a) covers a situation where the consensual element is lacking. This normally takes place in an involuntary sale. Sub-clause (b) covers cases relating to works contracts. This was the particular fact situation which the Court was faced with in Gannon Dunkerley and which the Court had held was not a sale. The effect in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley was directly overcome. Sub-clause (c) deals with hire-purchase where the title to the goods is not transferred. Yet by fiction of law, it is treated as a sale. Similarly the title to the goods under sub-clause (d) remains with the transferor who only ....
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....nt nature test to be applied to a composite transaction not covered by Article 366(29-A). Transactions which are mutant sales are limited to the clauses of Article 366(29-A). All other transactions would have to qualify as sales within the meaning of the Sales of Goods Act, 1930 for the purpose of levy of sales tax. 45. The reason why these services do not involve a sale for the purposes of Entry 54 of List II is, as we see it, for reasons ultimately attributable to the pinciples enunciated in Gannon Dunkerley case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366(29-A) continues to be: Did the parties have in mind or intend separate rights arising out of the sale of goods? If there was no such intention there is no sale even if the contract could be disintegrated. Th....
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.... charger. Regard must also be had to the fact that 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. The third aspect which also commends consideration is that the MRP mentioned on the package is for the commodities or articles contained therein as a whole. It is not for a particular commodity or individual article contained in the composite retail package. The Court notes that Shri Tripathi, the learned standing counsel, was unable to draw its attention to any provision or machinery under the 2008 Act which may have conferred or clothed the assessing authority with the jurisdiction to undertake such an exercise. It is pertinent to note that the only category of composite contracts which stand encapsulated under the 2008 Act are works contract and hire purchase agreements. ....
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....resaid position as the appellant itself subsequently has been paying service tax for the entire collection as processing charges for activating cellular phone and paying the service tax on the activation. The appellant also accepts the position that activation is a taxable service. The position in law is therefore clear that the amount received by the cellular telephone company from its subscribers towards SIM Card will form part of the taxable value for levy of service tax, for the SIM Cards are never sold as goods independent from services provided. They are considered part and parcel of the services provided and the dominant position of the transaction is to provide services and not to sell the material i.e. SIM Cards which on its own but without the service would hardly have any value at all." That then leaves the Court only to consider the submission of Shri Tripathi that Entry-28 on its plain reading would not lend sanction to the contention urged on behalf of the assessee since its stands restricted to a cell phone and its parts. The Court find itself unable to hold against the assessee on the basis of this contention since the same is evidently urged without having due reg....