TaxTMI 
TaxTMI 
2018 (1) TMI 911
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....rt in State of Punjab Vs. Nokia India Pvt Ltd 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....
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....re it in this connection. According to Shri Gulati a careful reading of the decision in Nokia India would establish that the primary contention which was urged for consideration 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 dec....
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....age and subjecting them to assessment separately. This in his submission was even otherwise impermissible since no provision of the 2008 Act empowered the respondents to bifurcate the contents 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 accessor....
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.... of telephone set is more specific than the residuary entry and the goods would thus be classified as telephone sets under Rule 3 (a). Even assuming that the classification cannot be done under Rule 3 (a), even under Rule 3 (b), the composite box 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 r....
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.... gives them their essential character. Similarly Rule 3 (b), lays down that composite goods made of different components and goods put up in sets for retail sale are then to be classified by that component which gives them their essential character. This tribunal 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 Minis....
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.... reply to notices and as also before Tribunal in State of Punjab that battery charger is an accessory. It is submitted that it is not case of petitioner that battery charger is an accessory and, as such, Nokia judgment does not apply. (c) The Court in para 17 has noticed Rule 3 (b) 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....
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....evolved around the question as to whether Nokia concludes the controversy or not, the first and foremost exercise which this Court must undertake is to ascertain the ratio decidendi of the said judgment. But before embarking on this exercise, it would be apposite to first notice the relevant parts of the judgment 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 ba....
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.... the decision rendered by the Supreme Court in Nokia establishes that the contention urged before the Court was that the charger as well as the mobile phone when placed in a singular package were liable to be viewed as composite goods. In that context, the Supreme Court held that merely by packaging the mobile phone and its charger together would not make them composite 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....
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....ould also be the wisest Judge". Warning against comparing precedents with matching colours of one case with another, he summarised the process, in case the colours do not match, in the following wise words: "It is when the colors do not match, when the references in the index fail, when there is no decisive precedent, that the serious business of the Judge begins. He must then 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 direc....
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....e same principles are applied in each case to similar facts." 54. In this context, a passage from Commissioner of Income Tax v. Sun Engineering Works (P) Ltd. [(1992) 4 SCC 363] would be absolutely apt: "39. ... It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be complete ''law' 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 p....
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....vember 2015 as well as the provisions of the 1963 Rules which are noticed in the decision of the Himachal Pradesh Tax Tribunal also do not appear to have been brought to the attention of the Court. The entry of the Punjab VAT Act in the backdrop of which the decision itself came to be rendered is also distinct from the one which stands embodied in the 2008 Act. The distinguishable features of the judgment of the Supreme Court in Nokia was also noticed by 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"....
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....ndia Act, 1935 did not cover the sale sought to be taxed by the State Government under the Madras General Sales Tax Act, 1939. The classical concept of sale was held to apply to the entry in the legislative list in that there had to be three essential components to constitute a transaction of sale, namely, (i) an agreement to transfer title, (ii) supported by consideration, and (iii) an actual transfer of title in the goods. In the absence of any one of these elements it 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 agr....
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.... amendment in essence enabled and empowered taxing authorities to view the abovementioned category of contracts as ones that were divisible and where by legal fiction a sales element could be isolated and subjected to tax. It is to this extent only that the principles elucidated in Gannon Dunkerley ceased to have application. However composite contracts which do not stand digested and dealt with by Article 366 (29A) specifically still stand on the same pedestal. What needs to be understood 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 Ganno....
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....o known legal connotations. This does not mean that the content of the concepts remain static. The courts must move with the times. But the Forty-sixth Amendment does not give a licence, for example, to assume that a transaction is a sale and then to look around for what could be the goods. The word "goods" has not been altered by the Forty-sixth Amendment. That ingredient of a sale continues to have the same definition. The second respect in which Gannon Dunkerley has survived is with reference to the dominant 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 transac....
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....aramount 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. 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....
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....iced hereinabove, the supply of the charger was only collateral. The aspect of true intent fell for consideration of the Supreme Court in Idea Mobile Communication Ltd Vs. Commissioner of Central Excise and Customs, Cochin. (2011) 12 SCC 608 when the Court observed as follows:- "20. The charges paid by the subscribers for procuring a SIM Card are generally processing charges for activating the cellular phone and consequently the same would necessarily be included in the value of the SIM Card. There cannot be any dispute to the aforesaid 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 tra....