Supreme Court: Phone Charger Included in MRP, No Separate Tax Under UP VAT

In a ruling, the Supreme Court upheld the decision of the Allahabad High Court, which stated that a charger sold with a cell phone under the MRP cannot be taxed separately under the UP VAT Act, 2008.

The division bench of Justice BV Nagarathna and Justice SC Sharma was recognizing a challenge to the Allahabad High Court’s ruling that a mobile charger included in a cell phone’s composite package cannot be taxed separately under Entry 28 Part B Schedule II of the U.P. VAT Act 2008.

Cell phones and their components are contained in the Entry States (List of IT Products Taxed at 5%), except cell phones with MRPs greater than ten thousand rupees.

The issue began when the mobile chargers were attempted to separately taxed at 14% by the Uttar Pradesh tax authority as uncategorised goods, even though they were packaged with cell phones.

It was mentioned by the government that the State of Punjab vs. Nokia India Pvt Ltd decision from the Supreme Court, which categorized chargers as accessories instead of essential parts of cell phones

The Supreme Court in State of Punjab Vs. Nokia India Pvt Ltd ruled that only packaging the mobile phone and its charger together would not make them composite goods.

This observation was made concerning provisions of Rule 3(b) of the General Rules for Interpretation of the harmonized system.

It was marked by the High Court that the Supreme Court had neither advocated nor opted into the consideration of the claim that the sale of a mobile phone and its charger in a single retail package comprises a composite contract and required the application of the prevailing intention test.

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The court In this case, under Sales/Traderevision jurisdiction was considering a challenge to a Tribunal order dated January 12, 2017, which kept the assessing authority’s conclusion that, despite being sold as part of a composite package, the charger was not within 5% tax rate contemplated under Entry-28 appearing in Part-B of Schedule-II. Instead, it was considered an addition and would be levied to 14% taxation as an unclassified item.

HC made a distinction between the Nokia case and the current one. In the former, the Supreme Court was sought to decide whether the charger was a composite part of the phone, and the court determined that it was an addition.

The issue in the case is not similar. As per the court, the claim that is presently being made is that “the sale of the mobile phone along with its charger in a single retail package constitutes a composite contract and requires the application of the dominant intention test was neither urged nor considered by the Supreme Court.”

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Entry No. 28 of Schedule II, Part B clearly articulates that the MRP indicated on the mobile phone box with the charger serves as the exclusive basis for taxation. ‘Disjunctively’ does not imply that the Charger is a separately taxed item.