Some of the cases are worth reading. The Court’s view may not be the same as that of common men. One such case is discussed in this article.
When you buy a mobile phone, will you ever think that the battery charger is something independent of the phone? The shop fellow will raise an invoice; give you the mobile phone box containing phone, charger, hands-free device, USB cable, etc. I doubt any retailer would have given the customer a choice of buying the charger.
Here is one case of Punjab State. M/s Nokia India Pvt. Ltd is a registered dealer under Punjab Value Added Tax Act doing business of sale of cell phones and their accessories.
The Case –
- During the financial year 2005-06, the company has made sales of 10,72,679 pieces of cell phones (with battery charger) and had paid tax at the rate of 4%.
- The cost of the battery charger if sold separately is Rs.128 per piece. (means in the above case, Rs.12 Crores worth of battery chargers are sold along with cell phones)
- During the scrutiny assessment, Punjab VAT department held that the battery charger is an accessory and hence to be considered separately for tax purchase. The tax on cell phone is 4% but the tax on battery charger is 12.5%. The cell phone attracts concessional rate of tax as per the provisions of VAT laws but the accessories to be taxed at higher rates. Hence, the company has to pay a differential tax of 8.5% on the sale value of batteries. (i.e., 8.5% of Rs.12 Crores)
- The VAT department issued a demand notice for Rs.1.09 Crore VAT + Interest of Rs.21 lakhs + penalty of Rs.85 Lakhs (at interest of.2% per month) totaling to Rs.2.15 Crores.
- Similarly, for the financial year 2006-07, the department issued a demand notice for Rs.3.10 Crores!
How is the case sir? If you are a businessman, how would you take this order? As a common man, can you digest this kind of interpretation?
The company couldn’t digest this kind of demand on them. They replied to the department stating that “the battery charger is an integral part of cell phone sale. They are not charging any amount separately for battery charger. Wherever they have sold the charger separately as an accessory, they have paid tax at 12.5%”
The department stood to their stand and asked the company to pay differential tax.
Before Commissioner (Appeals) – the company approached the Commissioner (Appeals). But the case went in favor of the department asking the company to pay additional taxes as demanded by the department.
Before the Tribunal – The company appealed to the tribunal. They have partial relief to the company by setting aside Penalty demand of Rs.1.85 Crores.
Before the High Court of Punjab and Haryana – The Company appealed to the High Court and got the order in its favor. The court said “the battery charger is a part of the composite package of cell phone and hence differential taxes should not be levied”
Before the Supreme Court of India – The VAT department appealed to Supreme Court of India. Some of the points observed are –
- If the charger was a part of cell phone, then cell phone could not have been operated without using the battery charger
- the battery in the cell phone can be charged directly from the other means also like laptop without employing the battery charger, implying thereby, that it is nothing but an accessory to the mobile phone
- In the information available on the website of Nokia, the Company has invariably put the mobile battery charger in the category of an accessory which means that in the common parlance also, the mobile battery charger is understood as an accessory
The Judgment – The battery charger cannot be held to be a composite part of the cell phone but is an independent product which can be sold separately, without selling the cell phone. So, the Court said “In view of the finding recorded above, we have no other option but to set aside the impugned orders dated 17th November,2010 in VAT Appeal Nos.54 & 55 (O&M) of 2010 passed by the High Court of Punjab and Haryana at Chandigarh. The order passed by the Tribunal is affirmed”
What can happen to consumers in future?
- The companies may increase the cost of cell phones to the tune of increase in additional VAT cost
- Alternatively, the companies may start packing the cell phones without charges. They will sell charger separately like ‘screen guard’
What can happen to companies?
- The tax demand raised is for 2 years. What about additional taxes from 2008 till date? The department may go after the company again!
- If one company has done this way, what about other companies? All of them may be invoicing as a single integrated pack. So, Mr. department, go and catch them all!
- If this is the case at Punjab; Mr. Other States, you can’t be blind to the decision. Go and check your rules; if it suits you, issue notice to cell companies!
Thought for the day
Good judgment comes from experience, and a lot of that comes from bad judgment.