Recently Honourable Supreme Court had dealt with VAT Appeal Nos 54 &55 (O&M) of 2010 passed by the High Court of Punjab and Hariyana . While disposing Civil Appeal Nos 11486-11487 of 2014 of State of Punjab & Ors Versus Nokia India Pvt. Ltd.,2014-TIOL-100-SC-VAT they held that
……we find that the Assessing Authority, Appellate Authority and the Tribunal rightly held the mobile /cell phone charger is an accessory to cell phone and is not a part of the cell phone. We further hold that the battery charger cannot be a composite part of the cell phone but is an composite part of the cell phone but is an independent product which can be sold separately, without selling the cell phone. The High Court failed to appreciate the aforesaid fact and wrongly held that the battery charger is a part of the cell phone.
Is it a Realistic Order ?
With due respect to the ruling of the Honourable Court, I must take it that the aforesaid ruling is based upon the definition, tariff heading & classification, understanding in trade, interpretation & usage of an accessory .
The Honourable Supreme Court , in the aforesaid order, at para 16 even held that
“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. “
For better understanding of the term accessory, I refer the following:
1. Concise Oxford Dictionary, Ninth Edition- defines it as a noun as ‘an additional or extra thing, a small attachment or fitting, a small item of dress’, and as an adjective as ‘additional, contributing in a minor way, dispensable’.
2. Webster’s Dictionary- defines it as a noun as ‘a wing of secondary subordinate importance, an object or device not essential in itself but adding to the beauty, convenience or effectiveness of something else' and an adjective it has been defined as ‘assisting as a subordinate, adding or contributing in consequential way, present in a minor amount and not essential as a constituent.
Supreme Court on Accessory
a.‘accessory’ is something supplementary or subordinate in nature and need not be essential for the actual functioning of the product.
Commissioner of Central Excise, Delhi V. Insulation Electrical (P) Ltd. – 2008 (224) ELT 512 (SC)
b. ‘accessory’ means an object or device that is not essential in itself but that which adds to the beauty or convenience or something of greater or primary importance which assists in operating or controlling or may serve as aid to a accessory.
Mehra Brothers V. Joint Commercial Officer’ – 1991 (51) ELT 173 (SC)
Battery Charger – Is it only an accessory?
1. going by the dictionary meaning and ratio laid down to define accessory, It is pertinent to note that a battery charger is not increasing the following :
Rather, it is must to make the cell phone operational . Whereas, an accessory is not must to make something operational .
2. The mobile chargers are detachable from the mobile and it is connected to charge the battery of a mobile.
3. No person will charge mobile by firstly switching on the laptop and then connecting charger with mobile.
4. If a mobile is sold without a battery charger then a battery charger will be bought by a user not as an accessory but as a mandatory requirement to make the mobile operational.
How Cell phones are packed & sold?
Every cell phone’s manufacturer is packing & selling a battery charger alongwith a cell phone.
Every cell phone’s manufacturer is selling a battery charger as accessory as well.
In light of the same, if battery charger is sold separately as well, can it be an acid test to consider that it is not an important and integral part of mobile phone rather it is an accessory.
Factual aspects of Nokia Case
• Nokia is selling composite package of cell phone .
• The composite package consists of a cell phone and battery charger .
• They were discharging tax liability @4% on composite package
• They were also selling battery charger separately
• The battery charger when sold separately it attracted 12.5% .
• They were discharging liability accordingly and also shown battery charger as an accessory .
Contention of Nokia
• Battery charger is not sold independently
• It was sold with the cell phone in same packing as composite package and hence tax chargeable was at the rate of 4% and proper tax had been paid and, therefore, there was no good ground to charge tax at the rate of 12.5% on sale of those battery chargers
• The batter chargers are given free with the cell phone in the composite package.
Contention of State
• A battery charger is not a part of the cell phone but merely an accessory thereof even as per the respondents themselves, who had separately paid tax at the rate of 12.5% on the battery chargers sold separately.
• The battery charges are not covered under Entry 60(6)(g) in Schedule ‘B’ of the Act and was thus liable to be taxed at the rate of 12.5% on its value under Schedule ‘F’ of the Act which covers all residuary items not falling in any of the classifications of other Schedules of the Act.
Supreme Court’s Analysis
• Cell phone is mentioned in the said schedule and it finds further place at Serial No.6(g) under Entry 60 and is thereby liable to be charged at the rate of 4%.
• Whenever Company sells chargers separately then 12.5% tax is charged which is applicable to goods in residuary Schedule ‘F’ of Act.
• Entry 60(6)(g) of Schedule ‘B’ of the Act does not mention accessories for the purpose of taxing the item/product at the rate of 4%, they need to be charged at 12.5% as per Schedule ‘F’. It was contended that the battery chargers are not covered under Entry 60(6)(g) and even otherwise there is no mention of the charger in HMS Code 8525.20.17 under the Excise Act, and therefore, charger is liable to be taxed at the rate of 12.5%.
• ‘Cellular telephone’ is in schedule B at Entry No.60(6) (g) vide HSN Code No.8525.20.17. The Tariff No.8525.20.17 only relates to cellular telephone and not the accessories. The Schedule ‘B’ does not indicate that the cellular phone includes the accessories like the chargers either in the HSN Code or by elaborating in words.
• If the charger was a part of cell phone, then cell phone could not have been operated without using the battery charger. But in reality, it is not required at the time of operation.
• Further, 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 common parlance also, the mobile battery charger is understood as an accessory. It has also been noticed by the Tribunal that a Nokia make battery charger is compatible to many models of Nokia mobile phones and also many models of Nokia make battery chargers which are compatible to a particular model of Nokia mobile phone, imparting various levels of effectiveness and convenience to the users.
Supreme Court Concluded
Para 17. Learned counsel for the respondent referred to General Rules for interpretation of the First Schedule of the Import Tariff under the Customs Tariff Act, 1975. The classification of the goods in the Schedule for the purpose of Rule 3(b) in the general rules for interpretation of import tariff reads as follows:
“3(b) mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material of component which gives them their essential character, insofar as this criterion is applicable.”
It was contended that composite goods being used consisting of different materials and different components, and goods put up in sets for retail sale, cannot be classified by reference to clause (a). However, such submission cannot be accepted as it cannot be held that charger is an integral part of the mobile phone making it a composite good. Merely, making a composite package of cell phone charger will not make it composite good for the purpose of interpretation of the provisions. The word ‘accessory’ as defined in the Webster’s Comprehensive Dictionary (International) Volume-I is defined as:
a person or thing that aids subordinately; an adjunct; appurtenance; accompaniment (2) such items of apparel as complete an outfit, as gloves, a scarf, hat or handbag.(3) A person who, even if not present, is concerned, either before or after, in the perpetration of a felony below the crime of treason. Adj.(1) Aiding the principal design, or assisting subordinately the chief agent, as in the commission of a crime.(2)contributory; supplemental; additional: accessory nerves”.
Para 18. In M/s. Annapurna Carbon Industries Co. vs. State of Andhra Pradesh, (1976)2 SCC 273, this Court while examining the question whether “Arc Carbon” is an accessory to cinema projectors or whether comes under other cinematography equipments under Entry 4 of Schedule I to the A.P. General Sales Tax Act, 1957, defined accessories as:
an object or device that is not essential in itself but that adds to the beauty, convenience or effectiveness of something else”.
Para 19. In view of the aforesaid facts, we find that the Assessing Authority, Appellate Authority and the Tribunal rightly held the mobile /cell phone charger is an accessory to cell phone and is not a part of the cell phone. We further hold that the battery charger cannot be a composite part of the cell phone but is an composite part of the cell phone but is an independent product which can be sold separately, without selling the cell phone. The High Court failed to appreciate the aforesaid fact and wrongly held that the battery charger is a part of the cell phone.
Reality Needs To Be Understood
I feel that it is equally important to refer the concluding decision in Annapurna Carbon Industries Co vs State Of Andhra Pradesh - 1976 AIR 1418, 1976 SCR (3) 561 which was also relied upon in Nokia’s decision at para 18 of the order . The concluding para’s are reproduced herein below :
We find that the term “accessories” is used in the schedule to describe goods which may have been manufactured for use as an aid or addition. A sense in which the word accessory is used is given in Webster’s Third New International Dictionary as follows: “all objects or device that is not essential in itself but that adds to the beauty, convenience, or effectiveness of something else”. Other meanings given there are: “supplementary or secondary to something of greater or primary importance”; “additional”; “any of several mechanical devices that assist in operating or controlling the tone resources of an organ.” “Accessories” are not necessarily confined to particular machines for which they; may serve as aids. The same item may be an accessory of more than one kind of instrument.
It will be noticed that the entry we have to interpret includes parts” as well as “accessories” which are required for use in projectors or other cinematographic equipment. We think that the Andhra Pradesh High Court correctly held that the main use of the arc carbons under consideration was duly proved to be that of production of powerful light used in projectors in cinemas. The fact that they can also be used for search lights, signalling, stage lighting, or where powerful lighting for photography or other purposes may be required, could not detract from the classification to which the carbon arcs belong. That is determined by their ordinary or commonly known purpose or user. This, as already observed by us, is evident from the fact that they are known as “cinema arc carbons” in the market. This finding was enough, in our opinion, to justify the view taken by the Andhra Pradesh High Court that the goods under consideration are covered by the relevant entry No. 4.
Before departing, I must emphasise that if common parlance was also considered , by the Honourable Court at para 16 of the order, then the following should have been also argued & considered that as to
- how many person owns laptop
- how many person charges the battery of cellphone through their laptop and
- how cell phones are understood ,packed, displayed, sold and bought in market ?
- how cell phones are operated with the help of a battery
- how to make a battery operational via charging , in a cell phone , to make a cell phone operational ?
This can be also understood in the context of the ratio laid down by Honourable Supreme Court in Collector of C.E., Kanpur Versus Krishna Carbon Paper Co.-1988(37) E.L.T.480(S.C) wherein it was held that
Classification of goods – Interpretation of Tariff Entry – Dictionary meaning not always safe – Trade meaning to be preferred – When trade meaning not available – Ordinary meaning to be preferred over the scientific or technical meaning – ISI specification to relied upon in the absence of any other trade evidence.
Where no definition is provided in the statute itself for ascertaining the correct meaning of a fiscal entry, reference to a dictionary is not always safe. The correct guide, it appears in such a case, is the context and the trade meaning. The trade meaning is one which is prevalent in that particular trade where that good is known or traded. If special type of goods is subject matter of a fiscal entry then that entry must be understood in that context of that particular trade. Where however, there is no evidence either way then the definition given and the meaning following from particular statute at particular time would be the decisive test. Similarly, where a word has a scientific or technical meaning and also an ordinary meaning, the ordinary meaning should be preferred unless containing intention is clearly expressed by the Legislative. Where no trade evidence is available but ISI specifications are available, they should be relied upon for interpreting a Tariff Entry.
The author is a leading indirect tax advocate handling cases in CESTAT & High Courts of India. He can be contacted on firstname.lastname@example.org and for more please refer www.amlegals.com.