Charger sold along with mobile phone in a set won’t draw separate higher VAT: Karnataka HC

The High Court stated, the charger sold as part of a mobile phone set is subject to 5% tax under the Karnataka Value Added Tax (KVAT) Act.

The court emphasised that because the KVAT Act notification indicates that “telephone set” includes “parts thereof,” it is clear that the authorities intended the notification to apply to “telephone and parts thereof,” which includes the charger.

This was made clear by a division bench led by Justice PS Dinesh Kumar while dismissing a batch of Sales Tax Revision Petitions (STRPs) filed by the commercial tax department. “A simple perusal of section 4 (charging section) of KVAT Act and rule 3 (computation provision) of KVAT Rules would suggest that there is no prescribed mechanism provided for assessing the value of individual products in a composite transaction. As a result, in the lack of a valuation system, tax cannot be assessed differentially on each component by dividing a single composite package,” the bench stated.

It was noticed that the mobile phone falls under the III Schedule and is taxable at 5%; thus, the charger offered in a ‘one set’ with the phone is chargeable at 5% as well. This viewpoint is consistent with the law established by the Supreme Court in the CIT vs. BC Srinivasa Setty case, according to the bench.

“The assessees have correctly raised the issue of using the prevailing intention test. There is little doubt that the main aim of a purchaser/seller when purchasing/selling a’mobile set’ is to purchase/sell the mobile phone rather than the charger alone. The sale includes the supply of a charger, headset, and an ejection pin. As a result, the dominant intention test would apply in this situation, and the charger could not be taxed differently,” the bench stated.

In 2021, the commercial taxation department contested different orders issued by the Karnataka Appellate Tribunal (KAT) in Bangalore. The KAT ruled that chargers supplied in conjunction with mobile phones in a composite bundle are subject to the same tax rate as the mobile phone alone, and cannot be taxed at a higher rate as unscheduled products under section 4(1)(b)(iii) of the Act.

Court had granted the appeals of assessees such as Msrs Intex Technologies Ltd, Samsung, Bharati Telecom, and others. They had contested the commercial tax department’s re-assessment orders (during the pre-GST period) issued in response to a clarification issued on September 6, 2008, stating that mobile chargers are subject to 12.5% tax.

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