Charger sold with a mobile phone taxable at 5% : High Court

Bengaluru: According to the high court, the charger sold as part of a mobile phone package is subject to 5% tax under the Karnataka Value Added Tax (KVAT) Act.

This was made clear by a division bench led by Justice PS Dinesh Kumar when it dismissed a number of Sales Tax Revision Petitions (STRPs) submitted by the commercial tax division. "A quick perusal of KVAT Act section 4 (the section governing charging) and KVAT Regulations rule 3 (the provision governing computation) would seem that there is no established approach to determining the value of separate products in a composite transaction." Hence, the bench stated, "tax cannot be imposed differentially on each of the components by separating a single composite package in the absence of a valuation mechanism."

The mobile phone is included in the III Schedule and is subject to a 5% tax, thus the charger that is sold with the phone as part of "one set" is also subject to a 5% tax. The bench said, "This view is consistent with the law established by the Supreme Court in the CIT vs. BC Srinivasa Setty case."

"The assessees have correctly challenged how the dominant intention test is applied. There is no question that the primary goal of a buyer or seller when purchasing or offering to sell a "mobile set" is to acquire or dispose of the mobile phone and not only the charger. In connection with the sale, a charger, headset, and ejection pin are supplied. The dominant intention test would therefore apply in the current case, and as a result, the charger cannot be subject to a different tax, the bench noted.

In 2021, the commercial taxes division appealed a number of decisions made by the Karnataka Appellate Tribunal (KAT), Bengaluru. The KAT had ruled that, in accordance with section 4(1)(b)(iii) of the Act, chargers sold in composite packs with mobile phones are subject to tax at the same rate as that applied to the mobile phone alone.

The appeals submitted by assessees like Msrs Intex Technologies Limited, Samsung, Bharti Telecom, and others had been accepted. In response to a clarification sent out on September 6, 2008, they had contested the reassessment orders (during the pre-GST period) issued by the business tax department, alleging that mobile chargers are subject to tax at a rate of 12.5%.