TMI Blog2018 (1) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... . In any view of the matter, there does not appear to be any separate or distinct intent to sell the charger. The Court is considering the case of a composite package, which bears a singular MRP. The charger is admittedly neither classified nor priced separately on the package. It is also not invoiced separately. The MRP is of the composite package. The respondents therefore cannot be permitted to split the value of the commodities contained therein and tax them separately. This especially when one bears in mind that entry 28 itself correlates the article to the MRP. Revision allowed - decided in favor of assessee. - Sales/Trade Tax Revision No. 479 of 2017 - - - Dated:- 18-1-2018 - Hon'ble Yashwant Varma, J. For the Applicant : Nishant Mishra For the Opposite Party : C.S.C ORDER Hon'ble Yashwant Varma, J. Heard Shri Tarun Gulati, learned counsel assisted by Shri Shashi Mathew and Nishant Misha for the revisionist and Shri A.C. Tripathi, learned standing counsel for the respondent. The seminal issue which arises in this batch of revisions is whether a mobile charger when sold as part of a composite package comprising the said article as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,565/- 11 116/16 February-2015 25,27,901/- 12 117/16 March-2015 26,40,209/- 13 334/16 April-2015 27,41,178/- 14 335/16 May-2015 26,93,382/- 15 336/16 June-2015 38,34,242/- 16 337/16 July-2015 47,45,272/- 17 479/17 2012-13 2,52,01,348/- 18 478/17 August-2015 56,56,532/- For the purposes of disposal of this batch, STR No. 479 of 2017 which relates to Assessment Year 2012-13 was treated as the lead matter. This revision has called in question an order of the Tribunal dated 12 January 2017 which has affirmed the view taken by the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court proceeded to hold that the charger is not an integral part of the mobile phone so as to bring it within the ambit of the expression 'composite goods'. He submits it was in light of the nature of the contentions urged that the Court proceeded to hold that the charger is an accessory to a mobile phone and not a part thereof. In view of the above, Shri Gulati has submitted that the decision in Nokia cannot be blindly applied to the facts of a case where the assessee does not claim them to be composite goods. Shri Gulati then placed reliance upon a decision rendered by a Division Bench of this Court in M/s. Samsung India Electronics Pvt Ltd Vs. State of U.P. and others Writ Tax No. 435 of 2016 decided on 1 August 2016 to submit that the distinguishable features of the Nokia decision of the Supreme Court were duly noticed by the Division Bench and that the issue itself came to be answered in favor of the present revisionist. In his submission the decision of the Division Bench in Samsung clearly settles the controversy beyond any doubt and that the Tribunal has clearly erred in failing to apply the said decision in the facts of the present case. Shri Gulati then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pradesh and another 2017VIL16TRB when the following observations came to be made: 10.Reliance has been placed on a Ministry of Finance, Department of Revenue (State Taxes Division) circular dt 30.11.15, whereby attention of all State Commercial Tax Commissioners, has been drawn to the Hon'ble Apex Court decision (Nokia case) holding that a charger is not a part of a mobile but an accessory That the judgment has been interpreted by some states to imply that mobile chargers sold as a single unit with the mobile phone is to be taxed separately. That para 2 and 3, of the circular further mentions as follows: In such cases, the Government of India, based on the Customs (Accessory Conditions Rule, 1963) notified by notification No.18-Cus dt. 23.01.1963, specifically provides that accessories compulsorily supplied free with an Article attract the same rate of duty, which is applicable on the imported Articles. para 3 As this matter impacts the entire range of consumer electronic products, the States may also consider taking the view that accessories be treated as a part of the main item when they are sold bundled together as a single unit . He also placed reliance upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the classification of the cell phone. 18. The answers to the questions as posed in para 5 (supra) are as follows, the Hon'ble Apex Court has in the Micromax judgement stated that the Nokia case is distinguishable; the Nokia judgment is not ratio decendi for provisions under the H.P. VAT Act, wherein entries No.57 of Schedule-A clearly state that 5% concessional rate of tax will apply to mobile phones and parts thereof . Similarly Rule 3 (a) and (b) of the General Rules for interpretation of Harmonished System appended to the Customs Tariff Act, 1975, stipulates that the essential character of the goods in question in a composite transaction comprising of different components has to be determined with reference to main component of higher value. In fact Justice A.K. Goyal, in his decision in VAT Appeal 54 of 2010, (Punjab High Court) has reiterated the distinction between ''part of goods' and accessories' and distinguished the judgements relied upon by the revenue, in case Kores India Ltd, (1977) 039 STC 0008 - 1976-VIL-08-SC, in which case the Hon'ble Supreme Court, held that there was nothing to show that the ribbon and carbon papers were sold witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the price of the goods, and more specifically composite goods. The said charger is of zero value, without a particular brand or model of a cell phone. Therefore, in view of the specific entries in entry 57 of the H.P. VAT Act, the clarification regarding interpretation of the General rules of interpretation of HSN appended to Customs Tariff Act, 1975, given by Ministry of Finance, dated 30.11.2015 (post the Nokia judgement), various judicial pronouncements on the common parlance text, and essential characteristic test of composite goods. I am inclined to hold that a charger ought to be levied a tax equivalent to the rate of tax as levied on the cell phone. Shri Avinash Chandra Tripathi, the learned standing counsel has while refuting the above submissions contended that the decision of the Supreme Court in Nokia is a direct and emphatic answer to the questions raised. According to Shri Tripathi, Nokia is a binding precedent for the proposition that a charger is an accessory and thus liable to be taxed separately. Shri Tripathi has in support of his submission placed reliance upon the decisions of the Supreme Court in M/s. Annapurna Carbon Industries Co. Vs. State of Andhra P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se it was argued that cellphone and battery charger are composite goods. Petitioner in present case has never argued that two are composite goods. Instead it's case is that these goods are put up in sets for retail sale and fall under category (c) noticed above. There is no finding of the Court that if goods fall in category (c), they cannot be classified according to essential character test. By use of words, as if Rule 3 (b) applies a fiction by which it is assumed that component which gives essential character is only component which is relevant and common classification of all goods put up in the set has to be classification of component which gives the set its essential character. Undoubtedly, in a set or a composite box containing the cellphone and the battery charger, the essential character of set is that of cellphone and entire set is to be classified as a cellphone. (e). No argument was raised in Nokia and there is no finding on the issue in that case that there is a legal impossibility of making a separate classification and having a separate value for each component in a composite box containing the cellphone and the battery charger. Under the Legal Metrolog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % on sale of those battery chargers which are free with the cellphone in the composite package. 10. On the other hand, according to the counsel for the appellant State a battery charger is not a part of the cellphone but merely an accessory thereof even as per the respondents themselves, who had separately paid tax @ 12.5% on the battery chargers sold separately. According to him, the battery chargers are not covered under Entry 60(6)(g) of Schedule B of the Act and was thus liable to be taxed @ 12.5% on its value under Schedule F of the Act which covers all residuary items not falling in any of the classifications of the other Schedules of the Act. 11. We have heard the rival contentions made on behalf of the parties and perused the record. Schedule B of the Act contains list of goods taxable @ 4%. Cellphone 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 @ 4%. 12. According to the counsel for the respondent, charger is an integral part of the cellphone and the cellphone cannot be operated without the charger and when any person comes for cellphone, he purchases the cellphone and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltimately formulates and declares. The quest to discern and identify the ratio of a precedent requires the judgment to be read in its entirety, not to be misled by every singular observation as also to bear in mind always the factual backdrop in which it comes to be rendered as well as the questions which are raised for the consideration of the Court. The ratio of a decision can neither be culled out nor recognized without due consideration being conferred on the aforementioned factors. While these principles are well settled, it would be relevant to notice the following observations as made by the Supreme Court in Natural Resources Allocation (2012) 10 SCC 1:- 69. Article 141 of the Constitution lays down that the law declared by the Supreme Court is binding upon all the courts within the territory of India. The law declared has to be construed as a principle of law that emanates from a judgment, or an interpretation of a law or judgment by the Supreme Court, upon which, the case is decided. (See Fida Hussain v. Moradabad Development Authority [(2011) 12 SCC 615 : (2012) 2 SCC (Civ) 762] .) Hence, it flows from the above that the law declared is the principle culled out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] this Court observed: (SCC p. 282, para 12) 12. ... According to the well-settled theory of precedents, every decision contains three basic postulates: (i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of the above. A decision is an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically flows from the various observations made in the judgment. 73. It is also important to read a judgment as a whole keeping in mind that it is not an abstract academic discourse with universal applicability, but heavily grounded in the facts and circumstances of the case. Every part of a judgment is intricately linked to others constituting a larger whole and thus, must be read keeping the logical thread intact. In this regard, in Islamic Academy of Education v. State of Karnataka [(2003) 6 SCC 697] , this Court made the following observati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. ... 56. From the aforesaid authorities, it is quite vivid that a ratio of a judgment has the precedential value and it is obligatory on the part of the Court to cogitate on the judgment regard being had to the facts exposited therein and the context in which the questions had arisen and the law has been declared. It is also necessary to read the judgment in entirety and if any principle has been laid down, it has to be considered keeping in view the questions that arose for consideration in the case. One is not expected to pick up a word or a sentence from a judgment de hors from the context and understand the ratio decidendi which has the precedential value. That apart, the Court before whom an authority is cited is required to consider what has been decided therein but not what can be deduced by following a syllogistic process. (emphasis supplied) As has been succinctly explained in the decisions noticed above, the ratio is the principle deducible from the application of the law to the facts of a particular case and it is this which constitutes t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all on the question of a composite contract being subjected to tax. The Court then proceeds to consider the submission of Sri Gulati with regard to the applicability of the dominant intention test. In order to appreciate the core of the doctrine of dominant intention it would be apposite to revisit the historical background which resulted in the amendments to the Constitution and Article 366 (29A). Initially it was Gannon Dunkerley State of Madras Vs. Gannon Dunkerley AIR 1958 SC 560, which held the field and had declared that for the purposes of a tax on the sale or purchase of goods, the expression sale would have to be understood in the manner in which it stood defined under the Sales of Goods Act, 1930. As a result of this declaration of the law, the transfer of goods in the course of execution of a works contract, the provision of service in eating establishments, the transfer of a right to use, all fell outside the ambit of taxation. This for the Court in Gannon Dunkerley recognized that in order to constitute a sale it was necessary that there exist an agreement to transfer title supported by consideration and an actual transfer of property in goods. It was conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could have provided for two independent agreements, one relating to the labour and work involved in the execution of the work and erection of the building and the second relating to the sale of the material used in the building in which case the latter would be an agreement to sell and the supply of materials thereunder, a sale. Where there was no such separation, the contract was a composite one. It was not classifiable as a sale. The Court accepted the submission of the assessee that the expression sale of goods was, at the time when the Government of India Act, 1935 was enacted, a term of well-recognised legal import in the general law relating to sale of goods and must be interpreted in Entry 48 of List II of Schedule VII of the 1935 Act as having the same meaning as in the Sale of Goods Act, 1930. According to this decision if the words sale of goods have to be interpreted in their legal sense, that sense can only be what it has in the law relating to sale of goods. To use the language of the Court: (AIR p. 577, para 46) 46. To sum up, the expression ''sale of goods' in Entry 48 is a nomen juris, its essential ingredients being an agreement to sell movabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (a) covers a situation where the consensual element is lacking. This normally takes place in an involuntary sale. Sub-clause (b) covers cases relating to works contracts. This was the particular fact situation which the Court was faced with in Gannon Dunkerley and which the Court had held was not a sale. The effect in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley was directly overcome. Sub-clause (c) deals with hire-purchase where the title to the goods is not transferred. Yet by fiction of law, it is treated as a sale. Similarly the title to the goods under sub-clause (d) remains with the transferor who only transfers the right to use the goods to the purchaser. In other words, contrary to A.V. Meiyappan decision [(1967) 20 STC 115(Mad)] a lease of a negative print of a picture would be a sale. Sub-clause (e) covers cases which in law may not have amounted to sale because the member of an incorporated association would have in a sense begun as both the supplier and the recipient of the supply of goods. Now such transactions are deemed sales. Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or reasons ultimately attributable to the pinciples enunciated in Gannon Dunkerley case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366(29-A) continues to be: Did the parties have in mind or intend separate rights arising out of the sale of goods? If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is the substance of the contract . We will, for the want of a better phrase, call this the dominant nature test. 50. What are the goods in a sales transaction, therefore, remains primarily a matter of contract and intention. The seller and such purchaser would have to be ad idem as to the subject-matter of sale or purchase. The court w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... especially when one bears in mind that entry 28 itself correlates the article to the MRP. The third aspect which also commends consideration is that the MRP mentioned on the package is for the commodities or articles contained therein as a whole. It is not for a particular commodity or individual article contained in the composite retail package. The Court notes that Shri Tripathi, the learned standing counsel, was unable to draw its attention to any provision or machinery under the 2008 Act which may have conferred or clothed the assessing authority with the jurisdiction to undertake such an exercise. It is pertinent to note that the only category of composite contracts which stand encapsulated under the 2008 Act are works contract and hire purchase agreements. The other part of Article 366 (29-A) which stands engrafted is with respect to the transfer of a right to use. The composite contracts which arise from the sale of a composite package are not dealt with under the 2008 Act. The Act also does not put in place or engraft any provision which may empower the assessing authority to severe or bifurcate the assessable value of articles comprising a purchase and sale of composit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will form part of the taxable value for levy of service tax, for the SIM Cards are never sold as goods independent from services provided. They are considered part and parcel of the services provided and the dominant position of the transaction is to provide services and not to sell the material i.e. SIM Cards which on its own but without the service would hardly have any value at all. That then leaves the Court only to consider the submission of Shri Tripathi that Entry-28 on its plain reading would not lend sanction to the contention urged on behalf of the assessee since its stands restricted to a cell phone and its parts. The Court find itself unable to hold against the assessee on the basis of this contention since the same is evidently urged without having due regard to the fact that Entry 28 clearly and in unambiguous terms correlates and connects the words cell phone to the MRP. As has been held hereinabove in the case of a composite package only one MRP stands disclosed and borne on the package. It is with reference to this singular MRP only that a tax can be imposed. The State respondents do not dispute that the single retail package does not carry or bear a separate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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