M/S. Sangeetha Sudha Mobile World vs. State Of Andhra Pradesh

As all these writ petitions raised the same issues, they have been disposed of by way of this common order.

The petitioners are all manufacturers or dealers in Cell phones and Cell phone equipment. During the period 2011-2012 to 2016-2017, these petitioners had been taxed, under the Andhra Pradesh Value Added Tax Act, 2005 (for short, „the APVAT Act‟) for the sale of such Cell phones and Cell phone equipments. The details of the assessment as well as the penalties in certain cases and appeals in certain cases are given herein below: Sl. No Writ Petition Party name Order Passed by Assessment Years Order Date

16520/2018 M/s Sri Hari Hara Agencies VAT 305 2012-13 to 2015-16 31.07.2017 6. 22262/2018 M/s Vasavi Agencies Deputy Commissi oner 2010-11 to 2012-13 18.01.2017 7. 24485/2018 M/s Hasith CellPlaza Penalty 2009-10 to 2014-15 appeal order 07.08.2017 8. 24731/2018 M/s Hasith CellPlaza Appellate Joint 2010-11 to 2014-15 Appeal Order 07.08.2017

In all these cases, the goods which were sold, were Cell phones, Cell phone batteries and Cell phone battery chargers and head phones in some cases. All these good were put together and sold in one unit and a composite price was received for sale of these products. The assessing authorities as well as the Appellate authorities took the view that the sales, made by the petitioners, were sales of three separate goods namely Cell phones, Cell

As the authorities did not accept these contentions, the petitioners after having suffered orders of assessment, orders of penalty as well as the appellate orders and revisional orders have approached this Court, by way of the above writ petitions.

Before going into the contentions raised by either side, it would be necessary to review the facts leading to the present set of writ petitions.

The APVAT Act, which was brought into effect from 01.04.2005, stipulated the rate of tax on every product enumerated in the schedules attached to the said Act. There was also a residuary entry in schedule VII fixing a uniform rate of tax, for those which were not enumerated in the goods. Cell phones, were covered under Entry 39 (15 of the Schedule-IV) to the APVAT Act which reads as follows, prior to the amendment. “ (15) Transmission apparatus other than apparatus for radio broadcasting or TV broadcasting, transmission apparatus incorporating reception apparatus, digital still image video cameras “

There was a dispute as to whether Cell phone chargers should be treated as being a part of the Cell phones which would require sale of Cell phone battery chargers to be taxed at the same rate as that of Cell phone. This dispute was resolved by the Hon‟ble Supreme Court in the case of The Hon‟ble Supreme Court after reviewing the law on the question of what would constitute parts of the main product had held that Cell phone battery charger cannot be treated as part of the Cell phone. Thereafter, on the representation of the various Industry body, the Central Government had issued a office Memorandum, dated 30.11.2015, in which the States were advised to treat the Cell phone batteries and chargers to be the part of the Cell phones and to tax them at one rate. Thereafter, the Government of Andhra Pradesh issued G.O.Ms.No.307, Revenue (CT-II) Department, dated 12.07.2016. By virtue of this G.O., entry 39 (15) of Schedule-IV of the APVAT Act was modified as follows: Amendment In Schedule-IV appended to the said Act, in entry 29, for sub-entry (15), the following shall be substituted, namely, - “(15) Transmission apparatus other than apparatus for radio broadcasting or T.V. broadcasting, transmission apparatus incorporating reception apparatus including Cell phones, Cell Phone Batteries and Cell Phone Battery Chargers, digital still image video cameras”.

By virtue of this amendment, the sale of Cell phones, Cell Phone Batteries as well as Cell phone Battery Chargers could be taxed only @ 5% and as such, the controversy as to whether there should be the sale of these products should be taxed separately or not could not be survived as the sale of these products would have to be taxed at the same rate.

The issue that remains is whether the authorities were correct in holding that composite sale of these three products together, by the petitioners, should be separated into three separate sales of three different categories of products which are to be taxed at differential rates of tax.

Both sides, aggrieved that Cell Phone Batteries and Cell Phone Battery Chargers have not been enumerated in the Schedules to the APVAT Act. In such circumstances, the residuary rate of tax, would apply to Cell Phone Batteries and Cell Phone Battery chargers, if they are to be treated as separate sales. As far as the batteries are concerned, it would be necessary to consider whether the batteries are to be treated as part of the Cell Phone or not.

The Hon‟ble Supreme Court in Nokia case (supra), while considering a similar question, as set out above has held that the test to consider whether a particular good would be part of another good or accessory to such goods had, held, following the earlier judgment of the Hon‟ble Supreme Court in 8 “an object or devise that is not essential in itself but that adds to the duty, convenience or effectiveness of something else would be an accessory and not a part”. The test would therefore be whether a Cell phone battery is an essential necessity of the Cell phone to function. There is no doubt that a Cell phone cannot function without a battery being installed in the Cell phone. In such circumstances, a Cell phone battery would have to be treated to be a part of Cell phone. Consequently, the rate of tax on the Cell phone battery would have to be treated at the same rate when such battery is sold along with the Cell phone.

As far as Cell phone battery chargers are concerned, the Hon‟ble Supreme Court already held that the Cell phone battery chargers are only accessories to a Cell phone and cannot be treated to be part of the Cell phone. However, there is another aspect which would have to be considered before holding that the sale of Cell phone battery chargers along with the Cell phones would not attract a different rate of tax.

The Hon‟ble High Court of Karnataka while considering the question of 2 1976 3 SCR 561 = 1976 AIR 1418 3 (2023) 161 GSTR 185 (Karnataka)

Another aspect that would have to be considered to the fact that the authorities, while seeking to levy tax at differential rate, on Cell phone battery chargers, have not explained as to how the sale price of the composite unit was being bifurcated between the Cell phones, the Cell phone batteries and the Cell phone battery chargers. Except stating that the rate of tax on battery chargers was reduced to 5% by a Government Memo, dated 30.11.2016, no explanation has been given as to how such bifurcation is to be carried out. This effectively indicates that the authorities have also accepted in principles

As far as the head phones are concerned, it would not be appropriate for us to hold that such head phones are an essential part of the functioning of the Cell phones as such head phones are only accessories which improve or accentuate the Cell phones.

For these reasons, these Writ Petitions are disposed of in the following manner: 1) All the impugned orders at the stage of assessment, penalty or appeal or revision are set aside. 2) These matters are remanded back to the respective authorities, to complete the consequential proceedings in the following manner: i) Sales of Cell phones, Cell phone batteries and Cell phone battery chargers effected after 12.07.2016 would have to be taxed only @ 5%; ii) Sales of Cell phones and Cell phone batteries as well as Cell phone battery chargers prior to the State would also have to be taxed only @ 5% as there is no means of splitting the sale price into separate components. This would apply only to the pre- packaged units of Cell phones, Cell phone batteries and Cell