Supreme Court Clarifies Taxation of Mobile Phones and Chargers Under UP VAT Act, 2008

Introduction

Under the Uttar Pradesh Value Added Tax Act, 2008, the Supreme Court of India has issued an ultimatum concerning the taxing pattern of mobile chargers sold with mobile phones. The Court said that when mobile phones and chargers are sold together in composite packages carrying a single Maximum Retail Price, they should be taxed as single items, following the dictum of the Allahabad High Court, which had taken a similar view in 2017.

Understanding the Uttar Pradesh Value Added Tax Act, 2008

The UP VAT Act governs the levy of value-added tax on the sale or purchase of goods within Uttar Pradesh. The Act categorizes goods into different schedules, each specifying tax rates for various items. Schedule II, Part B, Entry 28 of the Act pertains to “cell phones,” subjecting them to a tax rate of 5%. However, the Act does not explicitly define whether accessories sold with primary products, like mobile chargers with phones, should be taxed separately or as part of the main item.

Background of the Case

The controversy arose when the Uttar Pradesh tax authorities sought to tax mobile chargers separately at a rate of 14% as “unclassified items,” even when they were sold together with mobile phones in a single package. This approach was influenced by the precedent set in State of Punjab vs. Nokia India Pvt. Ltd., where the Supreme Court held that a battery charger is not a part of the mobile phone but an accessory thereof, and thus liable to tax at the general rate of 12.5%, even though the battery is sold with the mobile handset.

Allahabad High Court’s Perspective and Key Finding

The following issues were considered by the bench-

A. Whether the Tribunal should have ruled that a composite package containing a mobile phone and charger with a single MRP falls under Entry No. 28 of Schedule-II, Part B of the UP VAT Act and should be taxed accordingly?

B. Whether the Tribunal incorrectly applied the judgment in State of Punjab v. Nokia Private Limited to this case, given that the language of Entry No. 28 of Schedule-II, Part B of the UP VAT Act differs from the provision interpreted by the Supreme Court in Nokia?

The High Court, exercising its Sales/Trade revision jurisdiction, was reviewing a challenge to the Tribunal’s order dated January 12, 2017. The Tribunal had upheld the assessment authority’s stance that although the charger was sold as part of a composite package, it should be taxed separately at 14% as an accessory rather than at the 5% rate applicable to mobile phones under Entry 28.

In distinguishing the Nokia case, the High Court noted that the Supreme Court in Nokia had examined whether a charger constituted an integral part of the mobile phone. The Supreme Court concluded that a charger is an accessory, not an essential component of the mobile phone itself.

However, the issue in the present case was distinct. The High Court observed that the primary question was whether “the sale of a mobile phone along with its charger in a single retail package constitutes a composite contract, necessitating the application of the dominant intention test.” This issue had not been examined in Nokia.

The High Court further clarified that the Supreme Court did not establish a blanket principle that a mobile phone and charger sold together in a single retail package must always be treated as separate taxable entities. Therefore, the Nokia case was deemed inapplicable to the present matter.

The Court emphasized that Entry No. 28 of Schedule II, Part B of the UP VAT Act mandates that tax be imposed based on the MRP of the mobile phone box, which includes the charger. Since the charger was not separately priced or invoiced, it could not be taxed independently. The Court stated:

“The tax can only be imposed on the basis of this single MRP. The State authorities do not dispute that the composite retail package does not have a separate MRP for the charger. There is also no assertion that the charger is separately invoiced, even if it does come packaged with the phone. As can be clearly stated on Entry 28, there is an undeviating connection between the MRP of the mobile phone and the charger for it has been one and the same basis for taxation. There is also no claim that the charger is individually invoiced despite being included in the package. A thorough reading of Entry 28 confirms an unbreakable link between the mobile phone and its MRP. This connection serves as the foundation for taxation. Consequently, the Court rejects the State’s argument that the charger within a composite package can be taxed separately.”

Supreme Court’s Ruling

On February 20, 2025, the Supreme Court upheld the Allahabad High Court’s decision, stating:

“We do not find any reason to interfere with the impugned order. Hence, the Special Leave Petitions are dismissed. We clarify that this order is not applicable to a case where a charger is sold de hors a mobile phone and separately by itself.”

This clarification indicates that while chargers sold independently can be taxed separately, those sold within a package with a mobile phone must be taxed as a single unit.

Legal Implication

This ruling is an assertion on the nature of sales transactions for taxable purposes. Sale of composite package of goods that has a single MRP must be taxed as a single item since that’s the primary intent with which they are being sold off. The decision, therefore, further highlights the function of the judiciary, interpreting tax laws and ensuring their alignment with commercial considerations and intentions of the legislature.

Conclusion

The apex court leads the way in providing clear guidelines on tax treatment of mobile phones bundled with chargers in Uttar Pradesh, where composite packages such phones bundled with chargers would appropriately be taxed as single items. This landmark judgment may trigger other like cases in other jurisdictions, causing tax authorities and enterprises to revisit taxation of bundled products.

King Stubb & Kasiva,
Advocates & Attorneys

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