ICA urges Govt of India to advise the States to treat Mobile Chargers as an integral part of the phone

In the wake of judgement passed by the Supreme Court of India which had held the view that Chargers, should be classified as accessories even when it is bundled with Mobiles in a composite / single corrugated box, various State Governments have already started demanding separate VAT on mobile chargers by treating it as an accessory for the purpose of taxation. This has generated great uncertainty which has been prevailing in the minds of investors. The Indian Cellular Association has urged the Government of India to urgently take this up with the State Governments to issue general clarification on accessories based on the Customs Accessories (condition) Rules, 1963. 

ICA’s National President Mr Pankaj Mohindroo has written to the Hon’ble Minister of Finance, Shri Arun Jaitley to draw his attention to the fact that Mobile Chargers should be treated as an integral part of the mobile phone based on International practice, which would encourage establishment of a robust and internationally competitive mobile manufacturing eco-system in the country.

Mobile chargers are intrinsic to functioning of mobile handsets and the functionality of the mobile handsets could be widely influenced based upon the performance of Chargers. Therefore, providing chargers along with mobile handsets as free of cost has been a well accepted business practice globally. 

ICA is partnering with both the Central as well as State Governments to promote the establishment of the domestic manufacturing industry in the electronics hardware sector. The Government has announced Digital India initiative, M-SIPS (Modified Special Incentive Package Scheme) under the NPE (National Policy on Electronics) to push manufacturing. The differential duty regime introduced towards protecting domestic manufacturing of mobile handsets and tablets from imports has also started yielding desired result. And under the dedicated and committed team of DeitY with support from Department of Revenue, Global and Indian investors are zeroing in on India to put investments in the mobile phone and tablet manufacturing sectors.

ICA has held the view that with the Mobile Phone Industry which has been immensely contributing towards strengthening the “Make in India” initiative of the GOI, such judicial pronouncements by the Hon’ble Supreme Court of India at this crucial juncture is creating grave uncertainty in the minds of prospective Investors to invest in these sector, and this could dampen our efforts to help build a robust mobile handsets and component manufacturing eco-system.

The Customs Accessories (Condition) Rules, 1963 notified by Notification No. 18- Cus dated 23.1.1963, specifically provides that accessories compulsorily supplied free with an article should attract the same rate of duty, which is applicable on the imported article. 

“Though ICA has agreed with the Supreme Court judgement that a Charger is not a Part of a mobile but an Accessory, nowhere in the judgment the Supreme Court had suggested VAT authorities to start taxing the Chargers separately. It is obvious that when bundled with the main item, Charger should be considered as a single unit with the Mobile phone.” Added Mr Mohindroo.

States can be well advised to introduce Accessories (Condition Rules), similar to the Accessories (Condition) Rules, 1963. The States may be further advised to amend VAT schedules with provision that actions done till now will be deemed not to be done.

States, where the industry is facing the huge demands on a retrospective basis are: Rajasthan, Uttar Pradesh, Bihar, Kerala, Karnataka (only retrospective, prospectively they have amended), Punjab and Himachal Pradesh.

“World over, essential accessories which come as composite part of mobile handset packs are treated as one unit and taxed at the same rate as mobile handsets. This is the standard international trade practice. And we must follow this too if we want to be internationally competitive,” said Mr Mohindroo.

 “If we want to encourage robust and internationally competitive mobile manufacturing eco-system to be established in the country, then we must also need to follow the internationally accepted best practices as well. Otherwise, it will remain a pipedream,” pointed out Mr Mohindroo.