Hyderabad, September 04, 2019: Telangana Mobile Distributors Association, Twin City Mobile Retailer Association and Telugu Cellular Association have jointly held a one hour Silent Protest protest here in the city at Dharna Chowk at Indirapark on Wednesday morning.
All the three organizations have 200 distributors and 5000 dealers. About a two hundred members of these three organizations held a protest against Re-Assessment Notices served to them by the Commercial Tax Department.
Interacting with the media Mr Chaitanaya Dev Singh, Venkata Bhanu, President and Secretary of Telangana Mobile Distributors Association and Majid Bin Abid, President of Twin City Mobile Retailers Association said, during the period of 20th September 2014 to 28th July 2016 mobile phone manufacturers charged VAT of 5% to distributors. The same was charged to retailers and customers. Accordingly, the Commercial Tax Department completed the assessments without raising any objections. But, suddenly the Department started issuing Re-assessment Notices for the same period at 14.5% and proposed to demand the differential tax liability of 9.5% which runs into several crores.
Subsequently, the Commercial Tax Department has started issuing Re-assessment Notices for the period 20.09.2014 to 28.07.2016 by classifying the mobile phones at 14.5% and proposed to demand the differential tax liability by stating that Circular dated 17.05.2014 issued by Composite State was withdrawn by Telangana Government vide Memo No.10427/CT-II(1)/2013-5 dated 20.09.2014.
As per the GOM No. 1615 dated 31.08.2005 Notified the HSN Code.8517 to Cell phones/mobile phones to attract 4%/5%. As per the GOM No. 140 dated 19.03.2013and Based on the Hon’ble High Court decisions in case of M/s. ESPI Industries and Chemicals Pvt Ltd Vs CTO, Tarnaka and M/s. MGRM Medicare Limited Vs CTO, Abids the commercial tax department has rescinded the GOM No.1615 dated 31.08.2005 which has notified the mobile phones/cell phones at 4%/5%,
As per the Memo No. 10427 dated 17.05.2014 and based on the request received from the Hon’ble Minister of Communication and Information Technology, Government of India to declare the mobile phones/cell phones as goods of special importance under Central Sales tax Act, the Government of Composite State vide this Memo issued clarification that mobile phones/cell phones are taxable at 5% under sub-entry (15) of Entry 39 of Schedule –IV of Andhra Pradesh Value Added Tax Act, 2005 i.e, as Transmission Apparatus.
According to Memo No. 10427 dated 20.09.2014 on formation of State of Telangana, the Government of Telangana, keeping in view of the observations off the high Court withdrawn the clarification Memo No 10427 dated 17.05.2014 issued by composite state. Due to this the mobile phones/cell phones are made liable to tax at 14.5%.
As per the GOM No. 186 dated 28.07.2016, the Telangana Governmenton becoming aware that these goods are now taxed at 5% in the State of Andhra Pradesh and keeping in view of the trade diversion taking place due to lower rates in neighboring state decided to levy VAT at 5% on cell phones/mobile phones by incorporating a specific entry “131. Cell phones/mobile phones” in Schedule –IV of Telangana Value Added Tax Act, 2005.
From the above referred Memo dated 28.07.2016, it is clear that the intention of the Government is to tax the mobile phones at 5% but due to this assessment/re-assessment notices demanding the differential rate of tax, all the dealers are facing difficulties in replying to the notices and filing appeal against the assessment orders.
As it is the trade operates at a very less margin ranging from 1% to 1.5%. The net profit they after-tax liability and deducting operating expenses will range from 0.25% to 0.75% only.
Due to change in the technologies, the distributor/dealer has to bear the loss in dead stock/end of life stock(Outdated Stock) which would have been sold at loss ranging to 50% of price.
The Entire industry including the manufacturer’s have charged 5%. Also, since the trade was already completed and manufacturers/ distributors/dealers cannot collect the differential tax from their customers.
Further, during the disputed period the mobile phones are taxable at 5% in the neighbouring states of Andhra Pradesh, Karnataka and this is one of the main reason for inserting Entry 131 in schedule –IV of Telangana Value Added Tax Act, 2005 and the same was mentioned in the Statement of objects and reasons to the Telangana Value Added Tax (Fourth Amendment) Act, 2016. Hence, keeping in view of the trade diversion, the mobile phone should be taxed at 5%.
We are of the belief that the mobile phones are classified as ‘transmission apparatus’ under sub-entry (15) of Entry 39 of Schedule IV of Telangana Value Added Tax Act, 2005 which is chargeable to 5% tax since the inception. Hence, it is desirable to get a suitable Order/Memo to this effect to nullify demand if any for the said period from the Government.