IMPORTANT POINT
Amount received by cellular telephone company from its subscribers towards SIM Card forms part of taxable value for levy of service tax, for the SIM Cards are never sold as goods independent from services provided.

Headnote:Kerala General Sales Tax Act, 1963 -Finance Act, 1994- Section 65 (105) zzzx - Value of SIM cards sold by appellant to their mobile subscribers-Whether is to be included in taxable service under Section 65 (105) zzzx of Act, 1994, which provides for levy of service tax on telecommunication service OR whether it is taxable as sale of goods under the Sales Tax Act- Held charges paid by subscribers for procuring a SIM Card are generally processing charges for activating cellular phone and consequently same would necessarily be included in the value of SIM Card- No dispute to said position as appellant itself subsequently had been paying service tax for the entire collection as processing charges for activating cellular phone and paying the service tax on the activation- The appellant also accepted position that activation is a taxable service- Hence held that amount received by cellular telephone company from its subscribers towards SIM Card would form part of taxable value for levy of service tax, for the SIM Cards were 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- Thus, value of SIM cards formed part of the activation charges as no activation was possible without a valid functioning of SIM card and value of taxable service was calculated on gross total amount received by operator from the subscribers-No infirmity found with the findings and reasoning in the Judgment and Order passed by High Court -Appeal having no merit dismissed (Paras 18 to 20)
       Facts of the Case :
        The issue which arose for consideration in present appeal was whether the value of SIM cards sold by appellant to their mobile subscribers is to be included in taxable service under Section 65 (105) zzzx of the Finance Act, 1994, which provides for levy of service tax on telecommunication service OR whether it is taxable as sale of goods under the Sales Tax Act.
       Findings of the Court :
        The Court Held that charges paid by subscribers for procuring a SIM Card are generally processing charges for activating cellular phone and consequently same would necessarily be included in the value of SIM Card.There could be no dispute to said position as appellant itself subsequently had been paying service tax for the entire collection as processing charges for activating cellular phone and paying the service tax on the activation. The appellant also accepted position that activation is a taxable service. Hence held that amount received by cellular telephone company from its subscribers towards SIM Card would form part of taxable value for levy of service tax, for the SIM Cards were 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. Thus, value of SIM cards formed part of the activation charges as no activation was possible without a valid functioning of SIM card and value of taxable service was calculated on gross total amount received by operator from the subscribers.No infirmity was found with the findings and reasoning in the Judgment and Order passed by High Court.Appeal having no merit was dismissed.

JUDGMENT

Dr. Mukundakam Sharma, J. —

1. Leave granted.

2. The present appeal is filed against the judgment and order dated 04.09.2008 passed by the Kerala High Court whereby and whereunder, the High Court allowed the appeal filed by the Commissioner of Central Excise & Customs, Cochin.

3. The issue which arises for our consideration in this appeal is whether the value of SIM cards sold by the appellant herein to their mobile subscribers is to be included in taxable service under Section 65 (105) zzzx of the Finance Act, 1994, which provides for levy of service tax on telecommunication service OR whether it is taxable as sale of goods under the Sales Tax Act.

4. The facts leading to the filing of the present case are that during the relevant assessment years, i.e., 1997-1999, the appellant was selling the SIM cards to its franchisees and was paying the sales tax to the State and activating the SIM card in the hands of its subscribers on a valuable consideration and paying service tax only on the activation charges. The Department of Sales Tax, State of Kerala, included the activation charges as part of the sale consideration of SIM cards on the ground that activation is nothing but a value addition of the “goods” and thus comes under the definition of “goods” under the Kerala General Sales Tax Act, 1963 (hereinafter referred to as “KGST Act”) and accordingly levied sales tax on activation charges. The Department of Central Excise, Eranakulum (Service Tax Department) observed that a mere SIM card without activation is of no use and held that the appellant is liable to pay service tax on the value of SIM card also. In both the cases interest and penalty were levied.

5. Being aggrieved, the appellant filed appeal before the respective appellate authorities under the KGST Act and Central Excise Act, 1944. There were consequential recovery proceedings against the appellant and the appellant filed Writ Petition O.P. No. 4973 of 2001(P) in the High Court of Kerala challenging the levy of service tax on the sale price of SIM cards and also challenging the levy of sales tax on the amounts recovered by the appellant by way of activation charges from its customers which was dismissed vide order dated 15.02.2002.

6. Aggrieved thereby, the appellant filed Civil Appeal No. 2408 of 2002 before this Court. Based on the judgment of the High Court dated 15.02.2002, the appellant also filed appeal before the Commissioner (Appeals), Customs and Central Excise which was dismissed vide order dated 08.04.2003. The appellant preferred appeal u/s 35B of Central Excise Act, 1944 before the Central Excise and Service Tax Tribunal (hereinafter referred to as “TRIBUNAL”) viz. Appeal No. ST/18/03 against the order dated 08.04.2003, in which the appellant did not challenge the levy of sales tax as the same was already paid.

7. The aforesaid Civil Appeal No. 2408 of 2002 before this Court was heard and decided with appeals and Writ Petitions of several other telecom operators, including BSNL, BPL etc. and vide judgment reported as BSNL vs. Union of India reported in1 (2006) 3 SCC 1, the matter was remanded to the Sales Tax Authorities concerned for determination of issue relating to SIM cards. The Tribunal in the pending Appeal No. ST/18/03, vide order dated 25.05.2006, held that the levy of service tax in the case is not sustainable.

8. Aggrieved thereby, the respondent challenged the order of the Tribunal dated 25.05.2006 before the High Court of Kerala by way of Appeal being CE Appeal No. 20 of 2006. The High Court vide order dated 04.09.2008 allowed the appeal of the respondent - department against which this appeal has been filed, upon which, we heard the learned counsel appearing for the parties.

9. The counsel appearing for the appellant submitted that the appellant was charging from its subscribers Rs. 1,000/- towards sales tax and Rs. 1,200/- as service tax upon activation of the SIM Card and that since they were selling the SIM Cards, therefore,

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2011 Supreme(SC) 731

2011 (5) Supreme 363SUPREME COURT OF INDIADr. Mukundakam Sharma and Anil R. Dave, JJ.Idea Mobile Communication Ltd. — Appellant(s)versusC.C.E. & C., Cochin — Respondent(s)Civil Appeal No. 6319 of 2011[Arising out of SLP(C) No. 24690 of 2009]Decided on : 4-8-2011

IMPORTANT POINT Amount received by cellular telephone company from its subscribers towards SIM Card forms part of taxable value for levy of service tax, for the SIM Cards are never sold as goods independent from services provided.

Cases Referred (1)

2011 (5) Supreme 363
SUPREME COURT OF INDIA
Dr. Mukundakam Sharma and Anil R. Dave, JJ.
Idea Mobile Communication Ltd. — Appellant(s)
versus
C.C.E. & C., Cochin — Respondent(s)
Civil Appeal No. 6319 of 2011
[Arising out of SLP(C) No. 24690 of 2009]
Decided on : 4-8-2011

IMPORTANT POINT
Amount received by cellular telephone company from its subscribers towards SIM Card forms part of taxable value for levy of service tax, for the SIM Cards are never sold as goods independent from services provided.