Cellular recharge materials treated as service components, not independent goods, so VAT penalty could not be restored.

Recharge cards, recharge pins and recharge double scratch were treated as part of cellular service, not as independent goods saleable under the Karnataka Value Added Tax Act, 2003. Applying Supreme Court principles on SIM cards and recharge-related receipts, the Court noted that amounts collected for activation and recharge formed part of the taxable value of the service rendered by the operator, so VAT could not be levied merely because physical materials accompanied that service. On that basis, the revisional order restoring penalty lacked a sustainable foundation, and the penalty could not be reinstated.

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Issues: Whether the revisional order restoring penalty was sustainable when the recharge cards, recharge pins and recharge double scratch were treated as taxable goods under the Karnataka Value Added Tax Act, 2003.

Analysis: The decisive question was whether the transaction concerned sale of goods or provision of cellular services. The Court applied the principle emerging from the Supreme Court decisions on SIM cards and recharge-related receipts, holding that such items are not sold as independent goods but are part of the service rendered by the cellular operator. The amount collected from subscribers towards activation and recharge forms part of the taxable service value, and the materials cannot be treated as goods attracting VAT merely because they accompany the service. In that view, the foundation for treating the movement as taxable goods under the KVAT Act and sustaining penalty could not be accepted.

Conclusion: The revisional order was not sustainable, the penalty could not be restored, and the assessee was entitled to succeed.

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