SIM card sale versus activation service: treated as separate taxable events; sale excluded u/s65(72), activation taxed.

Whether supply of a SIM card and its activation constitute distinct taxable events was the dominant issue. The HC held that a SIM card, once sold, is a transfer of property in goods and the provider retains no proprietary right thereafter; hence, to the extent the transaction is a sale, it falls within the State's taxing competence and must be excluded from "taxable service" under s. 65(72) of the Finance Act. Activation, involving enabling network access through computerised provisioning, is a separate service and is exigible to service tax. The HC left open to the departmental authorities the factual issue whether the SIM transaction is instead a transfer of right to use. The petitions were dismissed.

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Issues: (i) Whether the sale of SIM cards and activation charges are exigible to sales tax under the KGST Act; (ii) Whether the selling of SIM cards and the activation process are 'taxable service(s)' exigible to service tax under the Finance Act, 1994; (iii) Whether both State sales tax and Central service tax can validly be levied on different aspects of the same transaction (constitutionality / double taxation issue).

Issue (i): Whether the sale of SIM cards and activation charges are exigible to sales tax under the KGST Act.

Analysis: The Court examined the definition of 'sale' in Section 2(xxi) of the KGST Act including Explanation 3B and Explanation 3D, the definition of 'goods' in Section 2(xii), and authorities construing transfer of rights and intangible movable property. The Court held that transfer of the SIM card (including the right represented thereby) falls within the scope of 'sale' as defined and that activation charges represent deferred consideration or value addition to the SIM card, thus forming part of the sale price for sales tax purposes.

Conclusion: The sale of SIM cards and the activation charges are exigible to sales tax under the KGST Act (in favour of Revenue).

Issue (ii): Whether the selling of SIM cards and the activation process are 'taxable service(s)' exigible to service tax under the Finance Act, 1994.

Analysis: The Court analysed the Finance Act definitions, particularly Section 65(72)(b) (taxable service) and related telegraph/telephone provisions, and observed that providing SIM cards and activation enabling access to cellular network constitute services rendered to the subscriber. The Court found that both the sale aspect and the activation process fall within the definition of 'taxable service' and that the value of such services is taxable under Section 67 as the gross amount charged for the service.

Conclusion: Both the sale of SIM cards and the activation process are 'taxable service(s)' and are exigible to service tax under the Finance Act, 1994 (in favour of Revenue).

Issue (iii): Whether both State sales tax and Central service tax can validly be levied on different aspects of the same transaction (challenge on constitutionality / double taxation).

Analysis: The Court applied the 'aspect theory' of legislation, noting that the same transaction may have different aspects taxable by different legislatures within their competence. The Court considered constitutional distribution of powers (Entries in Lists I and II) and precedent on overlapping taxes, concluding that taxing different aspects does not amount to unconstitutional double taxation where each tax is within the respective legislature's competence.

Conclusion: It is constitutionally permissible for State sales tax and Central service tax to be levied on different aspects of the same transaction; there is no constitutional bar to the impugned levies (in favour of Revenue).

Final Conclusion: The writ petitions challenging exigibility of sales tax and service tax on SIM cards and activation charges are without merit; both the sale/activation aspects are taxable under the respective statutes and the petitions are dismissed.

Ratio Decidendi: Where a single transaction has distinguishable aspects, the State may tax the aspect of 'sale' under its entry and the Union may tax the aspect of 'service' under its entries; transfer of SIM cards (including the right represented) and activation charges fall within the definitions of 'sale' under the KGST Act and 'taxable service' under the Finance Act, 1994, and both levies are valid.

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