2011 (8) TMI 3 - SC - Service Tax

SIM card sales subject to service tax under Finance Act 1994

IDEA MOBILE COMMUNICATION LTD. Versus CCE. & C., COCHIN

The Supreme Court upheld the decision that the value of SIM cards sold to mobile subscribers should be included in taxable service under Section 65 (105) ... Whether the value of sim card sold attracts service tax or sale tax under the sales tax act - It also cannot be disputed that even if sales tax is wrongly remitted and paid that would not absolve them from the responsibility of payment of service tax, if otherwise there is a liability to pay the same - The charges paid by the subscribers for procuring a SIM Card are generally processing charges for activating the cellular phone and consequently the same would necessarily be included in the value of the SIM Card - The appellant also accepts the position that activation is a taxable service. The position in law is therefore clear that the amount received by the cellular telephone company from its subscribers towards SIM Card will form part of the taxable value for levy of service tax, for the SIM Cards are never sold as goods independent from services provided - it is established from the records and facts of this case that the value of SIM cards forms part of the activation charges as no activation is possible without a valid functioning of SIM card and the value of the taxable service is calculated on the gross total amount received by the operator from the subscribers - Appeal is dismissed Issues Involved:1. Whether the value of SIM cards sold to mobile subscribers should be included in taxable service under Section 65 (105) zzzx of the Finance Act, 1994.2. Whether the value of SIM cards is taxable as sale of goods under the Sales Tax Act.Issue-wise Detailed Analysis:1. Taxable Service under Section 65 (105) zzzx of the Finance Act, 1994:The primary issue is whether the value of SIM cards sold to mobile subscribers should be included in taxable service under Section 65 (105) zzzx of the Finance Act, 1994. The appellant argued that the sale of SIM cards was separate from the service of activation, for which they paid sales tax and service tax respectively. The Department of Central Excise contended that a SIM card without activation is of no use, making the entire transaction a service.The Supreme Court referenced the earlier judgment in BSNL vs. Union of India, which highlighted that the nature of the transaction involving SIM cards could be both a sale and a service, depending on the intention of the parties. If the sale of a SIM card is merely incidental to the service provided, it would be assessable to service tax.The Court concluded that the charges paid by subscribers for SIM cards are generally processing charges for activating the cellular phone and should be included in the value of the SIM card. The value of SIM cards forms part of the activation charges, and thus, the entire amount received by the operator from the subscribers is taxable under service tax.2. Taxable as Sale of Goods under the Sales Tax Act:The appellant was initially paying sales tax on the sale of SIM cards and service tax on activation charges. The Kerala High Court had earlier ruled that the sale of SIM cards and activation charges were both taxable under the Sales Tax Act as they were part of the 'service' rendered by the service provider.The Supreme Court examined the principle that if the sale of a SIM card is merely incidental to the service provided, it would not be assessable to sales tax. The Sales Tax authorities conceded that SIM cards have no intrinsic sale value and are supplied to provide telephone service, leading to the conclusion that no sales tax should be levied on the sale value of SIM cards.The Court emphasized that even if sales tax was wrongly remitted, it would not absolve the parties from paying service tax if it is otherwise payable. The dominant position of the transaction is to provide services, and the SIM cards, without the service, have little value.Conclusion:The Supreme Court upheld the Kerala High Court's decision that the value of SIM cards sold to mobile subscribers should be included in taxable service under Section 65 (105) zzzx of the Finance Act, 1994. The sale of SIM cards is part of the service provided, and the entire amount received from subscribers is subject to service tax. The appeal was dismissed, and the Court found no merit in the appellant's arguments. There was no order as to costs.