REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6319 OF 2011
[Arising out of SLP(C) No. 24690 of 2009]
IDEA MOBILE COMMUNICATION LTD. ....Appellant (s)
VERSUS
C.C.E. & C., COCHIN ....Respondent(s)
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.
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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
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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
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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 in (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
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since they were selling the SIM Cards, therefore, at that point of
time, they were charging Rs. 1000/- towards sales tax and for
activating the SIM Card they were charging Rs. 1200/- as service
tax. Counsel also drew our attention to the earlier judgment rendered
by the Kerala High Court as against which the Supreme Court
pronounced the Judgment being BSNL vs. Union of India reported
in (2006) 3 SCC 1.
10.The counsel appearing for the respondent on the other hand
submitted that SIM Card has no intrinsic sale value and it is
supplied to customers to provide telephone service. It is also
submitted by the counsel that selling of the SIM Card and the
process of activation are "services" provided by the mobile cellular
telephone companies to the subscriber. He further submitted that
the decision of the Supreme Court has clearly stated that if the sale
of a SIM Card is merely incidental to the service being provided and
it only facilitates the identification of the subscribers, their credit and
other details, it would be assessable to service tax.
11.We have examined the materials on record in the light of the facts
placed before us and also the decisions referred to and relied upon
by the counsel appearing for the parties.
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12. A SIM Card or Subscriber Identity Module is a portable memory chip
used in cellular telephones. It is a tiny encoded circuit board which
is fitted into cell phones at the time of signing on as a subscriber.
The SIM Card holds the details of the subscriber, security data and
memory to store personal numbers and it stores information which
helps the network service provider to recognize the caller. As stated
hereinbefore the Kerala High Court had occasion to deal with the
aforesaid issue and in that context in its Judgment pronounced on
15th February, 2002 in Escotel Mobile Communications Ltd. vs.
Union of India and Others, reported in (2002) Vol. 126 STC 475
(Kerala), it was stated in paragraph 36 that a transaction of selling
of SIM Card to the subscriber is also a part of the "service" rendered
by the service provider to the subscriber. The Kerala High Court in
the facts and circumstances of the case observed at paras 36 and 47
as under: -
"36. With this perspective in mind, if we analyse the
transaction that takes place, it appears to us that there
is no difficulty in correctly understanding its facts. The
transaction of selling the SIM. card to the subscriber is
also a part of the "service" rendered by the service
provider to the subscriber, Hence, while the State
Legislature is competent to impose tax on "sale" by a
legislation relatable to entry 54 of List II of Seventh
Schedule, the tax on the aspect of "services" rendered
not being relatable to any entry in the State List, would
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be within the legislative competence of Parliament
under Article 248 read with entry 97 of List I of the
Seventh Schedule to the Constitution. We are,
therefore, unable to accept the contention of Mr.
Ravindranatha Menon that there is any possibility of
constitutional invalidity arising due to legislative
incompetence by taking the view that "sale" of SIM card
is simultaneously exigible to sales tax as well as
service tax. Once the "aspect theory" is kept in focus, it
would be clear that the same transaction could be
exigible to different taxes in its different aspects. Thus,
we see no reason to read down the legislation as
suggested by Mr. Menon.
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47. Conclusions:
(a) The transaction of sale of SIM Card is without
doubt exigible to sales tax under the KGST Act. The
activation charges paid are in the nature of deferred
payment of consideration for the original sale, or in the
nature of value addition, and, therefore, also amount to
parts of the sale and become exigible to sales tax
under the KGST Act.
(b) Both the selling of the SIM Card and the process of
activation are "services" provided by the mobile cellular
telephone companies to the subscriber, and squarely
fall within the definition of "taxable service" as defined
in section 65(72)(b) of the Finance Act. They are also
exigible to service tax on the value of "taxable service"
as defined in Section 67 of the Finance Act."
13. It would be appropriate to mention that later on the said Escotel
Mobile Communications Ltd. merged with the appellant company i.e.
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M/s. Idea Mobile Communication Ltd. The aforesaid decision of the
Kerala High Court was under challenge in this Court in the case of
BSNL vs. Union
of India reported in (2006) 3 SCC 1. The Supreme
Court has framed the principal question to be decided in those
appeals as to the nature of transaction by which mobile phone
connections are enjoyed. The question framed was, is it a sale or is
it a service or is it both. In paragraphs 86 and 87 of the Judgment
the Supreme Court has held thus: -
86. In that case Escotel was admittedly engaged in
selling cellular telephone instruments, SIM cards and
other accessories and was also paying Central sales tax
and sales tax under the Kerala General Sales Tax Act,
1963 as applicable. The question was one of the
valuation of these goods. The State Sales Tax Authorities
had sought to include the activation charges in the cost of
the SIM card. It was contended by Escotel that the
activation was part of the service on which service tax
was being paid and could not be included within the
purview of the sale. The Kerala High Court also dealt
with the case of BPL, a service provider. According to
BPL, it did not sell cellular telephones. As far as SIM
cards were concerned, it was submitted that they had no
sale value. A SIM card merely represented a means of
the access and identified the subscribers. This was part
of the service of a telephone connection. The Court
rejected this submission finding that the SIM card was
"goods" within the definition of the word in the State
Sales Tax Act.
87. It is not possible for this Court to opine finally on the
issue. What a SIM card represents is ultimately a
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question of fact, as has been correctly submitted by the
States. In determining the issue, however the assessing
authorities will have to keep in mind the following
principles: if the SIM card is not sold by the assessee to
the subscribers but is merely part of the services
rendered by the service providers, then a SIM card
cannot be charged separately to sales tax. It would
depend ultimately upon the intention of the parties. If the
parties intended that the SIM card would be a separate
object of sale, it would be open to the Sales Tax
Authorities to levy sales tax thereon. There is insufficient
material on the basis of which we can reach a decision.
However we emphasise that if the sale of a SIM card is
merely incidental to the service being provided and only
facilitates the identification of the subscribers, their credit
and other details, it would not be assessable to sales
tax. In our opinion the High Court ought not to have
finally determined the issue. In any event, the High Court
erred in including the cost of the service in the value of
the SIM card by relying on the "aspects" doctrine. That
doctrine merely deals with legislative competence. As has
been succinctly stated in Federation of Hotel &
Restaurant Assn. of India v. Union of India: (SCC pp.
652-53, paras 30-31)
" `... subjects which in one aspect and for one
purpose fall within the power of a particular
legislature may in another aspect and for another
purpose fall within another legislative power'.
* * *
There might be overlapping; but the overlapping
must be in law. The same transaction may involve
two or more taxable events in its different aspects.
But the fact that there is overlapping does not
detract from the distinctiveness of the aspects."
14. In paragraph 88 this Court observed that no one denies the
legislative competence of the States to levy sales tax on sales provided
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that the necessary concomitants of a sale are present in the transaction
and the sale is distinctly discernible in the transaction but that would
not in any manner allow the State to entrench upon the Union List and
tax services by including the cost of such service in the value of the
goods. It was also held that for the same reason the Centre cannot
include the value of the SIM cards, if they are found ultimately to be
goods, in the cost of the service. Consequently, the Supreme Court after
allowing the appeals filed by Bharat Sanchar Nigam Ltd and Escotel
remanded the matter to the Sales Tax Authorities concerned for
determination of the issue relating to SIM Cards in the light of the
observations contained in that judgment.
15. As against the order passed by the adjudicating authority, the
appellant assessee took up the matter in appeal before the
Commissioner of Central Excise & Customs, Cochin. The appellate
authority upheld the findings of the adjudicating authority. The
assessee took up the matter before the CESTAT, Bangalore. The
CESTAT vide its order dated 25.05.2006 held that the levy of service tax
as demanded is not sustainable for the reason that the assessee had
already paid the sales tax and therefore it follows that service tax is not
leviable on the item on which sales tax has been collected.
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16. Being aggrieved by the aforesaid order dated 25.05.2006, an
appeal was filed before the Kerala High Court by the department, which
was disposed of by the impugned order dated 04.09.2009.
17. The High Court has given cogent reasons for coming to the
conclusion that service tax is payable inasmuch as SIM Card has no
intrinsic sale value and it is supplied to the customers for providing
mobile service to them. It should also be noted at this stage that after
the remand of the matter by the Supreme Court to the Sales Tax
authorities the assessing authority under the Sales Tax Act dropped the
proceedings after conceding the position that SIM Card has no intrinsic
sale value and it is supplied to the customers for providing telephone
service to the customers. This aforesaid stand of the Sales Tax
authority is practically the end of the matter and signifies the
conclusion.
18. The sales tax authorities have themselves conceded the position
before the High Court that no assessment of sales tax would be made
on the sale value of the SIM Card supplied by the appellant to their
customers irrespective of the fact whether they have filed returns and
remitted tax or not. It also cannot be disputed that even if sales tax is
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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. If the article is not susceptible to tax under the Sales
Tax Act, the amount of tax paid by the assessee could be refunded as
the case may be or, the assessee has to follow the law as may be
applicable. But we cannot accept a position in law that even if tax is
wrongly remitted that would absolve the parties from paying the service
tax if the same is otherwise found payable and a liability accrues on the
assessee. 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.
19. There cannot be any dispute to the aforesaid position as the
appellant itself subsequently has 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 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
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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, 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. The Sales Tax authority
understood the aforesaid position that no element of sale is involved in
the present transaction.
20. That being the position, we find no infirmity with the findings
and reasoning in the Judgment and Order passed by the High Court
and therefore the appeal has no merit and the same is dismissed.
There will be no order as to costs.
...........................................J.
[Dr. Mukundakam Sharma]
............................................J.
[ Anil R. Dave ]
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New Delhi,
August 4, 2011.
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