2007 (9) TMI 577 - HC - VAT and Sales Tax

Handset and the substituted SIM card - whether issued to the subscribers are not exigible to commercial tax? Held that - From the orders passed by the sales tax authorities we find that the authorities have been discerning enough between the SIM card supplied free of charge and the SIM card substituted on payment of charges. It is only the SIM card which is substituted on account of damage, etc., and for which extra charge is made that the authorities are charging commercial tax. However, the situation with regard to the supply of handset is entirely different from the one present before their Lordships and, therefore, we do not find that the contention of the appellant is substantiated by the ratio of the said decision. Reference has also been made to State of Tamil Nadu v. Board of Trustees of the Port of Madras 1999 (3) TMI 500 - SUPREME COURT OF INDIA . The said case was dealing with the incidental transaction of unserviceable goods. Thus do not find that these appeals give rise to any question of law, much less substantial, for a decision in the appeal under section 53(2) of the VAT Act.

Summary

Issues:
Appeals under section 53(2) of the Madhya Pradesh Value Added Tax Act, 2002 challenging the levy of commercial tax on handsets and SIM cards provided to subscribers.

Analysis:
The appeals contested the imposition of commercial tax by the Department on handsets and SIM cards provided to subscribers by the appellant-company. The appellant argued that providing handsets was not its main business and it should only be liable for service tax under the Finance Act, 1994. The appellant cited legal precedents to support its position, emphasizing that the handsets were a negligible part of the service and not subject to commercial tax. However, the Board referred to the decision in Anand Commercial Agencies v. Commercial Tax Officer [1997] 107 STC 586 to counter this argument.

Regarding the contention that supplying handsets was an ancillary activity, the court found that the company's service would be meaningless without providing handsets to subscribers. The court noted that the company intended to pass on the cellular phones to customers as part of the deal, constituting a sale. The court distinguished the situation from previous legal cases and emphasized that the cellular phones had market value and were not provided free of charge. The court also highlighted the distinction between SIM cards supplied free of charge and those provided for an extra charge due to damage.

The court further discussed the decision in State of Tamil Nadu v. Board of Trustees of the Port of Madras [1999] 114 STC 520 (SC) related to unserviceable goods, which was deemed irrelevant to the current case involving essential handsets. Ultimately, the court concluded that the appeals did not raise any substantial legal questions under section 53(2) of the VAT Act, leading to the dismissal of the appeals.

In summary, the court upheld the imposition of commercial tax on handsets and substituted SIM cards provided to subscribers, rejecting the appellant's arguments based on legal precedents and the nature of the transactions. The appeals were dismissed, affirming the decision of the M.P. Commercial Tax Appellate Board.