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2017 (8) TMI 602 - HC - Service TaxSale or service - value of SIM cards sold - Whether the value of sim card sold attracts service tax or sale tax under the sales tax act - Held that - the issue has been settled in the case of IDEA MOBILE COMMUNICATION LTD. Versus CCE. & C., COCHIN 2011 (8) TMI 3 - SUPREME COURT OF INDIA , where it was held that 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 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 - petition allowed.
Issues:
Interpretation of legal issue regarding the nature of transaction for mobile phone connections involving SIM cards and recharge vouchers. Analysis: The judgment discusses the legal issue arising from the sale of SIM cards and recharge vouchers in the context of whether it constitutes a sale, a service, or both. It refers to a previous decision by the Supreme Court in the case of BSNL vs. Union of India, which was later considered in the case of Idea Mobile Communication Ltd. vs Commissioner of Central Excise and Customs, Cochin. The Supreme Court emphasized the importance of determining the intention of the parties in the transaction. If the SIM card is considered part of the services rendered by the service providers and not sold separately to subscribers, it cannot be charged with sales tax. However, if the parties intended the SIM card to be a separate object of sale, sales tax could be levied. The judgment highlights that the value of SIM cards is considered part of the activation charges for providing services, as SIM cards are essential for the functioning of cellular phones. The court concluded that there was no element of sale involved in the sale of SIM cards or recharge vouchers, and if appropriate returns were filed, the Assessing Authority would have treated the sale as an exempted sale. Conclusion: Based on the legal analysis and previous decisions, the High Court allowed both Writ Petitions, stating that there was no element of sale in the transactions involving SIM cards and recharge vouchers. The judgment clarifies the legal position that the value of SIM cards forms part of the activation charges for services provided by cellular phone companies. By following the decisions of the Supreme Court, the Assessing Authority would have considered the sale as exempted if proper returns were filed. The court's decision resolves the legal issue regarding the nature of transactions involving SIM cards and recharge vouchers, providing clarity on the tax treatment applicable in such cases.
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