2017 (9) TMI 678 - HC - VAT and Sales Tax

Levy of Sales Tax - Sale of SIM cards - activation charges - sales or service tax - Whether the trial Court was right in concluding that the provision of SIM Cards and collection of activation charges was only a service and would not attract Sales tax under the Pondicherry General Sales Tax, 1967? - Held that - Apex Court in the case of BHARAT SANCHAR NIGAM LTD. (BSNL) Versus UNION OF INDIA 2006 (3) TMI 1 - Supreme court , where placing reliance in the case of Idea Mobile Communication Limited .Vs. Commissioner of Central Excise & Customs., Cochin 2011 (8) TMI 3 - SUPREME COURT OF INDIA , it was held that no Sales Tax can be levied on the value of the SIM Cards and activation charges - the same is a kind of service, and there is no element of sale involved. Interest - relevant date - Held that - The sum of ₹ 5,35,643/- claimed by the plaintiff includes the interest up to 01.11.2007. The suit has been filed on 24.08.2007. Therefore, the trial Court was in error in granting interest from the date of the suit till date of realization. Actually interest should have been granted, subsequent to the suit only on the sum of principal amount viz., ₹ 3,97,050. The defendants are directed to pay a sum of ₹ 5,35,643/- jointly and severally with subsequent interest at 6% p.a., on the principal amount of ₹ 3,97,050/- from the date of filing of the suit till date of realisation - appeal allowed - decided partly in favor of appellant.

Summary

Issues:
1. Entitlement of the plaintiff for suit claim
2. Relief entitled to the parties

Issue 1: Entitlement of the plaintiff for suit claim

The plaintiff, a Government organization providing mobile phone services, filed a suit seeking a refund of Sales Tax paid on SIM Cards and activation charges, totaling ?5,35,643. The defendants contended that the suit was not maintainable under specific tax laws and that the Supreme Court had not conclusively ruled on Sales Tax for SIM Cards. The trial Judge found in favor of the plaintiff, citing the Supreme Court judgment that SIM Cards are a service, not subject to Sales Tax. The plaintiff's claim of ?3,97,050 paid as Sales Tax was undisputed, leading to the trial Judge granting the decree.

Issue 2: Relief entitled to the parties

During the appeal, the appellants argued that the Supreme Court only provided guidelines, leaving the Sales Tax determination to authorities. In contrast, the respondent emphasized the Supreme Court's clear pronouncement that SIM Cards are a service, not subject to Sales Tax. The judge agreed with the respondent, citing the Supreme Court's decision and similar judgments. However, a modification was made to the trial court's decree regarding the interest amount, reducing it to apply only to the principal amount paid as Sales Tax.

In conclusion, the High Court of Madras upheld the trial court's decision, ruling in favor of the plaintiff's entitlement to the refund claim based on the Supreme Court's judgment. The modification made was only related to the interest amount, ensuring it applied correctly to the principal amount paid.