2008 (2) TMI 47 - AT - Service Tax

Cellular phone service providers - imported SIM cards and sold the same to their customers on payment of sales tax - also activated SIM cards by giving connection - also paid service tax on the activation charges Revenue s contention that value of SIM card should have been added to activation charge for the purpose of payment of ST, is not justified held that there should be no levy of service tax on the value of the SIM cards, because service tax is leviable on services not on goods

Summary

Issues:
Service tax liability on the value of SIM cards sold by cellular phone service providers.

Analysis:
The case involved cellular phone service providers who imported SIM cards, sold them to customers, and activated them, providing connection services. The department claimed that the value of SIM cards should be included in the service tax calculation. Three show-cause notices were issued for recovery of differential tax. The original and appellate authorities upheld the demand, leading to the appeals.

The appellants argued that since SIM cards were recognized as "goods" by customs and sales tax authorities, service tax should not apply to their value. They contended that service tax was only applicable to activation charges, which they had paid. Citing precedents like BPL Mobile Communications Ltd. and Bharat Sanchar Nigam Ltd., the appellants asserted that the issue was settled in their favor.

The Tribunal analyzed the Apex Court's judgment in BSNL's case, which clarified that service tax is leviable only on services, not on goods already subject to sales tax. Referring to the BPL Mobile Communications Ltd. case, where the assessee had voluntarily paid sales tax on SIM cards, the Tribunal concluded that service tax should not be imposed on the value of SIM cards. The fact that the SIM cards were assessed for customs duty further supported the view that they were considered "goods." Consequently, the Tribunal ruled in favor of the appellants, stating that service tax was only applicable to activation charges, as the taxable service of telephone connection was rendered through SIM card activation.

In conclusion, the Tribunal set aside the impugned orders, allowing the appeals in favor of the cellular phone service providers. The decision was pronounced in open court on 20-2-2008.