2006 (5) TMI 17 - AT - Service Tax

Service Tax Mobile phone SIM card activation charges Imposition of service and sales taxes were constitutionally mutually exclusive service tax cannot be imposable on the item on which sales tax has been collected

Summary

Issues:
Levy of service tax on the ground of rendering services on cellular phones without incorporating activation charges in the price of SIM cards; Challenge to the levy of sales tax and the consideration of the transaction as the sale of goods affecting the imposition of service tax; Interpretation of mutual exclusivity between sales tax and service tax as per relevant legal precedents; Jurisdictional conflict between State subject of sales tax and the central imposition of service tax.

Analysis:
The appeal before the Appellate Tribunal arose from the imposition of service tax based on the rendering of services on cellular phones without including activation charges in the price of SIM cards. The issue was previously adjudicated by the Kerala High Court, confirming the payment of service tax, penalty, and interest. However, a significant development occurred when the matter was taken up before the Apex Court in a related case, where it was remanded to determine whether sales tax had been levied. This remand order prompted a reevaluation of the case at hand.

The appellant's counsel contended that they were not disputing the levy of sales tax on the transaction involving the sale of SIM cards as goods. They emphasized that once a transaction is considered a sale of goods, the categorization as an auxiliary service for the imposition of service tax becomes invalid. The appellant explicitly stated that they were not contesting the sales tax levy, as it had already been paid, focusing the argument on the mutual exclusivity principle between sales tax and service tax.

In response, the Departmental Representative suggested remanding the matter to reconsider the aspect of the sales tax levy. The appellant's counsel reiterated that they were not challenging the sales tax levy and acknowledged that the items sold were indeed goods. They relied on legal precedents, particularly quoting the Apex Court's stance on mutual exclusivity between sales tax and service tax, emphasizing the need to maintain exclusivity in interpreting taxing entries.

The Appellate Tribunal, after careful consideration, observed that the appellant had already paid the sales tax, thereby concluding that service tax was not applicable to the item on which sales tax had been collected. Relying on the legal principles and precedents cited, including the Apex Court judgment, the Tribunal accepted the appellant's contention and held that the levy of service tax was not sustainable. Consequently, the appeal was allowed, with any consequential relief to follow as necessary. This decision underscored the jurisdictional distinction between State sales tax and central service tax, emphasizing the importance of maintaining exclusivity in taxation matters.