‘SIM’ CARD – CAPITAL GOODS OR INPUT?

[Mr. M. GOVINDARAJAN]

It is a well known fact that SIM (Subscriber identification Module) card is the basic for the functioning of mobile phones.  Without inserting the SIM card in the mobile instrument the service could not be provided.

In the earlier periods the State Governments took a view that the sale of SIM cards to subscribers amount to sale and opined that it is liable for the levy of sales tax. Many a litigation arised in this regard.  Almost all the Telecom operators were brought in the litigation.  The contention of the State Governments is that SIM card is a goods, physically sold to the consumers and it attracts sales tax.  The Supreme Court held that even though it is physically sold to the consumers the SIM card is the basic one to provide service to the Telecommunication services to the consumers by the Telecommunication operators.   Without the insertion of the SIM card in the mobile instrument no service could be provided.  As such the sale of SIM card only attracts service tax and not sales tax.

Now another question arises whether the SIM card is capital goods or input.  In the following case the Tribunal found that SIM card is an input that is used for providing the output service.

In ‘Idea Cellular Limited V. Commissioner of Central Excise, Customs & Service Tax, Cochin’ – 2014 (8) TMI 896 - CESTAT BANGALORE the appellant has taken the CENVAT credit of central excise duty paid on SIM cards.  The CENVAT credit was denied by the Department on the ground that the SIM cards are capital goods classifiable under Chapter CETH 85 and therefore credit could not have been taken.  The appellant contended before the Tribunal that the appellant has been taking credit on SIM cards treating them as inputs and that SIM cards are essential inputs for providing the output service namely the Telecommunication Service.

The Tribunal considered the arguments put forth by the appellants. The Tribunal found that the appellants purchased the SIM cards, load the software and thereafter sell it through the dealers and after sale to a customer, the SIM card is activated and the process of provision of Telecommunications service commences. That being the position, the claim of the appellant that SIM card is an input for them and is used for providing the output service on a prima facie basis seems to be justifiable.