2008 (9) TMI 292 - HC - Service Tax

Service Tax on SIM Cards Kerala State Government(KGST Act) after remand by Supreme Court has given up the claim for sales tax on SIM cards, the question to be considered is whether the value of SIM cards forms part of taxable service - Admittedly SIM card is a computer chip having its own SIM number on which telephone number can be activated -. SIM card is a device through which customer gets connection from the mobile tower, In other words, unless it is activated, service provider cannot give service connection to the customer Held that the value of SIM card supplied by the respondent forms part of taxable service on which service tax is payable by the respondent However, no penalties should be levied.

Summary

Issues:
1. Whether the value of SIM cards sold to mobile subscribers is taxable under the Finance Act, 1994 or the Sales Tax Act.

Analysis:
The judgment involves a dispute regarding the taxation of SIM cards sold by the respondent to mobile subscribers. The key issue is whether the value of SIM cards should be considered taxable under the Finance Act, 1994 or the Sales Tax Act. Various mobile operators had different stances on this matter. BPL Mobile Services and BSNL argued that SIM cards were not goods sold but were provided as part of the service, hence subject to service tax. In contrast, the respondent paid sales tax on SIM card sale prices and only remitted service tax on activation charges. The Supreme Court's judgment in BSNL's case highlighted the complexity of the issue, acknowledging the possibility of a composite contract of service and sale in providing telephone connections. The Sales Tax authorities, after a specific direction from the High Court, conceded that SIM cards had no intrinsic sale value and were essential for providing telephone service, leading to dropping sales tax proceedings against SIM cards. The High Court emphasized that the respondent's Assessing Officer could not take a different stance from that of BSNL and BPL Mobile Services, thereby disallowing sales tax assessment on SIM cards sold by the respondent.

The judgment further delved into the nature of SIM cards in the service provided by the respondent. It was established that SIM cards were indispensable for providing mobile services, acting as a conduit for communication signals between the mobile tower and the customer's device. The court deemed SIM cards as integral to the service, with no inherent value or purpose beyond facilitating mobile service provision. Consequently, the court upheld that the value of SIM cards formed part of taxable service, making the respondent liable to pay service tax on the SIM cards sold. The court also noted the absence of grounds for imposing penalties under section 73 of the Finance Act, 1994, given the bona fide nature of the dispute and the alignment of the respondent's position with previous judgments and observations.

In conclusion, the High Court partially allowed the appeal by overturning the Tribunal's order and reinstating the demand for service tax on the value of SIM cards. Additionally, the court rejected the respondent's request to certify the judgment for appeal to the Supreme Court, citing the absence of substantial legal questions arising from the factual findings.