Cost of SIM Cards - Value to be included in the Gross Value for the purpose of payment of service tax

In Commissioner of Central Excise & Customs, Cochin Versus Idea Mobile Communication Ltd. [2009 -TMI - 33849 - KERALA HIGH COURT] the following question was raised before the high court:

Whether the value of SIM cards sold by the respondent to their mobile subscribers is to be included in taxable service under section 65(105)(zzzx) of the Finance Act, 1994 which provides for levy of service tax on telecommunication service or it is taxable as sale of goods under the Sales Tax Act?

High Court observed that:

-         In sales tax different mobile operators took divergent stand in the matter before the departmental authorities.

-         While BPL Mobile Services, a leading mobile operator, took the stand that SIM card has no intrinsic sale value and is supplied to the customers for providing mobile service and they paid service tax including value of SIM card, respondent herein paid sales tax on the sale price of SIM cards arid started remitting service tax only on activation charges.

-         BSNL also took the stand similar to BPL Cellular services and their sales tax assessment on the value of SIM cards upheld by this Court was taken up to Supreme Court which led to judgment in BSNL's case, 2006 -TMI - 309 - Supreme court

-         The Supreme Court elaborately discussed the issues raised and in paragraph 86, the contention of the respondent that they have paid sales tax on sale price of SIM card is recorded by the Supreme Court. However, the Supreme Court in the final judgment left open the issue to be considered by the assessing authorities under the Sales Tax Act. It was further discussed in paragraph 92 of the judgment that the nature of transaction involved in providing telephone connection may be a composite contract of service and sale.

-         It is possible for the State to tax the sale element provided there is a discernible sale and only to the extent relatable to such sale.

-         The sales tax authorities under the KGST Act did not show any anxiety to decide the matter after remand by of the Supreme Court.

Decision:

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.

Customer cannot get service without SIM card and it is an essential part of the service.

SIM card has no intrinsic value or purpose other than use in mobile phone for receiving mobile telephone service from the service provider. Therefore, in our view, the stand taken by the BSNL and BPL Mobile Services that it is not goods sold or intended to be sold to the customer but supplied as part of service is absolutely tenable and acceptable.

We hold that the value of SIM card supplied by the respondent forms part of taxable service on which service tax is payable by the respondent.

For full text of judgment visit:

Commissioner of Central Excise & Customs, Cochin Versus Idea Mobile Communication Ltd. [2009 -TMI - 33849 - KERALA HIGH COURT