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TMI Blog2002 (2) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the instrument and the SIM card to its customers is only a 'sale pure and simple' exigible to sales tax under the KGST Act. One peculiar service it renders is activation, on which service tax is leviable. Activation is a process by which the subscriber form details, scheme/plan details, deposits, etc. brought in by the sales team is manually fed through computer into the Customer Administration & Billing System (hereinafter referred to as 'CABS') so that the system has a data base which can provide access for the customer to use the net work. Activation provides the customer a slot in the CABS system with an account ID by which his monthly bills/bill details, credit limits, plan of usage etc. would all be kept in the data base. This enables the petitioner to provide/change any or all service/s, or temporarily or permanently disconnect the customer by making suitable changes in the system. It is the stand of the petitioner that activation neither increases or decreases the value of SIM card, since it is not a process carried out on the SIM card, but only on the compute and the CABS system installed on the computer in the petitioner's office. 3. With this un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service tax. It was further clarified that the amount received by the Cellular telephone company from subscribers towards SIM card will form part of the taxable value for levy of service tax. 5. On 17-9-1999, the Joint Commissioner of Central Excise and Customs, Trivandrum, issued a show cause notice to the petitioner and its officers calling upon them to show cause why the value of 14476 SIM cards involving service tax of Rs. 7,40,480, which has escaped assessment on account of the failure of the petitioner to wholly and truly disclose all material facts, should not be reassessed. The notice also called upon the petitioner and its officers to show cause as to why penal action should not be taken against them. The petitioner showed cause by its reply dated 26th October, 1999 (Ext. P5) and urged that the value of the SIM card which was already a subject matter of Sales Tax is not liable to be included in gross value of service charges and that it had duly complied with the law, both the KGST Act and the Finance Act. 6. In the meanwhile, the Central Board of Excise and Customs, issued Circular No. 23/3/97, dated 13th October, 1997 in which it was clarified that the cost of SIM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of SIM card itself would be incomplete, as SIM card would not become operative. The Sales Tax authorities, therefore, held that activation is a process by which the SIM card becomes operational and the value of SIM card is enhanced and the said activation charge was collected along with the price of SIM card. Hence, they took the view that the amount collected by the petitioner by way of activation charge along with the sales price was part of the sales price, and hence, exigible to sales tax. The petitioner filed an appeal before the Deputy Commissioner of Commercial Taxes (Appeals) which was dismissed by an order made on 25-10-2000 (vide Ext. P11). Aggrieved by the order, petitioner moved an appeal before the Sales Tax Appellate Tribunal. Pending the appeal, the Department issued revenue recovery proceedings against the petitioner. Hence, this original petition. 10. It is contended that it would be in fairness of things that this Court determines the issue once for all and decides which portion of the charges is exigible to sales tax and which is exigible to service tax. By an amendment made in the Original Petition, it is contended that levy of service tax on the sale of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts to sale and, hence taxable under the KGST Act. The petitioner by its reply contended that providing of SIM card to the customer is essentially a service and that there is no transfer of property in goods satisfying the ingredients of a sale, and, hence, no sales tax can be levied on the transaction. The authorities, however, held against the petitioner and made a revised assessment order on 16-7-2001. The petitioner was also served with a notice dated 4-9-2001 proposing to levy penalty under Section 45A of the KGST Act. The petitioner opposed the penalty proceedings, but the penalty proceedings resulted in order dated 18-9-2001 (Ext. P5) being passed against the petitioner, levying a penalty of Rs. 3,46,366/- and a demand notice being served in connection therewith. By another notice dated 6-9-2001, the petitioner was also called upon to file its return in respect of sale of SIM cards and MOTS cards for the assessment year 1997-98 onwards. Apart from contending that providing of SIM cards or MOTS cards does not result in a transaction exigible to Sales Tax under the KGST Act, because it is a pure and simple service exigible to service tax under the Finance Act, the petitioner h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbit of the expression 'any service', as contemplated in the definition of 'taxable service'. Therefore, service tax has to be paid on the price of SIM card plus the activation charge collected by the service provider. (d) The learned counsel for both the petitioners vehemently urged that if the same transaction is held exigible to both service tax and sales tax, it would amount to double taxation, which is constitutionally impermissible. 16. Before we consider the rival contentions, it is necessary to notice the relevant statutory provisions. Service tax is leviable under Section 67 of the Finance Act 1994, as amended by the Finance Act of 1996, the Finance Act of 1997 and the Finance Act of 1998. 'Taxable service' is defined in sub-section (72) of Section 65 of the Finance Act. As far as mobile service providers are concerned, they are treated as 'telegraph authority' as defined in Section 65(74) which says : "telegraph authority has the meaning assigned to it in clause (6) of Section 3 of the Indian Telegraph Act, 1885 (13 of 1885) and includes a person who has been granted a licence under the first proviso to sub-section (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case of non-pre-paid SIM cards, the customer is billed periodically for user and has to pay the charges. The activation charges are collected separately. 18. The first question that arises for consideration is: when the subscriber is supplied a SIM card, is there a 'sale', or a 'service', or both? and, which part of the activity is exigible to which tax? The second question is : whether activation charge is exigible to service tax or sales tax ? 19. As far as the sale of SIM card is concerned, there cannot be any doubt that it amounts to 'sale' within the meaning of Section 2(xxi) of the KGST Act as there is transfer of property in the goods, i.e., SIM card, by the service provider to the subscriber, for cash or for deferred payment or other valuable consideration. Mr. Hidayathulla, the learned counsel appearing for the petitioner in O.P. Nos. 29239 and 31963 of 2001, however, contends that the transaction does not amount to a sale as contemplated in Section 2(xxi) of the KGST Act. According to him, in order to fall within the meaning of the word 'sale' as defined in Section 2(xxi), there has to be a transfer of the property in the goods for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of valuable consideration. It is urged that, the transfer of such an intangible right is also a sale within the meaning of Section 2(xxi), read with Explanation 3B of the KGST Act and exigible to Sales Tax. 21. Mr. Hidayathulla strongly relied on the concept of 'goods' as defined in the KGST Act and contends that, even assuming there is a transfer of property in the transaction of supplying the SIM card to the subscriber, neither is the SIM card 'goods', nor is the right to use the service of the service providers' 'goods' within the meaning of Section 2(xii) of the KGST Act. Unless it falls within the meaning of Section 2(xii), it would not be a 'sale' within the meaning of Section 2(xxi), however, wide the ambit of Explanation 3B to Section 2(xxi). 22. Section 2(xii) of the KGST Act defines the expression 'goods' as under :- "goods means all kinds of movable property (other than newspapers, actionable claims, electricity, stocks and shares and securities) and includes livestock, all materials, commodities and articles (including those to be used in the construction fitting out, improvement or repair of immovable property or used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, and make it applicable only to a works contract. In fact, the heading rightly describes the two facets of the Section, one applicable to Clause (a) and the other applicable to Clause (b) which alone deals with works contract. Hence, we are unable to agree that the authority cited before us is an authority for the proposition canvassed. 24. Mr. Hidayathulla then referred to the judgment of the Supreme Court in M/s. Associated Cement Companies Ltd. v. Commissioner of Customs, 2001 (128)E.L.T. 21 (S.C.) = AIR 2001 SC 862, particularly the observations in paragraph 27. In this case, the Supreme Court was concerned with the issue as to whether the drawing, designs, etc., relating to machinery or technology imported from foreign collaborators by the appellant would be goods. The issue was answered against the appellant-Company by holding that they would be 'goods' within the meaning of Section 12, read with Section 2(22) of the Customs Act. The word 'goods' has been defined in Section 2(22) of the Customs Act and includes under sub-clause (e) "any other kind of movable property." Explaining this, the Supreme Court observed, "even though the definition of the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs, but also rights such as trade marks, copyrights, patents, and rights in personam capable of transfer or transmission, such as debts." The Supreme Court reiterated its own view in the decision in H. Anraj v. Government of Tamil Nadu (1986) 61 STC 165, wherein the Supreme Court had taken the view that sale of lottery tickets would amount to 'sale of goods' as it would amount to transfer of entitlement of right to participate in a draw, which was a beneficial interest in movable property of incorporeal or intangible character. In this view of the matter, the Supreme Court held that transfer of REP licence/Exim scrips for valuable consideration amounted to 'sale' exigible to sales tax leviable under different State Sales Tax Acts. 26. It was contended by both the learned counsels, Mr. Hidayathulla and Mr. Ravindranatha Menon, that SIM card is not transferable and no one but the transferee may use the facility thereof. In our view, free transferability is not necessarily indicative of a right to movable property not being a sale of goods. Even under the Sale of Goods Act, 1930, there is no such requirement for the sale to be effective. 27. Mr. Hidayathulla t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the issue as to whether printed or unprinted computer software could be held as goods and referred it to a Larger Bench. 29.The learned Special Government Pleader (Taxes) contended that not only is the transfer of the property in SIM card a 'sale' within the meaning of the expression as used under the KGST Act, but what is styled as 'activation charges' is nothing but a deferred consideration or deferred payment for the same sale. He contended that what the subscriber gets is a facility made available by the Mobile Cellular Telephone service provider and this is done in two steps. First, by transfer of SIM card on payment of certain charges; second, by the process of activation on payment of activation charges. He contended that by the value addition theory, what is done by the activation charges is to increase the utility or value of the SIM card itself. Hence also, the activation charges must be exigible to sales tax and includible in determining the sale price. In other words, the total consideration paid for getting the facility of cellular telephone service starting from registration charges, the purchase price of SIM card, and finally, including the activat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction which is within its legislative competence. Doing so is perfectly permissible. In Federation of Hotel & Restaurant Association of India v. Union of India, (1989) 3 SCC 634 elaborating the theory of 'aspects legislation' the Supreme Court observed : (vide paragraphs 30-32, 37, 38) In Lefroy's Canada's Federal System the"30. learned author referring to the 'aspects of legislation' under Sections 91 and 92 of the Canadian Constitution, i.e., British North America Act, 1867 observes that 'one of the most interesting and important principles which have been evolved by judicial decisions in connection with the distribution of legislative power is that subjects which in one aspect and for one purpose fall within the power of a particular Legislature may in another aspect and for another purpose fall within another legislative power." Learned author says :- '... that by "aspect" must be understood the aspect or point of view of the legislator in legislating the object, purpose, and scope of the legislation that the word is used subjectively of the legislator, rather than objectively of the matter legislated upon.' In Union Colliery Co. of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the composite nature of a statute, one as regards the preclusory impact of federal law on provincial measures bearing on constituents of federally regulated conduct, the other to identify what parts of the whole making up a "matter" bring it within a class of subjects.... (p. 117)" It is trite law that the true nature and37. character of the legislation must be determined with reference to a question of the power of the Legislature. The consequences and effects of the legislation are not the same thing as the legislative subject matter. It is the true nature and character of the legislation and not its ultimate economic results that matters. Indeed, as an instance of different38. aspects of the same matter, being the topic of legislation under different legislative powers, reference may be made to the annual letting value of a property in the occupation of a person for his own residence being, in one aspect, the measure for levy of property tax under State law and in another aspect constitute the notional or presumed income for the purpose of income-tax." 34. Double taxation is not bad unless the Constitution forbids it expressly. In the absence of any impediment specifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent aspects. Thus, we see no reason to read down the legislation as suggested by Mr. Menon. 37. Mr. Menon relied on the judgment of the Allahabad High Court in Union of India v. State of U.P. (supra). We have already held that this judgment does not lend support to the argument of the petitioners. Reference was also made to the judgment in PSI Data Systems Ltd. v. Collector of Central Excise, 1997 (89)E.L.T. 3 (S.C.) = (1997) 2 SCC 78. Mr. Menon highlighted the observations of the Supreme Court in paragraph 13 that a computer and its software are distinct and separate, both as a matter of commercial parlance as also upon the material on record. A computer may not be capable of effective functioning, unless loaded with software such as discs, floppies, and CD ROMs, but that is not say that these are a part of the computer or to hold that, if they are sold along with the computer, their value must form part of the assessable value of the computer for the purposes of excise duty. In our view, this judgment does not afford any assistance to the petitioners. The question is not whether the SIM card is part of anything else that is sold for the purpose of any duty. The question is whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IR 1972 SC 1061 at para 59, wherein the Supreme Court observed that, there are three lists and a residuary power, and, therefore, in this context, if a Central Act is challenged, as being beyond the legislative competence of the Parliament, it is enough to enquire if it is a law within respect of matters or taxes enumerated in List If. If it is not, no further question arises. 40. We are afraid that these two judgments do not carry forward the petitioners' case at all. In fact, in order to press forward the proposition raised by Mr. Menon, it would have to be demonstrated that the tax levied by way of service tax is, in pith and substance, referable or relatable to an Entry in the State List in Schedule VII to the Constitution. The only entry pointed out is Entry 54 of List II. We have already held that service tax is different from sales tax; that the same transaction may simultaneously involve 'service' and 'sales' as its two aspects and that it is open to different Legislatures to tax different aspects of the same subject within their individual legislative competence. Merely because a tax is measured by relating it to the value of taxable service, it does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on the first proposition viz., that the right to use lockers or the facility on the telephone exchange would not be a right to use movable property. 43. Both Mr. Hidayathulla and Mr. Menon contended that principle enunciated in these judgments would be equally applicable in the case of Mobile Cellular Telephone Service providers, because what is offered by them is the transfer of a right to use the mobile services, albeit, by wireless telephone, and that their instruments installed in their office are really immovable property. This contention cannot be accepted, as there is no material placed before us to support this. We, therefore, decline to express any opinion thereupon. As requested by the learned counsel, we keep open the question as to whether the right to use the petitioners services for valuable consideration would be a right to use 'movable property' or 'goods' within the meaning of expression 'sale' as defined in Section 2(21), read with Explanation 3B of the KGST Act to be decided by the statutory authority upon material being produced. We are deciding the issue on the footing that it is movable property and, hence, it would amount to sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies to the subscriber, and squarely fall within the definition of 'taxable service' as defined in Section 65 (72)(b) of the Finance Act. They are also exigible to service tax on the value of 'taxable service' as defined in Section 67 of the Finance Act. 48. We find no substance in the petitions. The Original Petitions are, accordingly, dismissed. No order as to costs. 49. We have not gone into the question of correctness of the penalty proceedings and departmental assessment. But we have decided only the question of exigibility to tax on different aspects of the transaction. We have also left open the issue as to whether sale of SIM card represents the transfer of right to use 'immovable property', as the argument before us proceeded on the assumption that it was transfer of the right to use a movable property. The departmental authorities are free to decide this issue in accordance with the evidence, which may be produced before them. 15th February, 2001 Sd/- (B.N. Srikrishna), Chief Justice Sd/- (M. Ramachandran), Judge. O.P. No. 4973 of 2001 : 50. The petitioner has challenged the reassessment proceedings as time barred as well as penalty and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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