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TMI Blog2019 (12) TMI 930X X X X Extracts X X X X X X X X Extracts X X X X ..... der the ambit of Sec. 3(1) of the Entry Tax Act, 1976 and, therefore, the questions of law are answered in favour of the assessee - question of imposition of Entry Tax on SIM Cards does not arise. Reference allowed. - Tax Reference No. 102/2017 - - - Dated:- 28-11-2019 - S. C. Sharma And Shailendra Shukla JJ. For the Petitioner : Mr. Manoj Munshi, learned counsel For the Respondent State : Mr. Vinay Gandhi, learned counsel ORDER Heard. The present Tax Reference u/S. 70(1) of the M. P. Commercial Tax Act, 1994, has been received from the M.P. Commercial Tax Appellate Board in respect of levy of entry tax on SIM Cards. The following question of law has been referred to this Court : 1. Whether the applicant is a dealer in regard to SIM Cards which are the essential part of services provided by the applicant and, therefore, the applicant falls under the ambit of Sec. 3(1) of the Entry Tax Act, 1976 ? 2. Whether the SIM Cards entered by the applicant in the local areas are the goods eligible to entry tax under Sec. 3(1) of the Entry Tax Act ? 3. Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enables a person to use his mobile number. It is basically an identity which is then used for receiving the signals in mobile network. In case, for the first time, a SIM card is given, no VAT is imposed and the Assessing Officer has erroneously held that for the first time there is no sale, hence no VAT can be imposed, however, when the SIM is replaced on account of loss / damage then there is a sale, meaning thereby, for first issuance of a SIM card no VAT is being levied and for replacement VAT is being levied. The matter relating to levy of VAT Taxes has been considered by the Hon'ble Supreme Court in various judgments. In the case of Bharat Sanchar Nigam Ltd., and another Vs. Union of India and others reported in (2006) 3 SCC 1, the apex Court in paragraph 87, 88, 89 and 90 has held as under : 87. What a SIM card represents is ultimately a question of fact as has been correctly submitted by the States. In determining the issue, however the Assessing Authorities will have to keep in mind the following principles: If the SIM Card is not sold by the assessee to the subscribers but is merely part of the services rendered by the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the works contract only can be included in the value of the goods . 89. For the same reason the Centre cannot include the value of the SIM cards, if they are found ultimately to be goods, in the cost of the service. As was held by us in Gujarat Ambuja Cements Ltd. Vs. Union of India (2005) 4 SCC 214,228. This mutual exclusivity which has been reflected in Article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking, a liberal interpretation must be given to taxing entries, this would not bring within its purview a tax on subject- matter which a fair reading of the entry does not cover. If in substance, the statute is not referable to a field given to the State, the Court will not by any principle of interpretation allow a statute not covered by it to intrude upon this field. 90. We will therefore have to allow the appeals filed by BPL in Civil Appeal Nos. 3329-30 of 2002 and Escotel in Civil Appeal No.2408 of 2002 and remand the matter to the Sales Tax Authorities concerned for determination of the issue relating to SIM Cards in the light of the observations contained in this jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sist the subscribers to purchase a receiver from outside and use its Sim Card and proposed to supply the receiver along with the Sim Card clearly indicates the intention of the Company to pass on to the customer the Cellular phone as part of the deal which constituted sale. It cannot be denied that the Cellular phone had a market value and they were supplied to the customer, apparently not free of charge but the charge with constituted part of the package. In Anand Commercial Agencies (supra) the Apex Court considered a situation where bottles were supplied free of charge on understanding that they would be returned to the 'Dealer' with a stipulation that the amount of advance deposited would stand forfeited if the bottles were not returned within the prescribed period. This amount was treated as forming sale price and charged appropriately to tax. The decisions relied upon by the learned Counsel for the appellant however, deal with the matter in different field. In Bharat Sanchar Nigam Limited Their Lordships were considering whether the Sim Card sold to the subscribers were dealing with a situation where the Sim Card not sold to the subscribers but forming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Finance Act, 1994 and they are registered for the payment of service-tax and they are in fact remitting tax on activation charges. The exclusion claimed by them is only on the value of SIM cards, that too only on the ground that they are free to supply SIM cards as sale of goods and remitted sales-tax thereon. In order to consider whether the value of SIM card constitutes taxable service, we have to examine the functioning of this item in the service provided by the respondent. Admittedly SIM card is a computer chip having it s 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. Signals are transmitted and conveyed through towers and through SIM card communication signals reach the customer s mobile instrument. In other words, it is an integral part required to provide mobile service to the customer. 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 teleph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Ravindranatha Menon that there is any possibility of constitutional invalidity arising due to legislative incompetence by taking the view that sale of SIM card is simultaneously exigible to sales tax as well as service tax. Once the aspect theory is kept in focus, it would be clear that the same transaction could be exigible to different taxes in its different aspects. Thus, we see no reason to read down the legislation as suggested by Mr. Menon. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 47. Conclusions: (a) The transaction of sale of SIM Card is without doubt exigible to sales tax under the KGST Act. The activation charges paid are in the nature of deferred payment of consideration for the original sale, or in the nature of value addition, and, therefore, also amount to parts of the sale and become exigible to sales tax under the KGST Act. (b) Both the selling of the SIM Card and the process of activation are services provided by the mobile cellular telephone companies to the subscriber, and squarely fall within the definition of taxable service as defined i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore clear that the amount received by the cellular telephone company from its subscribers towards SIM Card will form part of the taxable value for levy of service tax, for the SIM Cards are never sold as goods independent from services provided. They are considered part and parcel of the services provided and the dominant position of the transaction is to provide services and not to sell the material i.e. SIM Cards which on its own but without the service would hardly have any value at all. Thus, it is established from the records and facts of this case that the value of SIM cards forms part of the activation charges as no activation is possible without a valid functioning of SIM card and the value of the taxable service is calculated on the gross total amount received by the operator from the subscribers. The Sales Tax authority understood the aforesaid position that no element of sale is involved in the present transaction. In the light of the aforesaid judgments delivered on the subject matter, the position of law is very clear that the amount received by the cellular telephone company from its subscribers towards SIM card will form part of the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passive infrastructure can be said to have been transferred by the petitioner to the sharing telecom operators only if the possession of the said infrastructure had been transferred to them. They would have the right to use the passive infrastructure if they were in lawful possession of it. There has to be, in that case, an act demonstrating the intention to part with the possession of the passive infrastructure. There is none in the present case. The passive infrastructure is an indispensable requirement for the proper functioning of the active infrastructure which is owned and operated by the sharing telecom operators. The passive infrastructure is shared by several telecom operators and that is why they are referred to as sharing telecom operators in the MSA. The MSA merely permits access to the sharing telecom operators to the passive infrastructure to the extent it is necessary for the proper functioning of the active infrastructure. The MSA also defines site access availability as meaning the availability of access to the sharing operator to the passive infrastructure at the site. Clause 2 of the MSA which has been quoted above provides for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of part of the infrastructure. That would have been a major impediment in the discharge of its responsibilities assumed under the MSA. The limited access made available to the sharing telecom operators is inconsistent with the notion of a right to use the passive infrastructure in the fullest sense of the expression. At best it can only be termed as a permissive use of the passive infrastructure for very limited purposes with very limited and strictly regulated access. It is therefore difficult to see how the arrangement could be understood as a transfer of the right to use the passive infrastructure. 37. When the petitioner has not transferred the possession of the passive infrastructure to the sharing telecom operators in the manner understood in law, the limited access provided to them can only be regarded as a permissive use or a limited licence to use the same. The possession of the passive infrastructure always remained with the petitioner. The sharing telecom operators did not therefore, have any right to use the passive infrastructure. 38. A careful perusal of the judgment of the Karnataka (supra) shows that the following propositions we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis that the petitioner transferred the right to use passive infrastructure to the sharing telecom operators is quashed. Thus, the controversy involved in respect of the issue relating to VAT on lease line charges has already been adjudicated by this Court. From the foregoing discussion it, therefore, inevitably follows that Sec.2(u) and 2(v) of the MP VAT Act, 2002 is ultra-vires and void, in so far as it relates to imposition of VAT on SIM replacement charges and lease line revenue, which are merely services. The impugned order passed by the assessing authority dt. 31/7/2014 and the Notice dt. 31/7/2014 are hereby quashed. The other orders also relating to imposition of VAT on SIM replacement charges and lease line revenue are also quashed. The present Writ Petition stands allowed and disposed of. The order passed in W.P.No. 7631/2014 shall be applicable in all the connected Writ Petitions and the impugned notices and assessment orders passed therein are also hereby quashed. No order as to costs. The Division Bench of this Court has allowed the Writ Petition, the notices and the assessment orders imp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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