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whether the value of SIM cards sold by the appellant herein 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 whether it is taxable as sale of goods under the Sales Tax Act.

                                                                 REPORTABLE

                   IN THE SUPREME COURT OF INDIA

                    CIVIL APPELLATE JURISDICTION

                    CIVIL APPEAL NO.  6319 OF 2011

                [Arising out of SLP(C) No. 24690 of 2009]

IDEA MOBILE COMMUNICATION LTD.       ....Appellant (s)

                                    VERSUS

C.C.E. & C., COCHIN                                  ....Respondent(s)

                                    JUDGMENT

Dr. MUKUNDAKAM SHARMA, J.

1. Leave granted.

2. The   present   appeal   is   filed   against   the   judgment   and   order   dated 

   04.09.2008   passed   by   the   Kerala   High   Court   whereby   and 

   whereunder,   the   High   Court   allowed   the   appeal   filed   by   the 

   Commissioner of Central Excise & Customs, Cochin.   

                                     Page 1 of 14

3.    The   issue   which   arises   for   our   consideration   in   this   appeal   is 

      whether the value of  SIM cards sold by the appellant herein 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 whether it is taxable as 

      sale of goods under the Sales Tax Act.

4.    The facts leading to the filing of the present case are that during the 

      relevant assessment years, i.e., 1997-1999, the appellant was selling 

      the SIM cards to its franchisees and was paying the sales tax to the 

      State and activating the SIM card in the hands of its subscribers on 

      a   valuable   consideration   and   paying   service   tax   only   on   the 

      activation   charges.   The   Department   of   Sales   Tax,   State   of   Kerala, 

      included   the   activation   charges   as   part   of   the   sale   consideration   of 

      SIM   cards   on   the   ground   that   activation   is   nothing   but   a   value 

      addition   of   the   "goods"   and   thus   comes   under   the   definition   of 

      "goods"   under   the   Kerala   General   Sales   Tax   Act,   1963   (hereinafter 

      referred   to   as   "KGST   Act")   and   accordingly   levied   sales   tax   on 

      activation   charges.   The   Department   of   Central   Excise,   Eranakulum 

      (Service   Tax   Department)   observed   that   a   mere   SIM   card   without 

                                          Page 2 of 14

      activation   is   of   no   use   and   held   that   the   appellant   is   liable   to   pay 

      service tax on the value of SIM card also. In both the cases interest 

      and penalty were levied.

5. Being   aggrieved,   the   appellant   filed   appeal   before   the   respective 

      appellate   authorities   under   the   KGST   Act   and   Central   Excise   Act, 

      1944.   There   were   consequential   recovery   proceedings   against   the 

      appellant   and   the   appellant   filed   Writ   Petition   O.P.   No.   4973   of 

      2001(P) in the High Court of Kerala challenging the levy of service tax 

      on the sale price of SIM cards and also challenging the levy of sales 

      tax on the amounts recovered by the appellant by way of activation 

      charges   from   its   customers   which   was   dismissed   vide   order   dated 

      15.02.2002. 

6.    Aggrieved thereby, the appellant filed Civil Appeal No. 2408 of 2002 

      before   this   Court.   Based   on   the   judgment   of   the   High   Court   dated 

      15.02.2002, the appellant also filed appeal before the Commissioner 

      (Appeals),   Customs   and   Central   Excise   which   was   dismissed   vide 

      order   dated   08.04.2003.   The   appellant   preferred  appeal   u/s   35B   of 

      Central  Excise  Act,  1944  before  the  Central  Excise  and   Service   Tax 

      Tribunal   (hereinafter   referred   to   as   "TRIBUNAL")   viz.   Appeal   No. 

      ST/18/03   against   the   order   dated   08.04.2003,   in   which   the 

                                            Page 3 of 14

      appellant   did   not   challenge   the   levy   of   sales   tax   as   the   same   was 

      already paid.

7.    The   aforesaid   Civil   Appeal   No.   2408   of   2002   before   this   Court   was 

      heard   and   decided   with   appeals   and   Writ   Petitions   of   several   other 

      telecom   operators,   including   BSNL,   BPL   etc.   and   vide   judgment 

      reported as BSNL vs. Union of India reported in (2006) 3 SCC 1, the 

      matter   was   remanded   to   the   Sales   Tax   Authorities   concerned   for 

      determination   of   issue   relating   to   SIM   cards.   The   Tribunal   in   the 

      pending   Appeal   No.   ST/18/03,   vide   order   dated   25.05.2006,   held 

      that the levy of service tax in the case is not sustainable. 

8. Aggrieved   thereby,   the     respondent   challenged   the   order   of   the 

      Tribunal dated 25.05.2006 before the High Court of Kerala by way of 

      Appeal being CE Appeal No. 20 of 2006.   The High Court vide order 

      dated 04.09.2008 allowed the appeal of the respondent - department 

      against which this appeal has been filed, upon which, we heard the 

      learned counsel appearing for the parties.

9.    The counsel appearing for the appellant submitted that the appellant 

      was charging from its subscribers Rs. 1,000/- towards sales tax and 

      Rs. 1,200/- as service tax upon activation of the SIM Card and that 

                                          Page 4 of 14

   since   they   were   selling   the   SIM   Cards,   therefore,   at   that   point   of 

   time,   they   were   charging   Rs.   1000/-   towards   sales   tax   and   for 

   activating   the   SIM   Card   they   were   charging   Rs.   1200/-   as   service 

   tax. Counsel also drew our attention to the earlier judgment rendered 

   by   the   Kerala   High   Court   as   against   which   the   Supreme   Court 

   pronounced the Judgment being  BSNL  vs.  Union of India  reported 

   in (2006) 3 SCC 1.  

10.The   counsel   appearing   for   the   respondent   on   the   other   hand 

   submitted   that   SIM   Card   has   no   intrinsic   sale   value   and   it   is 

   supplied   to   customers   to   provide   telephone   service.     It   is   also 

   submitted   by   the   counsel   that   selling   of   the   SIM   Card   and   the 

   process   of   activation   are   "services"   provided   by   the   mobile   cellular 

   telephone   companies   to   the   subscriber.   He   further   submitted   that 

   the decision of the Supreme Court has clearly stated that if the sale 

   of a SIM Card is merely incidental to the service being provided and 

   it only facilitates the identification of the subscribers, their credit and 

   other details, it would be assessable to service tax.

11.We   have   examined   the   materials  on  record   in  the   light  of  the   facts 

   placed  before   us and   also  the   decisions   referred  to   and  relied   upon 

   by the counsel appearing for the parties.  

                                      Page 5 of 14

12. A SIM Card or Subscriber Identity Module is a portable memory chip 

  used in cellular telephones.   It is a tiny encoded circuit board which 

  is   fitted   into   cell   phones   at   the   time   of   signing   on   as   a   subscriber. 

  The SIM Card holds the details of the subscriber, security data and 

  memory   to  store   personal  numbers   and  it  stores   information   which 

  helps the network service provider to recognize the caller.   As stated 

  hereinbefore   the   Kerala   High   Court   had   occasion   to   deal   with   the 

  aforesaid   issue  and   in  that context  in   its Judgment   pronounced  on 

  15th  February,   2002   in  Escotel   Mobile   Communications   Ltd.  vs.  

  Union   of   India   and   Others,  reported   in   (2002)   Vol.   126   STC   475 

  (Kerala),   it was stated in paragraph 36 that a transaction of selling 

  of SIM Card to the subscriber is also a part of the "service" rendered 

  by the service provider to the subscriber.    The Kerala High Court in 

  the facts and circumstances of the case observed at paras 36 and 47 

  as under: -

         "36.   With   this   perspective   in   mind,   if   we   analyse   the  

         transaction that takes place, it appears to us that there  

         is no difficulty in correctly understanding its facts. The  

         transaction of selling the SIM. card to the subscriber is  

         also   a   part   of   the   "service"   rendered   by   the   service  

         provider   to   the   subscriber,   Hence,   while   the   State  

         Legislature   is   competent   to   impose   tax   on   "sale"   by   a  

         legislation   relatable   to   entry   54   of   List   II   of   Seventh  

         Schedule,   the   tax   on  the  aspect  of   "services"  rendered  

         not being relatable to any entry in the State List, would  

                                        Page 6 of 14

          be   within   the   legislative   competence   of   Parliament  

          under   Article  248  read   with   entry   97   of   List   I   of   the  

          Seventh   Schedule   to   the   Constitution.   We   are,  

          therefore,   unable   to   accept   the   contention   of   Mr.  

          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  

          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."  

13. It   would   be   appropriate   to   mention   that   later   on   the   said   Escotel 

   Mobile Communications Ltd. merged with the appellant company i.e. 

                                        Page 7 of 14

M/s. Idea Mobile Communication Ltd.   The aforesaid decision of the 

Kerala High Court  was under challenge  in this Court in the case of 

BSNL vs. Union
                        of India   reported in (2006) 3 SCC 1.  The Supreme 

Court   has   framed   the   principal   question   to   be   decided   in   those 

appeals   as   to   the   nature   of   transaction   by   which   mobile   phone 

connections are enjoyed.   The question framed was, is it a sale or is 

it a service or is it both. In paragraphs 86 and 87 of the Judgment 

the Supreme Court has held thus: -

      86.          In   that   case   Escotel   was   admittedly   engaged   in  

      selling   cellular   telephone   instruments,   SIM   cards   and  

      other accessories and was  also paying Central sales tax  

      and   sales   tax   under   the   Kerala   General   Sales   Tax   Act,  

      1963   as   applicable.   The   question   was   one   of   the  

      valuation of these goods. The State Sales Tax Authorities  

      had sought to include the activation charges in the cost of  

      the   SIM   card.   It   was   contended   by   Escotel   that   the  

      activation   was   part   of   the   service   on   which   service   tax  

      was   being   paid   and   could   not   be   included   within   the  

      purview   of   the   sale.   The   Kerala   High   Court   also   dealt  

      with   the   case   of   BPL,   a   service   provider.   According   to  

      BPL,   it   did   not   sell   cellular   telephones.   As   far   as   SIM  

      cards were concerned, it was submitted that they had no  

      sale   value.   A   SIM   card   merely   represented   a   means   of  

      the  access and  identified  the  subscribers. This was  part  

      of   the   service   of   a   telephone   connection.   The   Court  

      rejected   this   submission   finding   that   the   SIM   card   was  

      "goods"   within   the   definition   of   the   word   in   the   State  

      Sales Tax Act.

      87. It is not possible for this Court to opine finally on the  

      issue.   What   a   SIM   card   represents   is   ultimately   a  

                                     Page 8 of 14

        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   service   providers,   then   a   SIM   card  

        cannot   be   charged   separately   to   sales   tax.   It   would  

        depend ultimately upon the intention of the parties. If the  

        parties   intended   that  the   SIM  card   would   be  a separate  

        object   of   sale,   it   would   be   open   to   the   Sales   Tax  

        Authorities to levy sales tax thereon. There is insufficient  

        material  on the  basis  of which  we  can  reach  a decision.  

        However  we  emphasise  that  if  the  sale  of a SIM card  is  

        merely incidental  to the  service being provided and  only  

        facilitates the identification of the subscribers, their credit  

        and   other   details,   it   would   not   be   assessable   to   sales  

        tax.   In   our   opinion   the   High   Court   ought   not   to   have  

        finally determined the issue. In any event, the High Court  

        erred   in   including   the   cost   of   the   service  in   the   value   of  

        the   SIM   card   by   relying   on   the   "aspects"   doctrine.   That  

        doctrine merely deals with legislative competence. As has  

        been   succinctly   stated   in   Federation   of   Hotel   &  

        Restaurant   Assn.   of   India   v.   Union   of   India:   (SCC   pp.  

        652-53, paras 30-31)

                 "   `...   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'.

                 *         *         *

                 There   might   be   overlapping;   but   the   overlapping  

                 must be in law. The same transaction may involve  

                 two or more taxable events in its different aspects.  

                 But   the   fact   that   there   is   overlapping   does   not  

                 detract from the distinctiveness of the aspects."

14.    In   paragraph   88   this   Court   observed   that   no   one   denies   the 

legislative competence of the States to levy sales tax on sales provided 

                                          Page 9 of 14

that the necessary concomitants of a sale are present in the transaction 

and the sale is distinctly discernible in the transaction but that would 

not in any manner allow the State to entrench upon the Union List and 

tax   services   by   including   the   cost   of   such   service   in   the   value   of   the 

goods.       It   was   also   held   that   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. Consequently, the Supreme Court after 

allowing   the   appeals   filed   by  Bharat   Sanchar   Nigam   Ltd     and   Escotel 

remanded   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 that judgment.

15.      As   against   the   order   passed   by   the   adjudicating   authority,   the 

appellant   assessee   took   up   the   matter   in   appeal   before   the 

Commissioner   of   Central   Excise   &   Customs,   Cochin.       The   appellate 

authority   upheld   the   findings   of   the   adjudicating   authority.   The 

assessee   took   up   the   matter   before   the   CESTAT,   Bangalore.       The 

CESTAT vide its order dated 25.05.2006 held that the levy of service tax 

as   demanded   is   not   sustainable   for   the   reason   that   the   assessee   had 

already paid the sales tax and therefore it follows that service tax is not 

leviable on the item on which sales tax has been collected.

                                        Page 10 of 14

16.      Being   aggrieved   by   the   aforesaid   order   dated   25.05.2006,   an 

appeal was filed before the Kerala High Court by the department, which 

was disposed of by the impugned order dated 04.09.2009.

17.      The   High   Court   has   given   cogent   reasons   for   coming   to   the 

conclusion   that   service   tax   is   payable   inasmuch   as   SIM   Card   has   no 

intrinsic   sale   value   and   it   is   supplied   to   the   customers   for   providing 

mobile service to them.   It should also be noted at this stage that after 

the   remand   of   the   matter   by   the   Supreme   Court   to   the   Sales   Tax 

authorities the assessing authority under the Sales Tax Act dropped the 

proceedings after conceding the position that SIM Card has no intrinsic 

sale   value   and   it  is   supplied   to   the   customers   for   providing   telephone 

service   to   the   customers.   This   aforesaid   stand   of   the   Sales   Tax 

authority   is   practically   the   end   of   the   matter   and   signifies   the 

conclusion.

18.      The sales tax authorities have themselves conceded the position 

before the High Court that no assessment of sales tax would be made 

on   the   sale   value   of   the   SIM   Card   supplied   by   the   appellant   to   their 

customers  irrespective  of  the  fact  whether  they   have  filed  returns  and 

remitted tax or not.  It also cannot be disputed that even if sales tax is 

                                       Page 11 of 14

wrongly   remitted   and   paid   that   would   not   absolve   them   from   the 

responsibility of payment of service tax, if otherwise there is a liability 

to pay the same. If the article is not susceptible to tax under the Sales 

Tax Act, the amount of tax paid by the assessee could be refunded as 

the   case   may   be   or,   the   assessee   has   to   follow   the   law   as   may   be 

applicable.   But   we   cannot   accept   a   position   in   law   that   even   if   tax   is 

wrongly remitted that would absolve the parties from paying the service 

tax if the same is otherwise found payable and a liability accrues on the 

assessee.     The   charges   paid   by   the   subscribers   for   procuring   a   SIM 

Card are generally processing charges for activating the cellular phone 

and consequently the same would necessarily be included in the value 

of the SIM Card.  

19.      There   cannot   be   any   dispute   to   the   aforesaid   position   as   the 

appellant itself subsequently has been paying service tax for the entire 

collection   as   processing   charges   for   activating   cellular   phone   and 

paying the service tax on the activation. The appellant also accepts the 

position   that   activation   is   a   taxable   service.   The   position   in   law   is 

therefore   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 

                                        Page 12 of 14

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. 

20.      That   being   the   position,   we   find   no   infirmity   with   the   findings 

and   reasoning   in   the   Judgment   and   Order   passed   by   the   High   Court 

and   therefore   the   appeal   has   no   merit   and   the   same   is   dismissed. 

There will be no order as to costs.

                                                     ...........................................J.

                                                        [Dr. Mukundakam Sharma]

                                                    ............................................J.

                                                           [ Anil R. Dave ]

                                       Page 13 of 14

New Delhi,

August 4, 2011.

                   Page 14 of 14

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