Case: Idea Mobile Communication Ltd Vs. C.C.E.&amp; C.,Cochin

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 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 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.

Court's reasoning:
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.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 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 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.