Sale of SIM card has no intrinsic value — Hence it is a part of value of taxable service — Service tax leviable even if sales tax is wrongly paid.

The issue involved in the case related to whether sale price of SIM cards sold by the company was to be included in the value of taxable service of telecommunication, or was it exigible to sales tax as sale of goods. The appellant during A.Ys. 1997-1999 sold SIM cards to its franchisees and paid sales tax on activation charges charged to the subscriber paid service tax. The Sales Tax Department of the State of Kerala, demanded sales tax on activation charges considering it value addition of goods. Simultaneously, in terms of proceeding initiated by the Service Tax Department, the appellant was liable to pay service tax on the value of SIM card on which sales tax was paid. In both the cases, interest and penalty were levied. The company was in appeal for both. The final appeal before the Supreme Court was heard along with other telecom operators including BSNL, BPL, etc. and reported as BSNL v. Union of India, (2006) 3 SCC 1, 2006 (2) STR 161 (SC) was remanded to sales tax authorities on the issue relating to sales tax on SIM cards. In the pending appeal before the Tribunal for levying service tax on SIM cards, the Tribunal vide order dated 25-5-2006 (2006 TIOL 857 CESTAT-Bang.) held that service tax on SIM card value was not sustainable. Against this order, the Revenue filed appeal in the High Court of Kerala and the High Court allowed the Revenue’s appeal holding to the effect that since SIM card has no intrinsic value and it is supplied to the customers for providing mobile services to them, therefore service tax is payable on it. Against this order of the Kerala High Court appeal was filed by the appellant. In the interim, on the other hand, it is to be noted that the remand of the matter by the Supreme Court to the sales tax authorities in BSNL decision (supra), the sales tax authorities conceded to the position that SIM card has no intrinsic value and concluded the matter by dropping the proceeding. In the present appeal, the Supreme Court found the reasons advanced by the High Court cogent. It noted that Subscriber Identity Module (SIM) card is a portable memory chip used in cellular phones. It is a tiny encoded board fitted into cell phones and it contains details of subscriber, security data and memory to store personal numbers and it stores information which help network service provider to recognise the caller. Apart from this, SIM card on its own, but without any service, would hardly have any value.

Held:

The activation service was undisputably taxable under the service tax law and amount received by the cellular telephone company towards SIM card would form part of the taxable value for levy of service tax as SIM cards are never sold as goods, independent of the service provided. The dominant position of the transaction is to provide service and not to sell material. It was also held that erroneous payment of sales tax would not absolve the appellant from the responsibility of payment of service tax if otherwise the same is payable.