By Puloma Dalal, Jayesh Gogri, Mandar Telang Chartered Accountants
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a) Whether sale of SIM cards by mobile service provider is exigible to sales tax or service tax?
b) In a case where payment for service is received in advance and if the rate of service tax is increased at the time of provision of services, which rate will apply – old or new?
c) Whether extended period of limitation will apply where records have been audited by the department?
Facts:
Appellant was a cellular (mobile) service provider. For failure to pay service tax on the gross amount received on the issue of SIM cards to its customers during the period July, 2002 to March, 2006, the demand was confirmed against the Appellant. Appellant discharged the service tax on the value of services involved in the SIM cards and claimed deduction for the value comprising the sale component of the said SIM cards under Notification No. 12/2003 ST. Appellant relied on the Bombay High Court’s decision on identical issue in case of Vodafone India Ltd vs. Commissioner 2013 (30) STR J18 wherein the case was remanded for considering the applicability of Notification No. 12/2003-ST in case of sale of SIM cards. Appellant received certain advances against the services to be provided at a later date. Appellant have discharged the service tax at the rate prevailing at the time of receipt of advance. Later on the service tax rate was increased and at the time of provision of services the service tax rate was increased. Service tax was demanded at the increased rate.
Held:
• Tribunal observed that the issue of inclusion of SIM card value in the taxable value for telecommunication service has already been decided by the Kerala High Court in Commissioner vs. Idea Mobile Communication Ltd. 2010 (19) STR 18 (Kerala) and Andhra Pradesh High Court in State of AP vs. Bharat Sanchar Nigam Ltd. 2012 (25) STR 321 (AP) wherein High Courts held that SIM card is the device through which the customers gets connection from mobile towers. Therefore, SIM card is an integral part required to provide mobile services to customers. SIM card has no intrinsic value or purpose other than use in mobile phone for receiving mobile telephone service from service provider. SIM cards are never sold as goods independent of the services provided, SIM cards are considered part and parcel of services provided and dominant intention is to provide the services and not to sell SIM cards. In view of the observations made in these judgements, it was held that SIM cards are not goods but services and service tax alone can be levied and the Bombay High Court’s judgement in case of Vodafone should be treated as ‘per incuriam’, since the above stated judgments were not brought before its consideration.
• Combined reading of section 66 and section 65(105) of the Finance Act makes it clear that it is the provision of the service which attracts the levy at the rate prescribed in section 66. Only collection of tax is to be done as per rules prescribed. Therefore, service tax is applicable at the time of provision of services and not at the time of receipt of money. While deciding this, Tribunal relied upon the decision of the Gujarat High Court in case of CCE vs. Schott Glass India Pvt. Ltd. 2009 (14) STR 146 (Guj) and the Kerala High Court’s decision in case of Kerala Colour Lab Association vs. UOI 2006 (2) STR 554 (Ker).
• Since the audit of records of the Appellant were carried out in the past, where no allegation of suppression was being made, demand beyond the period of limitation and levy of penalties were held unsustainable.
