Value of SIM cards sold by mobile telecommunication operators to subscribers is not a sale but service

Service Tax

LD/60/45

Idea Mobile Communication Ltd. Vs. CCE & CAugust 4, 2011 (SC)

Section 65 (105) (zzzx) of the Finance Act, 1994 – Telecommunication Service

Value of SIM cards sold by mobile telecommunication

operators to subscribers is to be included in taxable service under Section 65 (105)(zzzx), which provides for levy of service tax on telecommunication service and it is not taxable as sale of goods under Sales Tax Act 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.

Kerala High Court, in

Escotel Mobile Communications Ltd. vs. Union of India and Others, (2002) 126 STC 475 (Kerala), has held 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 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.

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 rovided 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, 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.

Therefore, the value of SIM cards sold by the

appellant to their mobile subscribers is to be included in taxable service under Section 65 (105) (zzzx), which provides for levy of service tax on telecommunication service and it is not taxable as sale of goods under the Sales Tax Act.
By

CA. Mukesh Saran
M.Com.,FCA, ISA-ICAI
Lucknowsaranfca@gmail.com