Holding

The amount received for SIM cards forms part of the taxable value for service tax, as SIM cards are not sold as independent goods but are integral to the telecommunication service.

Summary

Idea Mobile Communication Ltd sold SIM cards to its subscribers and charged both sales tax and service tax on activation. The dispute centered on whether the value of the SIM cards should be taxed as a service under Section 65(105) of the Finance Act, 1994, or as a sale of goods under the Kerala General Sales Tax Act, 1963. The High Court held that SIM cards have no intrinsic sale value and are supplied to enable the telecommunication service, making them part of the taxable service. The Supreme Court affirmed this view, stating that the amount received for SIM cards forms part of the activation charge and must be included in the service tax base, and that payment of sales tax does not exempt the liability for service tax. Consequently, the appeal was dismissed.

Issues considered

Whether the value of SIM cards sold to mobile subscribers is taxable as a service under the Finance Act, 1994.
Whether the same value is taxable as a sale of goods under the Kerala General Sales Tax Act, 1963.
Whether payment of sales tax on SIM cards absolves the liability to pay service tax on the same amount.

Legislation cited

Central Excise Act, 1944s. 358
Finance Act, 1994s. 65(105), s. 65(72)(b), s. 67
Kerala General Sales Tax Act, 1963

Subjects

service taxsales taxSIM cardtelecommunicationsFinance Act 1994Kerala General Sales Tax Actaspect theoryactivation chargestaxable servicegoods vs service

Judgment

(2011) 9 S.C.R. 789

IDEA MOBILE COMMUNICATION LTD. A
v.
C.C.E. & C., COCHIN
(Civil Appeal No. 6319 of 2011)
AUGUST 04, 2011
B
~
j [DR. MUKUNDAKAM SHARMA AND
ANIL R. DAVE, JJ.]

Finance Act, 1994 - s.65 (105) zzzx - SIM cards -
Whether the value of SIM cards sold by the appellant to its c
mobile subscribers is to be included in taxable service under
s.65 (105) zzzx of the Finance Act, 1994, which provides for
levy of service tax on telecommunication service or whether
.. it was taxable as sale of goods under the Sa/es Tax Act -
Held: The amount received by the cellular telephone D
. ,,. company from its subscribers towards SIM Card forms 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 sorvices
provided and the dominant position of the transaction is to E
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 - 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 F
is calculated on the gross total amount received by the
operator from the subscribers - No element of sale was
involved in the transaction - Kera/a General Sales Tax Act,
1963.

The question which arose for consideration in the G
present appeal was whether the value of SIM cards sold
.... ~
by the appellant to its mobile subscribers is to be
included in taxable service under Section 65 (105) zzzx
of the Finance Act, 1994, which provides for levy of
789 H
790 SUPREME COURT REPORTS [2011] 9 S.C.R.
,
A service tax on telecommunication service or whether it
was taxable as sale of goods under the Sales Tax Act.
Dismissing the appeal, the Court

HELD:1.1. A SIM Card or Subscriber Identity Module
B 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
c information which helps the network service provider to
recognize the caller. (Para 12] [795-A-B]
1.2. The High Court gave cogent reasons for coming
to the conclusion that service tax is payable inasmuch .,
D as SIM Card has no intrinsic sale value and it is supplied
to the customers for providing mobile service to them. '·
(Para 17] (799-C-D]

1.3. The sales tax authorities themselves conceded
the position before the High Court that no assessment
E 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. Also even if sales tax is wrongly ~

remitted and paid that would not absolve them from the \
F 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
G may be applicable. But one 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
H procuring a SIM Card are generally processing charges
IDEA MOBILE COMMUNICATION LTD. v. C.C.E. & C., 791
COCHIN
for activating the cellular phone and consequently the A
same would necessarily be included in the value of the
SIM Card. There cannot be any dispute to the aforesaid
position as the appellant itself subsequently has been
Ji,
paying service tax for the entire collection as processing
' charges for activating cellular phone and paying the B
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 c
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
0
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 E
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. There is no infirmity with the findings and
reasoning in the Judgment passed by the High Court. F
[Paras 18, 19, 20] [799-F-H; 800-A·G]

BSNL vs. Union of India (2006) 3 sec 1 and Escatel
Mobile Communications Ltd. vs. Union of India and Others ·
,...~ (2002) Vol. 126 STC 475 (Kerala) - referred to. G
Case Law Reference:
c2006) 3 sec 1 referred to Para 7, 9, 13
(2002) Vol.126 STC 475(Kerala) referred to Para 12
H
792 SUPREME COURT REPORTS [2011J 9 S.C.R.
.
A CIVIL APPELLATE JURISDICTION : Civil Appeal No.
6319 of 2011.
From the Judgment & Order dated 04.09.2008 of the High
Court of Kerala at Ernakulam in C.E. Appeal No. 20 of 2006.

B Punit Dutt Tyagi for the Appellant.

V. Shekhar, Shalini Kumar, B. Krishna Prasad for the
Respondent.
The Judgment of the Court was delivered by
c
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 "'
.D whereby and whereunder, the High Court allowed the appeal
filed by the Commissioner of Central Excise & Customs,
Cochin.
3. The issue which arises for our consideration in this
appeal is whether the value of SIM cards sold by the appellant
E 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.
F
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
G the hands of its subscribers on a valuable consideration and 1t
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
H addition of the "goods" and thus comes under the definition of
IDEA MOBILE COMMUNICATION LTD. v. C.C.E. & C., 793
. COCHIN [DR. MUKUNDAKAM SHARMA, J.]
"goods" under the Kerala General Sales Tax Act, 1963 A
(hereinafter referred to as "KGST Act') and accordingly levied
sales tax on activation charges. The Department of Central
jo
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 B
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
c
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 D
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 E
before the Commissioner (Appeals), Customs and Central
• Excise which was dismissed vide order dated 08.04.2003. The
)
appellant preferred appeal u/s 358 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 F
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. G
and vide judgment reported as BSNL vs. Union of India
reported in (2006) 3 sec 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 H
794 SUPREME COURT REPORTS [2011] 9 S.C.R.
,.
A 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 A

B 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
c 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 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 ..
D 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 sec 1.
E
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
F 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 ...
G 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.
H
IDEA MOBILE COMMUNICATION LTD. v. C.C.E. & C., 795
COCHIN [DR. MUKUNDAKAM SHARMA, J.]
12. A SIM Card or Subscriber Identity Module is a portable A
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
I
numbers and it stores information which helps the network B
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
c
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: -
D
"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 E
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" re·ndered not being relatable to any
entry in the State List, would be within the legislative F
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 G
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
H
796 SUPREME COURT REPORTS [2011] 9 S.C.R.

A reason to read down the legislation as suggested by Mr.
Menon.

"'
B
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
c 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 '
D 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
E 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. M/s. Idea Mobile Communication Ltd. The
aforesaid decision of the Kerala High Court was under
F 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 )
...
G or is it both. In paragraphs 86 and 87 of the Judgment the
Supreme Court has held thus: -
86. In that case Escatel was admittedly engaged in selling
cellular telephone instruments, SIM cards and other
H accessories and was also paying Central sales tax and
~
IDEA MOBILE COMMUNICATION LTD. v. C.C.E. & C., 797
COCHIN [DR. MUKUNDAKAM SHARMA, J.]
sales tax under the Kerala General Sales Tax Act, 1963 A
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
A
I card. It was contended by Escotel that the activation was
part of the service on which service tax was being paid B
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 c
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
j the SIM card was "goods" within the definition of the word
in the State Sales Tax Act. D
87. It is not possible for this Court to opine finally on the
jssue. What a SIM card represents is ultimately a 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 E
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 F
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 G
and only facilitates the identification of the subscribers,
theircredit 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 H
798 SUPREME COURT REPORTS [2011] 9 S.C .• <.

A 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)

8 " ' ... 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'.

* * *
c
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 ..
D distinctiveness of the aspects. n
14. In paragraph 88 this Court observed that no one denies
the legislative competence of the States to levy sales tax on
sales provided that the necessary concomitants of a sale are
present in the transaction and the sale is distinctly discernible
E 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
F 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
G in that judgment. )o
~

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
H
IDEA MOBILE COMMUNICATION LTD. v. C.C.E. & C., 799
COCHIN [DR. MUKUNDAKAM SHARMA, J.]

adjudicating authority. The assessee took up the matter before A
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
1 leviable on the item on which sales tax has been collected. B
I
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.
c
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
J be noted at this stage that after the remand of the matter by · D
the Supreme Court to the Sales Tax authorities the assessing
authority under the Sales Tax Act dropped the proceedings a~er
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 E
authority is practically the end of the matter and signifies the
conclusion.
t
) • 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 F
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 G
> 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 H

,;
800 SUPREME COURT REPORTS [2011] 9 S.C.R.

A 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
B 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
c 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 •
D 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
E 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 receiv~d )

by the operator from the subscribers. The Sales Tax authority
F 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
G
same is dismissed. There will be no order as to costs.
)
..
B.B.B. Appeal dismissed.