Liability of Service Tax on SIM Cards

In this article an attempt has been made to consolidate the important developments of service tax law on taxability of SIM card transactions

1. Amount received for subscription of SIM card is exigible to service tax only

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. [Para 18]

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. [Para 19]

[Supreme Court Judgment in Idea Mobile Communication Ltd [2011] 12 taxmann.com 307 (SC) AUGUST  4, 2011]

2. Taxable Value of service in case of SIM card

a) Supreme Court on taxable Value of service in case of SIM card: In BPL Mobile Cellular Ltd 01-02-2008, it was held by Supreme Court in [2012] 26 taxmann.com 216 (SC) that in case of subscription of SIM cards telecom service providers are liable to pay tax service tax on amount received from distributors and not on MRP

b) Service tax imposed on MRP

With effect from 1-3-2007, an Explanation was inserted below rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, providing that, the value of telecommunication service shall be the gross amount paid by the person to whom telecom service is provided by the telegraph authority.

Thus, the gross amount paid by the subscriber viz. the MRP of the SIM Cards shall be the basis of the valuation and the telecom service providers shall be liable to service tax thereon

3. Liability of Selling agents/Distributers of SIM Cards

The selling agent/distributor does not provide any service to the customer. In some cases the distributor gets his consideration from customer at the time of sale of sim cards through the margin in price. In some cases the distributor gets their consideration from the telecom operator by way of commission on the transaction normally called as sale. In the case before us the second type of situation exists.[Para 13 of G.R.Movers (Del. Cestat)]

Though the correct procedure for discharge of the service tax liability by the two parties is that the distributors raise bills for commissions that is due to them along with service tax and BSNL takes Cenvat credit of tax paid by distributors for discharging liability on the telecommunication service provided by BSNL, such procedure does not result in extra realization of Revenue. [Para 26 of G.R.Movers (Del. Cestat)]

It was held by the Cestat that Considering the special nature of the impugned activities and the fact that it can be easily verified that full taxable value of the service provided by BSNL to customers is subjected to tax, we are of the view that there is no case to undo decisions already taken by the Tribunal in this regard in

(i)		Chetan Traders v. CCE [2008] 17 STT 318 (New Delhi-CESTAT)
(ii)		Hindustan Associated Traders v. CCE [Final order Nos. 673 & 674 of 2007, dated 7-6-2007]
(iii)		South East Corpn. v. CCE& ST [2009] 22 STT 446 (Bang.-CESTAT)
(iv)		Karakattu Communications v. CCE [2009] 21 STT 384 (Bang.-CESTAT)

Madras High Court in Bharat Cell [2015] 62 taxmann.com 295 (Madras) JULY  3, 2015 has followed the Judgment of Delhi Cestat in G.R. Movers (supra)

However , the services of selling agent or a distributor of SIM cards or recharge coupon vouchers have been exempted from service tax vide entry No. 29 in Notification 25/2012-S.T., dated 20.06.2012.w.e.f. 01-07-2012.

Conclusion: The Concept of revenue neutrality discussed in G.R. Movers (supra) can not be followed as a precedent in other cases and the judgements delivered are in the light of special nature of transaction, valuation method under service tax law and future exemption to selling agent/distributors of SIM cards.

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