ESCOTAL MOBILE COMMUNICATIONS LTD Vs. UNION OF INDIA

JUDGEMENT

(1.) THESE writ petitions under article 226 of the Constitution of India impugn the levy of service tax on the taxable service provided by cellular telephone service providers. O. P. No. 4973 of 2001 : Petitioner is engaged in cellular telephone business within the State of Kerala. Apart from providing cellular telephone services to its subscribers, it is also engaged in selling cellular telephone instruments, subscriber identification module (SIM) cards and other accessories. The petitioner purchases the cellular telephones, SIM cards and other accessories from States outside Kerala by paying Central sales tax. For selling the products within the State of Kerala, it pays 12 per cent sales tax under the Kerala General Sales Tax Act, 1963 (hereinafter referred to as "the KGST Act" ). According to the petitioner, the sale of the instrument and the SIM card to its customers is only a "sale pure and simple" exigible to sales tax under the KGST Act. One peculiar service it renders is activation, on which service tax is leviable. Activation is a process by which the subscriber form details, scheme/plan details, deposits, etc. , brought in by the sales team is manually fed through computer into the Customer Administration and Billing System (hereinafter referred to as "cabs") so that the system has a data base which can provide access for the customer to use the network. Activation provides the customer a slot in the CABS system with an account ID by which his monthly bills/bill details, credit limits, plan of usage, etc. , would all be kept in the database. This enables the petitioner to provide/change any or all service/s, or temporarily or permanently disconnect the customer by making suitable changes in the system. It is the stand of the petitioner that activation neither increases or decreases the value of SIM card, since it is not a process carried out on the SIM card, but only on the computer and the CABS system installed on the computer in the petitioner's office.

(2.) WITH this understanding, the petitioner was duly paying the sales tax on items exigible to sales tax and service tax on the activation charges. By a notice dated May 18, 1999 (vide exhibit P1), the Superintendent of Central Excise, Service Tax Range, Ernakulam II Division, called upon the petitioner to furnish information as to whether the value of SIM card/cash card was included in the "taxable service" for the purpose of computing service tax. He also sought details of the total value of such cards from January 1997 to April 30, 1999. By a reply dated June 15, 1999 (vide exhibit P2), the petitioner contended that the SIM card is merely a plastic computer chip which were inserted in a handset makes the handset operational. It is a part of the handset, as, in its absence, the subscriber would not be able to communicate on the cellular phone. It was pointed out that the SIM card was subject to customs duty and also to sales tax laws in various States, as it is a commodity capable of being bought and sold. However, the petitioner was recovering sales tax over the installation charges and remitting it to the sales tax authorities. Once the SIM card is sold to the subscriber, the mobile cellular phone service provider loses his claim over the property, nor can he claim any right in it. Thus, the petitioner made a distinction between sale of the SIM card for which it charged consideration, and the activation charges which according to it was not a "sale", but a mere service. The petitioner pointed out that, as far as the sale part was concerned, it was paying sales tax and it will duly paying service tax on activation charges.

(3.) IN the meanwhile, the Central Board of Excise and Customs, issued circular No. 23/3/97 dated October 13, 1997 in which it was clarified that the cost of SIM card has to be included in the valuation of "taxable service" rendered by cellular telephone service providers for levy of service tax. The petitioner addressed a letter dated June 20, 2000, Central Board of Excise and Customs (hereinafter referred to as "cbec") for clarification (exhibit P7), but no clarification was given by the CBEC in the matter.