BHARTI MOBINET LTD. Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) THIS appeal was filed by M/s. Skycell Communications Ltd. whose name was subsequently changed to M/s. Bharti Mobinet Ltd. "vide fresh certificate of incorporation" dated 12.10.2001 issued by the Deputy Registrar of Companies, Tamil Nadu. During the period of dispute, the appellants were engaged in providing cellular phone services to their subscribers and, for the purpose of payment of Service Tax, they were registered with the department under the category "Telephones".

(2.) A subscriber desiring to have cellular phone connection had to be in possession of a hand -set. He could procure the hand -set from the appellants or others in the open market. The appellants would give connection to the subscriber by activating the handset, for which purpose a Subscriber Identity Module (SIM, for short) card was supplied by the company and inserted into the hand -set. The company collected the price of the SIM card and activation charge separately from the subscriber. They paid Service tax only on the latter and did not pay such tax on the price of the SIM card during the period July, 1995 to December, 1997. The department issued a show -cause notice under Section 73 of the Finance Act, 1994 to the appellants demanding Service Tax of Rs. 9,66,311/ - on the value of SIM cards sold by them to their subscribers during the said period. This demand was contested. In adjudication of the dispute, the Commissioner of Central Excise confirmed the demand of tax against the assessee. Hence the present appeal.

(3.) AFTER examining the records and hearing both sides, we find that the department has treated the cost of SIM card as essential part of processing charges for activating cellular phone. According to them, a SIM card does not have any intrinsic value inasmuch as it has to be bought only from a cellular operator and cannot be bought from the open market. On this basis, the cost of SIM card is considered to be a part of the gross amount on which Service Tax requires to be paid by the appellants. On the other hand, the assessee would contend that a SIM card is essentially a part of the instrument and is, therefore, a commodity. Sales Tax is paid on SIM card and, therefore, no Service Tax is payable on its cost. According to them, Service tax is payable only on activation charges which are separately collected from subscribers.