Case name: Idea Mobile Communication Ltd. v.

Commissioner of Central Excise and

customs Cochin
Court: Supreme Court
Citation: (2011) 12 SCC 608
Date: Aug. 4, 2011
Appellant: Idea
Respondent: Commissioner of central excise and customs

Issue: Whether value of SIM cards sold by Idea should be included in taxable service as levy
of service tax on telecommunication or as sale of goods under sales tax act?

Facts: In the years 1997-99, Idea sold sim cards to subscirbers on valuable consideration and
paid service charge only on activation charge. The Dept. of Sales tax of Kerala included sales
tax on activation charges on the grounds that activation is value addition to ‘goods’ and hence
falls under the definition of goods. The department also held the company liable to pay
service tax on the value of the SIM card since without activation the card was of no use.

Procedural history:
1. Appeal under Kerala General Sales Tax Act(KGST) and Central Excise Act before
respective appellate authorities, held against Idea.
2. Idea filed writ petition to Kerala HC which was also dismissed in 2002.
3. Appeal to SC filed and case decided in BSNL v. UOI 2006, matter sent to tribunal for
issue of SIM cards. Tribunal held that levy of sales tax unjustified.
4. Commissioner appealed in HC, HC allowed the appeal.
5. Idea challenged HC order in SC.

Args of Appellant: Sales tax charged: Rs. 1000, Service Tax: Rs. 1200, for activation.

Args of Respondent: SIM card has no intrinsic value and only supplied to consumers to
provide telephonic service. The process of activation is a service provided by the mobile
service providers to the subscriber. They referred to the SC decision in BSNL which stated
that if the sale of a SIM card is merely incidental to the service being provided and only
facilitates the identification of subscribers and their credit it would be assessable to service
tax.

Holding: The value of the SIM card forms part of the activation charges and SIM cards are
liable for service charge. No element of Sale is involved in the transaction.

Judgment: Appeal dismissed

Reasoning: Subscriber Identity Module (SIM) card holds subscriber data and helps the
network service recognize the caller. Kerala HC held that the transaction of selling of a SIM
card is also part of the service rendered by the service provider.
The SC in BSNL v. UOI answered the question whether the transaction of Mobile phone
connections was a sale/service or both? The SC asked the sales tax authorities to determine
the issue after giving its opinion. The court basically said that if the SIM card is incidental to
or part of the services offered by the telecom company then it cannot be separately charged
for sales tax.
Aspects doctrine of tax: Laid down in Federation of Hotel and Restaurant association of India
v. UOI: “Subjects which in one aspect for one purpose fall within the power of a particular
legislature may in another aspect for another purpose fall within another legislative power.
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 an
overlapping does not detract from the distinctiveness of the aspects.”
Basically, the doctrine says that a transaction can be analysed in different ways considering
the various purposes it might be entered into for and accordingly taxed in all relevant laws.

The Sales tax authorities conceded to the stand that the SIM card has no intrinsic value and is
only supplied to provide telephonic service to consumers. Hence, they concede that no
assessment of sales tax would be made on the sale value of the SIM card supplied by IDEA to
its consumers.

Appellant accepts that activation is a taxable service.

The SIM cards are not sold as goods independent of services provided, they are considered
part and parcel of services provided and the dominant position of the transaction is to provide
services and not sell the SIM.