LBT Not leviable on E-Recharge but can be levied on SIM cards and recharge coupons: Bombay HC

1 The question involved in this writ petition under Article 226 of the Constitution of India is as under :

“Whether Local Body Tax (LBT) under clause (aaa) of Subsection (2) of Section 127 of the Maharashtra Municipal Corporations Act,1949 is recoverable on SIM cards, recharge coupons and e­recharge on its entry into municipal limits of a Municipal Corporation?”

2 With a view to appreciate the submissions made across the bar, a brief reference to few factual aspects of the case will be necessary. The first respondent is a Municipal Corporation constituted under the Maharashtra Municipal Corporations Act, 1949 (for short “the said Act”). The petitioner is engaged in the business of providing telecommunication services including the mobile telephone services.

3 By a License Agreement dated 28th September 2001 entered into between the Hon’ble President of  India through the Department of Telecommunications, Ministry of Communication, Government of India on one part and the petitioner company on the other part, a license was granted to the petitioner under section 4 of the Indian Telegraph Act, 1885 to set up and operate cellular mobile phone services in Mumbai and Maharashtra Telegraph Circle on the terms and conditions set out therein. In accordance with the said agreement, the petitioner is providing telecommunication services including mobile telephony, text messaging, voice messaging, access to internet etc to the members of public in Global System for Mobile communication (GSM) format which involves GSM wireless modem which works with GSM wireless network. The customers of the petitioner avail of the services by using mobile handsets. It is stated that the SIM (Subscriber Identification Module) card is provided by the petitioner which is a plastic/ paper card encrypted with the unique number which is known as International Mobile Subscriber Identification (IMSI). It is stated in the petition that the SIM card enables the subscriber access to telecommunication service provided by the petitioner. The contention in the petition is that the SIM card does not have any utility or intrinsic value by itself. It is stated in the petition that the petitioner provides either pre­paid or post paid services. In case of pre­paid services, the pre­paid subscriber can renew the services through the recharge coupon/card or e-recharge.

4 By incorporating clause (aaa) in Subsection 2 of Section 127 of the said Act by the Bombay Provincial Municipal Corporation and Bombay Village Panchayat Amendment Act, 2009, a provision was made for levy of LBT in lieu of cess or octroi. The State Government by a notification dated 25th March 2010 notified the Bombay Provincial Municipal Corporations (Local Body Tax) Rules, 2010 (for short “LBT Rules”). The LBT Rules provide a mechanism for levy and collection of LBT and rates of LBT. In exercise of the power under clause (aaa) of Sub- Section 2 of Section 127 of the said Act, the State Government directed various Municipal Corporations in the State including the first Respondent- Corporation to levy LBT on the entry of the goods into the limits of the city for consumption, use or sale in lieu of octroi or cess with effect from 1st April 2010. On 18th February 2011, another notification was issued by the State Government in exercise of the powers under section 99­B read with section 152­B and 152­C of the said Act by which the rates of LBT to be levied by the first Respondent Corporation on entry of various categories of goods into the limits of the city for the financial year 2011 were notified. One of the items included in Schedule A to the said notification is of SIM cards (tariff item No. 8542 10 10).

5 The case made out in the petition is that the petitioner and its distributors were compelled to register themselves under the LBT Rules. They registered themselves under protest. It is alleged that neither the petitioner nor its distributors paid any LBT on SIM cards or recharge coupons or e- recharge. The case made out in the petition is that in October 2010, the Officers of the first respondent visited the premises of various distributors of the petitioner and called upon them to pay LBT on SIM cards and recharge coupons on the basis of the amount/ value of talk time mentioned. By a communication dated 30th October 2010, the petitioner informed the first respondent that the SIM cards, recharge coupons and e­recharge were not the goods which could be subjected to LBT and in fact, the petitioners are paying service tax on providing telecommunication services. On 28th March 2013, the State Government issued a notification for fixing the rate of 3.5% on “SIM cards, memory cards, activation/ renewal slips whether “recharged it online or otherwise”. The challenge in this petition under Article 226 of the Constitution of India is to the action of the first respondent of assessing, levying and recovering LBT on SIM cards, recharge coupons and e­recharge brought into the limits of the first respondent. There is a consequential challenge to the notification dated 28th March 2013 issued by the State Government.

6 In view of the order of the Apex Court dated 12th September 2014, necessary priority is given to hearing of this writ petition and the same is taken up for final disposal.

7 The learned counsel for the petitioner has made detailed submissions. Basically the submission is that the SIM cards, recharge coupons and e­recharge are not the goods on the basis of which LBT could be levied. He relied upon the decision of the Apex Court in the case of Bharat Sanchar Nigam Limited vs. Union of India1. He submitted that the SIM cards, recharge coupons and e­recharge have by itself no intrinsic value at all and that the same cannot be used independently of a cell phone. He invited our attention to the decision of the Apex Court in the case of Idea Mobile Communication Limited Vs. Commissioner of Central Excise, Cochin2. He submitted that the petitioner is registered and assessed for service tax and has been paying service tax. He submitted that the charges paid by the subscribers for procuring SIM cards are general processing charges for activating the cellular phone. He submitted that the cellular telephone service is recognized as a service for the purpose of service tax. He submitted that recharge vouchers are not goods and in fact it is a bill for receiving the telecommunication services of the petitioner. He submitted that by no stretch of imagination, e- recharge which is an electronic download can be included in the goods on which LBT could be levied. The learned counsel for the first respondent invited our attention to the definition of LBT under clause 31­A of Section 2 of the said Act. Inviting our attention to clause (aaa) of Subsection 2 of Section 127 of the said Act, he submitted that once the goods are brought into limits of a city for consumption, use or sale, LBT is payable thereon. He submitted that the recharge coupons, e­recharge and SIM cards are the goods which are brought into limits of the first respondent­ Corporation for use and/or for sale and therefore LBT can be levied thereon.

8 We have given careful consideration to the submissions. Clause 31­A of section 2 of the said Act which defines LBT reads thus: