Advocate Akhilesh Kumar Sah

Introduction: Under Uttar Pradesh Value Added  Tax regime, the SIM Cards have been made specifically taxable w.e.f. 01.04.2011 @ 4% (plus 1% SAT), vide notification no. KA.NI.-2-421/XI-9(1)/08-UP Act -05-08-Or(71) dated 31.03.2011. From the beginning of the VAT i.e. 01.01.2008 in U.P. there was common presumption that SIM Cards are tax free but due to the system in U.P. VAT, the goods which have not been classified in the tax schedules are taxable @ 12.5% (Plus SAT, as applicable). Therefore, it was assumed that the tax rate on SIM Cards from 01.01.2008 to 31.03.2011 was 12.5% (Plus 1% SAT from 19.02.2010). But the two judgments of the Hon’ble Supreme Court one in the case of Bharat Sanchar Nigam Ltd. vs. Union of India (2006) 145 SCC 91 (SC) and the other in the case of Idea Mobile Communication Ltd. vs. C.C.E. & C (Cochin) VSTI 2011 (vol. 12) B-759 (SC), need review by legislative authorities on the taxability of SIM Cards under U.P. VAT law.

Some Portion In Brief Of B.S.N.L. Case (Supra):

Hon’ble Supreme Court after analyzing many earlier decisions, position of law in respect of the issue has held, in the above case, that the imposition of sales tax on any facilities of the telecommunication services is untenable in law. The SIM Card is not a good, it merely enables activation.

Right To Use:

The SC in B.S.N.L. case supra has observed that the process of sending a signal is as follows:-

“Data is superimposed on a carrier current of wave by means of a process called modulation. Signal modulation can be done in either of two main ways; analog and digital. In recent years, digital modulation has been getting more common while analog modulation methods have been used less and less. There are still penalty of analog signals around, however, and they will probably never become totally extinct. Except for DC signals such as telegraph and baseband, all signal carriers have a definable frequency or frequencies. Signals also have a property called wavelength, which is inversely proportional to the frequency.” (Encyclopedia of Technology Terms of Techmedia). It is clear, electromagnetic waves are neither abstracted nor are they consumed in the sense that they are not extinguished by their user. They are not delivered, stored or possessed. Nor are they marketable. They are merely the medium of communication. What is transmitted is not an electromagnetic wave but the signal through such means. The signals are generated by the subscribers themselves. In telecommunication what is transmitted is the message by means of the telegraph. No part of the telegraph itself is transferable or deliverable to the subscribers. The second reason is more basic. A subscriber to a telephone service could not reasonably be taken to have intended to purchase or obtain any right to use electromagnetic waves or radio frequencies when a telephone connection is given. Nor does the subscriber intend to use any portion of the wiring, the cable, the satellite, the telephone exchange etc. At the most the concept of the sale in a subscribers mind would be limited to the handset that may have been purchased for the purposes of getting a telephone connection. As far as the subscriber is concerned, no right to the use of any other goods, incorporeal or corporeal is given to him or her with the telephone connection.

Some Portion In Short Of Idea Mobile Communication Ltd. Case (Supra):

In the above mentioned case, Supreme Court has held that the activation of SIM Cards is a taxable service. 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. The sales tax authority understood the aforesaid position that no element of sale is involved in the present transaction.

Some Other Cases In Brief:

The Andhra Pradesh High Court in State of Andhra Pradesh vs. Bharat Sanchar Nigam Limited 2012 N TN (Vol 48) 310 has held that in view of the law laid down by the SC in Idea Mobile Communication Ltd. (supra) the value of the SIM Cards forms part of the activation charges, service tax alone can be levied for such services, and not sales tax, the revisional/appellate/assessing authorities have exceeded their jurisdiction in levying tax on pre-paid and post paid SIM Cards. Similarly the Meerut Bench of the U.P.Commercial Taxes Tribunal in Bharti Airtel Ltd. vs. Commissioner Commercial Taxes U.P. deleted the tax imposed on SIM Cards [2012 NTN (Vol 48) Trib. 163].


In view of the above, the SIM Cards be declared tax free under the VAT.

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