What is a SIM Card?
A SIM card is a portable memory chip used in some models of cellular telephones.
Features of SIM Card
SIM holds personal identity information, cell phone number, phone book, text messages and other data. It can be thought of as a mini hard disk that automatically activates the phone into which it is inserted. It is also called Subscriber Identity Module. Where subscriber can be identified and the subscriber can access the activation. It is merely an identification device for operating the cellular phone through activation.
The SIM Card as such does not have any significant intrinsic value unless it is activated. Moreover, the SIM Card unlike the telephone instrument cannot be purchased by the customer from elsewhere.
Following are inter-related with each other
a) Mobile Handset
b) SIM Card
c) Activation
It is not possible to achieve the desired object if any one of the above things is absent. It is possible where the mobile manufacturer can sell mobile along with SIM Card or without. On the other than if only mobile is sold where customer need purchase SIM Card and normally activation process takes later and amount paid or payable includes for both SIM Card and activation charges. Now the question arises whether there is any transfer of property in goods or service.
Before we precede the same it is important invite the attention towards gist o the important where some lights has been thrown on these issues.
Taking photographs, developing negatives films and supplying prints not works contract even after 46th Amendment. Dominent intention must be transfer of property in goods.
Principles applied – Dominent intention of the parties. (this principle has been doubted in ACC’s case and disapproved in BSNL’s case)
2. ACC case (2001) 124 STC 29 Associated Cement Companies Limited Vs Commissioner of Customs (SC)
The definition of “goods” in section 2(22) of the Customs Act, 1962, includes in sub-clause (c) baggage and in sub-clause (3) “any other kind of movable property”. In effect the definition is so worded that all tangible movable articles will be goods for the purposes of the Act under movable articles comes as part of baggage or is imported into the country by any other manner, for the purpose of Customs Act, the provisions of section 12 of the Customs Act would be attracted.
Principles applied – Actual transfer of property in goods dominant intention of the parties disapproved.
3. Escotal case (2002) 126 STC 475 Escotal Mobile Communications Vs. Union of India (Ker)
The state legislature is competent to impose tax on “sale” by a legislation relatable to entry 54 of List Ii of the Seventh Schedule to the Constitution, the tax on the aspect of “service” rendered not being relatable to any entry in the State List, would be within the legislative competence of Parliament under article 248 red with entry 97 of List I of the Seventh Schedule. The same transaction can be exigible to different taxes in its different aspects and there is no possibility of constitutional invalidity arising due to legislative incompetence by taking the view that “sale” of SIM card is simultaneously exigible to sales as well as service tax.
Principles applied – Levy of tax depends on application of nature of transaction.
4. Tata Consultancy case (2004) Tata Consultancy Services Vs State of Andhra Pradehs
The term “goods”, for the purposes of sales tax, cannot be given a narrow meaning. Properties which are capable of being abstracted, consumed and used and/or transmitted, transferred, delivered, stored or possessed, etc., are “goods” for the purpose of sales tax. The test to ascertain whether a property is “goods” for the purposes of sales tax is not whether the property is tangible or intangible or incorporeal. The test is whether the concerned item is capable of abstraction, consumption and use and whether it can be transmitted, transferred, delivered, stored, possessed, etc. In the case of software, both canned and uncanned, all of these are possible. Intellectual property when it is put on a media becomes goods
Principles applied – If a thing has characteristics of goods whether corporeal or incorporeal is liable to sales tax as goods.
5. BSNL case (2006) 145 STC 91 Bharat Sanchar Nigam Ltd. and another Vs. Union of India and others (SC)
Goods do not include electromagnetic waves or radio frequencies. The goods in telecommunication are limited to the handsets supplied by the service provider. It may be that the actual delivery of the goods is not necessary for effecting the transfer of the right to use the goods but the goods must be available at the time of transfer, must be deliverable and delivered at some stage. If the goods or what are claimed to be goods are not deliverable at all by the service providers to the subscribers, the question of the right to use those goods would not arise.
If the SIM card is not sold to the subscribers but is merely part of the services rendered by the service providers, the SIM card cannot be charged separately to sales tax. If the parties intended that the SIM card would be a separate object of sale, it would be open to the sales tax authorities to levy sales tax thereon. If the sale of the SIM card is merely incidental to the service being provided and facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax.
Principles applied – Both the taxes cannot be levied on single transaction.
6. Hari & Compnay case (2006) 148 STC 92 Commissioner of Sales Tax, Mumbai Vs Hari & Company
Taking out xerox copies on a xerox machine property in paper and ink passes liable for tax on the transfer of property in goods involved in the execution of works contracts.
Principles applied – Deemed transfer of property in goods whether smaller portion or not.
7. BPL case (2007) 10 VST 313 BPL Mobile Communications Limited and Others Vs. Commissioner of Central Excise, Mumbai (CESTAT-Mum)
The appellants having paid sales tax on the value of SIM cards and not having challenged the levy thereof having accepted the transaction to be a sale of goods, the question of considering the activity is an auxiliary service did not arise and service tax could not be levied on the value of the SIM cards. The levy of service tax and imposition of penalty was not sustainable.
Principles applied – Levy of tax depends on application of nature of transaction.
To decide whether sale of SIM card is service or goods in has to look into the characteristics of goods;
a) Whether it is tangible or intangible;
b) Whether it is transferable from one person to another or not;
c) Whether ownership has been transferred or not;
d) Whether it is capable of being consumption and use;
The taxability of SIM Card is a question of fact which is not decided by the states but Apex court held that the SIM Cards cannot be made liable to tax by the states. They have the opinion that the term “goods” does not include electromagnetic waves and radio frequencies. The goods in telecommunication are limited to the handsets supplied by the service provider. There may be transfer of right to use goods by giving a telephone connection. The nature of the transaction involved in providing the telephonic connection may be a composite contract of service and sale.
The 46th Constitutional Amendment gives power to the states to bifurcate the indivisible contract one for supply of goods and another for labour separately for the purpose of levy of tax, the same principles can be applied even in this case also where the total value received or receivable by the supplier includes the value of the SIM card purchased and activation charges.
The author is of the view that, where the SIM card has the essential characteristics of goods and the necessary concomitants of a sale are present in the transaction, whether the intention of the parties is to provide service or not is liable to VAT under the state law. In such case, the services charges like activation charges will be liable to service tax.
what is libility / position of tax under u p valu aded tax act 0n sim card from 01.04.2011