https://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=3969
No service tax if sales tax is collected : Cestat
By TIOL News Service
BANGALORE, JULY 12, 2006 : THE issue here is Service Tax on SIM cards for cellular phones.
Service tax has been levied on the ground that assessee is rendering services on cellular phones. That they did not reveal that they had not incorporated the activation charges in the form of price of SIM card which they are collecting from their subscribers while computing the value of taxable services. The matter was adjudicated by the Kerala High Court confirming payment of service tax, penalty and interest. However this issue was taken up before the Apex Court in the case of Bharath Sanchar Nigam Ltd., and another Vs UOI in Writ Petition wherein the Apex Court has remanded the matter to determine as to whether the sales tax has been levied or not.
The counsel for the party argued that they are not challenging the levy of sales tax in the matter and the sale of SIM cards to goods. Once the transaction is considered as sale of goods then the question of considering the activity as auxiliary service cannot be considered and service tax cannot be imposed. They do not want to contest on the levy of sale tax cannot be imposed. They do not want to contest on the levy of sales tax as the same has already been paid. He quoted a para from the Apex Court's judgement,
"This mutual exclusivity which has been reflected in Article 246 (1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking, a liberal interpretation must be given to taxing entries. This would not bring within its purview a tax on subject-matter which a fair reading of the entry does not cover. If in substance the statute is not referable to a field given to the State, by any principle of interpretation allow a statute not covered by it to intrude upon this field."
The Tribunal observed,
• The assessee is not contesting the levy of sales tax.
• They have already paid the sales tax.
• It follows that service tax is not leviable on the item on which sales tax has been collected.
• In terms of the Apex Court judgment, the levy of service tax is not sustainable.
While on this it will be instructive to look at the paras from the Supreme Court judgement preceding the para extracted above. 2006-TIOL-15-SC-CT-LB
In that case Escotel was admittedly engaged in selling cellular telephone instruments, SIM cards and other accessories and was also paying Central Sales Tax and Sales Tax under the Kerala General Sales Tax Act, 1963 as applicable. The question was one of the valuation of these goods. State Sales Tax Authorities had sought to include the activation charges in the cost of the SIM card. It is contended by Escotel that the activation was part of the service on which service tax was being paid and could not be included within the purview of the sale. The Kerala High Court also dealt with the case of BPL, a service provider. According to BPL, it did not sell cellular telephones. As far as SIM cards were concerned, it was submitted that they had no sale value. A SIM card merely represented a means of the access and identified the subscribers. This was part of the service of a telephone connection. The Court rejected this submission finding that the SIM card was "goods" within the definition of the word in the State Sales Tax Act. It is not possible for this Court to opine finally on the issue. What a SIM card represents is ultimately a question of fact as has been correctly submitted by the States. In determining the issue, however the Assessing Authorities will have to keep in mind the following principles: If the SIM Card is not sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. 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. There is insufficient material on the basis of which we can reach a decision. However we emphasise that if the sale of a SIM card is merely incidental to the service being provided and only facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax. In our opinion the High Court ought not to have finally determined the issue. In any event, the High Court erred in including the cost of the service in the value of the SIM card by relying on the aspects doctrine. That doctrine merely deals with legislative competence. As has been succinctly stated in Federation of Hotel & Restaurant Association of India Vs. Union of India (1989) 3 SCC 634- "subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power. They 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 overlapping does not detract from the distinctiveness of the aspects". No one denies the legislative competence of States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction.
44. This does not however allow State to entrench upon the Union lis t and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Art. 366(29A), the value of the goods involved in the execution of the whole transaction cannot be assessed to Sales Tax. As was said in Larsen & Toubro Vs. Union of India(supra):-
"The cost of estab lis hment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of estab lis hment which is relatable to supply of materials involved in the execution of the works contract only can be included in the value of the goods".
45. For the same reason the Centre cannot include the value of the SIM cards, if they are found ultimately to be goods, in the cost of the service. As was held by us in Gujarat Ambuja Cements Ltd. Vs. Union of India (2005) 4 SCC 214,228.= 2005-TIOL-96-SC-CT-LB. "This mutual exclusivity which has been reflected in Article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking, a liberal interpretation must be given to taxing entries, this would not bring within its purview a tax on subject-matter which a fair reading of the entry does not cover. If in substance, the statute is not referable to a field given to the State, the Court will not by any principle of interpretation allow a statute not covered by it to intrude upon this field."
46. We will therefore have to allow the appeals filed by BPL in Civil Appeal Nos. 3329-30 of 2002 and Escotel in Civil Appeal No.2408 of 2002 and remand the matter to the Sales Tax Authorities concerned for determination of the issue relating to SIM Cards in the light of the observations contained in this judgment.
(See 2006-TIOL-857-CESTAT-BANG in 'Service Tax' + 2006-TIOL-857-CESTAT-BANG in 'Legal Corner')
[quote=anand chauhan (Guest)]https://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=3969
No service tax if sales tax is collected : Cestat
By TIOL News Service
BANGALORE, JULY 12, 2006 : THE issue here is Service Tax on SIM cards for cellular phones.
Service tax has been levied on the ground that assessee is rendering services on cellular phones. That they did not reveal that they had not incorporated the activation charges in the form of price of SIM card which they are collecting from their subscribers while computing the value of taxable services. The matter was adjudicated by the Kerala High Court confirming payment of service tax, penalty and interest. However this issue was taken up before the Apex Court in the case of Bharath Sanchar Nigam Ltd., and another Vs UOI in Writ Petition wherein the Apex Court has remanded the matter to determine as to whether the sales tax has been levied or not.
The counsel for the party argued that they are not challenging the levy of sales tax in the matter and the sale of SIM cards to goods. Once the transaction is considered as sale of goods then the question of considering the activity as auxiliary service cannot be considered and service tax cannot be imposed. They do not want to contest on the levy of sale tax cannot be imposed. They do not want to contest on the levy of sales tax as the same has already been paid. He quoted a para from the Apex Court's judgement,
"This mutual exclusivity which has been reflected in Article 246 (1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking, a liberal interpretation must be given to taxing entries. This would not bring within its purview a tax on subject-matter which a fair reading of the entry does not cover. If in substance the statute is not referable to a field given to the State, by any principle of interpretation allow a statute not covered by it to intrude upon this field."
The Tribunal observed,
• The assessee is not contesting the levy of sales tax.
• They have already paid the sales tax.
• It follows that service tax is not leviable on the item on which sales tax has been collected.
• In terms of the Apex Court judgment, the levy of service tax is not sustainable.
While on this it will be instructive to look at the paras from the Supreme Court judgement preceding the para extracted above. 2006-TIOL-15-SC-CT-LB
In that case Escotel was admittedly engaged in selling cellular telephone instruments, SIM cards and other accessories and was also paying Central Sales Tax and Sales Tax under the Kerala General Sales Tax Act, 1963 as applicable. The question was one of the valuation of these goods. State Sales Tax Authorities had sought to include the activation charges in the cost of the SIM card. It is contended by Escotel that the activation was part of the service on which service tax was being paid and could not be included within the purview of the sale. The Kerala High Court also dealt with the case of BPL, a service provider. According to BPL, it did not sell cellular telephones. As far as SIM cards were concerned, it was submitted that they had no sale value. A SIM card merely represented a means of the access and identified the subscribers. This was part of the service of a telephone connection. The Court rejected this submission finding that the SIM card was "goods" within the definition of the word in the State Sales Tax Act. It is not possible for this Court to opine finally on the issue. What a SIM card represents is ultimately a question of fact as has been correctly submitted by the States. In determining the issue, however the Assessing Authorities will have to keep in mind the following principles: If the SIM Card is not sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. 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. There is insufficient material on the basis of which we can reach a decision. However we emphasise that if the sale of a SIM card is merely incidental to the service being provided and only facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax. In our opinion the High Court ought not to have finally determined the issue. In any event, the High Court erred in including the cost of the service in the value of the SIM card by relying on the aspects doctrine. That doctrine merely deals with legislative competence. As has been succinctly stated in Federation of Hotel & Restaurant Association of India Vs. Union of India (1989) 3 SCC 634- "subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power. They 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 overlapping does not detract from the distinctiveness of the aspects". No one denies the legislative competence of States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction.
44. This does not however allow State to entrench upon the Union lis t and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Art. 366(29A), the value of the goods involved in the execution of the whole transaction cannot be assessed to Sales Tax. As was said in Larsen & Toubro Vs. Union of India(supra):-
"The cost of estab lis hment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of estab lis hment which is relatable to supply of materials involved in the execution of the works contract only can be included in the value of the goods".
45. For the same reason the Centre cannot include the value of the SIM cards, if they are found ultimately to be goods, in the cost of the service. As was held by us in Gujarat Ambuja Cements Ltd. Vs. Union of India (2005) 4 SCC 214,228.= 2005-TIOL-96-SC-CT-LB. "This mutual exclusivity which has been reflected in Article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking, a liberal interpretation must be given to taxing entries, this would not bring within its purview a tax on subject-matter which a fair reading of the entry does not cover. If in substance, the statute is not referable to a field given to the State, the Court will not by any principle of interpretation allow a statute not covered by it to intrude upon this field."
46. We will therefore have to allow the appeals filed by BPL in Civil Appeal Nos. 3329-30 of 2002 and Escotel in Civil Appeal No.2408 of 2002 and remand the matter to the Sales Tax Authorities concerned for determination of the issue relating to SIM Cards in the light of the observations contained in this judgment.
(See 2006-TIOL-857-CESTAT-BANG in 'Service Tax' + 2006-TIOL-857-CESTAT-BANG in 'Legal Corner')
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