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239. In the meanwhile the High Court of Kerala took a different view from the view expressed by the High Courts of Allahabad, Andhra Pradesh and Punjab & Haryana in Escotel Mobile Communications vs. Union of India (2002) 126 STC 475 (Ker.) The Division Bench of the Kerala High Court considered a situation where the State Sales Tax Authorities sought to include the value of activation charges in the sale price of the SIM (Subscribers Identification Module) Card on the sale of which sales tax was admittedly payable and had been paid. At the same time the Central Government sought to include the cost of the SIM Card in the service tax which was also admittedly payable and had been paid by the service provider for the service of activation of the SIM Card. The High Court held that the transaction of sale of a SIM Card included its activation and that therefore the activation charges formed part of the consideration and could be subjected to sales tax under the Kerala General Sales Tax Act. At the same time the selling of the SIM Card and the process of activation were both services provided by the Mobile Cellular Telephone Companies to the subscribers and fell within the definition of taxable services as defined in sections 65(72)(b) of the Finance Act, 1994. In other words the Kerala High Court answered all three questions framed by us in the opening paragraph of this judgment, in the affirmative and in favour of the Revenue.

The service providers in the appeal from the decision of Kerala High Court have submitted that the High Court had not appreciated the facts . The service providers had imported the SIM cards and sold them to franchises who then sold them to the subscribers. It is submitted that the authorities had wrongly proceeded on the basis that there was a sale of SIM cards by the service providers to the subscribers. It is pointed out that the sale was factually and legally distinct from the activity of giving the connection or activation of the SIM cards. The decision of the Kerala High Court has also been impugned on the ground that it overlooked inter alia questions of competence raised by the petitioners, the explanation to the definition of turnover as well as the ratio of Gannon Dunkerley and misapplied the aspect theory.

This brings us to the decision of the Kerala High Court in Escotel.
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. This does not however allow State to entrench upon the Union list 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):-