Bombay HC Strikes Down Levy of Local Body Tax on E-Recharge: Upholds Levy on SIM Cards & Recharge Coupons [Read Judgment]

A division bench of the Bombay High Court, on Tuesday said that Local Body Tax (LBT) cannot be levied on E-Reacharge. However, the Court upheld the levy of LBT on SIM Cards and recharge coupons once those enter within the municipal limits of any part of the state.

The question before the Court was that “Whether Local Body Tax (LBT) under clause (aaa) of Sub-Section (2) of Section 127 of the Maharashtra Municipal Corporations Act, 1949 is recoverable on SIM cards, recharge coupons and e-recharge on its entry into municipal limits of a Municipal Corporation?”

In a notification dated March 25, 2010, the State government notified the Bombay Provincial Municipal Corporations (Local Body Tax) Rules, 2010.

Under Clause (aaa) of Section 127(2) of the Maharashtra Municipal Corporations Act, 1949, the state directed various municipal corporations within Maharashtra, including respondents (Mira Bhayandar Municipal 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 April 1, 2010.

On February 18, 2011, the State Government issued another Notification empowering the Mira Bhayandar Municipal Corporation to levy LBT on various goods including SIM Cards while entering into the city.

Through the writ petition, the petitioner, Bharti Airtel impugned the levy of tax on SIM cards, recharge coupons and e-recharge as they were already paying service tax on telecommunication services. They submitted before the Court that they along with their distributors were compelled to register themselves under the new LBT Rules even though they did so under protest.

They further submitted that SIM cards, recharge coupons and e-­recharge were not goods for the purpose of levy of LBT. They relied upon the decision of the Apex Court in the case of Bharat Sanchar Nigam Limited vs Union of Bharat Sanchar Nigam Limited vs Union of India wherein the Court examined the nature of transaction by which mobile phone connections are enjoyed and the question was whether it is a sale or service, or both.

According to them, the SIM cards, recharge coupons and e-­recharge have by themselves no intrinsic value at all and that the same cannot be used independent of a cell phone.

The bench noticed that in the above case, the apex court had held that for a commodity to be defined as ‘goods’ for the purposes of sales tax, the following criteria have to be satisfied-

  • its utility
  • its capability of being bought and sold
  • its capability of being transmitted, transferred, delivered, stored and possessed.

The bench noted that SIM cards fulfill the above criterias.

Distinguishing sales tax and LBT, the bench noted that “The concept of sales tax and LBT are not the same. LBT can be levied on goods brought within the limits of the Municipal Corporation, even if the same are not sold but the same are bought either for consumption or for use.

“Even assuming that by itself the SIM cards have no intrinsic sale value, considering the nature of its use, it has a value in terms of money apart from its value as a portable memory chip. Even recharge vouchers which are made of paper or plastic are capable of being bought and sold. The same are capable of being used. The same are capable of being transferred, stored and possessed. The recharge vouchers or cards made up of paper or plastic may have a little value by itself, but the same are capable of being used and that its use has a value as the holder thereof can get a talk time or internet data which has a value in terms of money. SIM cards and recharge vouchers are tangible goods which are capable of being brought into the limits of a city. The same are capable of being used after the same are brought into the limits of a city. Hence, the same will be goods within the meaning of clause 25 of Section 2 of the said Act.”

While quashing the levy of LBT on e-recharge, the division bench comprising of Justice A.S Oka and Justice Vibha Kankanwadi further clarified that “As far as e-recharge is concerned, by no stretch of imagination, it can be said that e-recharge is capable of being brought into limits of a city. It is nothing but an electronic download by use of internet. Hence, e­-recharge cannot be subject to levy of LBT.”

Read the full text of the Judgment below.

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