SIM Cards, Recharge Coupons, and Value-Added Services Not Taxable as Services: Madras HC [Read Order]

The writ petition was filed by D. Sivanandam, proprietor of M/s. Nivedha Communications, challenging a show cause notice dated 11.10.2011 issued by the Assistant Commissioner, Central Excise Division, Karaikal.

The notice proposed to levy service tax on the distribution of Bharat Sanchar Nigam Limited (BSNL) prepaid and postpaid cellular connections, including SIM cards.

The petitioner sought a Writ of Prohibition to restrain the Assistant Commissioner from proceeding with the communication, arguing that it was without jurisdiction. The show cause notice was issued on 11.10.2011, proposing to impose service tax on the petitioner’s activities.

The petitioner argued that the distribution of SIM cards and related products does not fall under the ambit of taxable services, relying on multiple judicial precedents. The petitioner contended that the issue was covered by prior Madras High Court orders in W.P. Nos. 10312 to 10315 of 2010 and W.P. No. 20268 of 2010, both dated 07.01.2010.

The petitioner also cited the Supreme Court’s ruling in Bharat Sanchar Nigam Ltd. vs. State of Andhra Pradesh which clarified that SIM cards and value-added services are not taxable as goods or services.

The respondent contended that the distribution of SIM cards constituted a taxable service under the Finance Act, 1994.

A bench comprising Justice Mohammed Shaffiq observed that the issue was covered by a series of judicial precedents, including the Supreme Court’s decision in Idea Mobile Communication Ltd. vs. CCE & Customs. The court observed that SIM cards, recharge coupons, and value-added services (such as SMS, ringtones, and music downloads) do not qualify as taxable services.

The court also referred to the Supreme Court’s ruling in Commissioner of Customs, Central Excise & Service Tax vs. MS Suzlon Energy Ltd., which held that customized engineering drawings are not goods but services, supporting the non-taxability of SIM cards under service tax provisions.

The court directed the petitioner to submit a reply to the show cause notice within four weeks. The respondents were instructed to pass orders after considering the petitioner’s objections, providing a reasonable opportunity for a hearing, and adhering to the cited judicial precedents.

The writ petition was disposed of and the connected miscellaneous petition was closed.

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