SIM Cards, Recharge Coupons, VAS Not ‘Goods’ Under KVAT Act: Kerala HC Quashes Assessment Order Against Airtel [Read Order]

The Kerala High Court in a recent case has provided relief to Airtel by holding that sim cards, recharge coupons, and value-added services (towards SMS, ringtones, download music etc.) are not “goods” under Kerala Value Added Tax Act, 2003 (KVAT). The court quashed the assessment order against Airtel and set aside the tax liability.

Bharathi airtel the petitioner, challenged Section 25(1) of the KVAT Act that had provided for a period of six years for completion of assessment and since the assessment in question was for the assessment year 2013-14, the notice issued to the appellant in the instant case was beyond the period of limitation prescribed under Section 25(1) of the KVAT Act and consequently, the assessment order that was impugned in the writ petition had also to be seen as one passed without jurisdiction.

A Single Judge accepted this plea and set aside the assessment solely on limitation. However, in a subsequent appeal filed by the State, a Division Bench reversed that finding, holding that the notice was within the six years introduced by the 2017 amendment to Section 25(1). The Bench dismissed Airtel’s writ petition on limitation but left liberty to pursue statutory remedies on merits. This is what led to the present petition.

The company in the instant case argued that SIM cards, recharge coupons, monthly charges, and value‑added services could not be classified as “goods” under the KVAT Act. The company depended on the ruling of the Andhra Pradesh High Court on State of Andhra Pradesh v. Bharat Sanchar Nigam Ltd. (2012), which held that such services were not goods for VAT purposes.

The Supreme Court has also dismissed special leave petitions filed on the said ground.

In the present appeal, the State argued that the principle of merger barred Airtel from challenging the Single Judge’s earlier judgment, since the Division Bench had already dealt with the matter in the State’s appeal. The state also attempted to distinguish the facts, contending that downloaded music and other services were different from telecommunication services and could be taxed as goods.

The Division Bench of Justice Dr AK Jayasankaran Nambiar and Justice Jobin Sebastian observed that the principles of merger would have no application in a situation such as the present. As already noticed, the earlier Division Bench, while disposing of the appeal preferred by the State, had only reserved a liberty in the assessee to pursue his alternative remedy under the statute.

It was further observed that the issue on merits was covered by a binding precedent of the Supreme Court, and the attempt of the State to distinguish the said precedent is no good before a Single Judge of the Court against whose judgment no appeal was preferred by the State. In such a case, it was meaningless to relegate the appellant-assessee before the statutory authorities in a challenge to the merits of the assessment order involving the same issue.

The writ appeal was allowed by quashing the assessment order to the extent it demands tax under the KVAT Act on amounts received by the appellant towards SIM cards, rechargeable coupons, fixed monthly charges and value-added services (towards SMS, ringtones, download music etc.) as they are not goods on which any tax under the KVAT Act can be levied.

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