Local Body Tax Leviable On SIM Cards & Recharge Coupons, Not On E-Recharge: Bombay HC [Read Judgment]

In a partial relief to telecom giant Bharti Airtel, the Bombay High Court has held that local body tax (LBT) cannot be levied on e-recharge, but the court also held that the same can be levied on SIM cards and recharge coupons once those enter within the municipal limits of any part of the state.

A bench of Justice AS Oka and Vibha Kankanwadi had earlier heard a petition filed by Bharti Airtel in this regard and the judgment was reserved on July 1, 2017. Thereafter, a 17-page judgment was passed by Justice Oka on September 26 under the Bombay High Court Appellate Side Rules, as Justice Kankanwadi is now sitting at the Aurangabad bench.

Case Background

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, another notification was issued by the state government in exercise of the powers under Section 99-B read with Section 152-B and 152-C of the said Act, by which the rates of LBT to be levied by the Mira Bhayandar Municipal Corporation on entry of various categories of goods into the limits of the city for the financial year 2011 were notified. One of the items included in Schedule A of the said notification is of SIM cards.

In the present petition, it was argued on behalf of Bharti Airtel that they along with their distributors were compelled to register themselves under the new LBT Rules even though they did so under protest.

In October 2010, officers of the respondent corporation visited the premises of various distributors of the petitioner and asked them to pay LBT on SIM Cards and recharge coupons according to the value of the talk time mentioned.

In a communication to the respondent corporation, the petitioners stated that LBT could not be levied on SIM cards, recharge coupons and e-recharge as they were already paying service tax on telecommunication services.

On March 28, 2013, the state government issued a notification for fixing the rate of 3.5 per cent on “SIM cards, memory cards, activation/renewal slips” whether “recharged it online or otherwise”. This was challenged in the said petition.

Submissions And Judgment

Petitioner’s lawyer Surel Shah submitted that SIM cards, recharge coupons and e-­recharge were not goods on the basis of which LBT could be levied. He relied upon the decision of the apex court in the case of Bharat Sanchar Nigam Limited vs Union of India.

He also submitted that the SIM cards, recharge coupons and e­recharge have by themselves no intrinsic value at all and that the same cannot be used independent of a cell phone.

In the case of Bharat Sanchar Nigam Limited vs Union of India, the apex court had 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.

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-

(a) its utility

(b) its capability of being bought and sold

(c) its capability of being transmitted, transferred, delivered, stored and possessed.

The high court noted that SIM cards have utility value and are capable of being bought and sold.

Although the apex court in the case of Idea Mobile Communication Limited vs Commissioner of Central Excise, Cochin, held that sales tax cannot be levied on SIM cards, the high court drew a distinction between sales tax and LBT and said: “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.”

However, the high court held that LBT cannot be levied on e-recharge and said: “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.”

Thus, the petition was partially allowed.