Division Bench Rules SIM Cards and Value-Added Services Not Taxable as Goods Under KVAT Act
In a significant judgment, the Kerala High Court has quashed the assessment order against M/s. Bharti Airtel Limited regarding the taxability of telecommunication services under the Kerala Value Added Tax Act, 2003. The court ruled that SIM cards, rechargeable coupons, fixed monthly charges, and value-added services like SMS, ringtones, and downloaded music do not qualify as "goods" for the purpose of taxation under the KVAT Act.
The case, WA No. 1745 of 2025, was heard by a Division Bench comprising Dr. A.K. Jayasankaran Nambiar and Jobin Sebastian, JJ. The bench overturned a previous judgment by a Single Judge that had sided with Airtel solely on the grounds of limitation without addressing the merits of the assessment order.
The pivotal aspect of the ruling was the court's reliance on a binding precedent established by the Supreme Court, which affirmed the Andhra Pradesh High Court's judgment on similar issues. The Division Bench observed that taxing telecommunication services as goods contradicted the established legal precedent.
The court noted that the amendment to Section 25(1) of the KVAT Act in 2017, which extended the time limit for issuing assessment notices from five to six years, was correctly applied by the Single Judge. However, the Division Bench found that the merits of the case, particularly whether the telecom services could be classified as goods, were not considered, leading to the dismissal of the Single Judge's decision.
The judgment emphasized that the final decision on the merits of the issue, upheld by the Supreme Court, renders any relegation to statutory authorities unnecessary. The principle of merger was deemed inapplicable as the Division Bench had reserved the liberty for statutory remedy, and the issue on merits was covered by a binding Supreme Court precedent.
The ruling is expected to have significant implications for the telecommunication industry, as it clarifies the taxability of various telecom services under state VAT laws.
Bottom Line:
Assessment under the Kerala Value Added Tax Act - SIM cards, rechargeable coupons, fixed monthly charges, and value-added services such as SMS, ringtones, and downloaded music cannot be treated as "goods" for the purpose of taxation under the KVAT Act.
Statutory provision(s): Kerala Value Added Tax Act, 2003, Section 25(1)
M/s. Bharti Airtel Limited v. Union of India, (Kerala)(DB) : Law Finder Doc Id # 2829069
