SIM Cards, Recharge Coupons & Value-Added Services Not 'Goods' Under KVAT Act; Kerala High Court Quashes Tax Demand Against Airtel

Justices A.K. Jayasankaran Nambiar and Jobin Sebastian addressed a case filed by Bharti Airtel, the assessee, challenging the assessing order both on grounds of limitation and on merits, seeking to clarify that SIM cards, rechargeable coupons, fixed monthly charges and value-added services (towards SMS, ringtones, download music, etc.) do not constitute 'goods' under the KVAT Act.

The assessee contended that Section 25(1) of the Kerala Value Added Tax Act, 2003 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 assessee was beyond the period of limitation prescribed under Section 25(1) of the KVAT Act and consequently, the assessment order had also to be seen as one passed without jurisdiction.

The Single Judge allowed the petition only on limitation without examining the merits and set aside the assessment order. Aggrieved by the order of the Single Judge, the revenue filed an appeal before the High Court.

Before the Division Bench, the revenue argued that the notice under Section 25(1) of the KVAT Act was issued within a period of six years, on 16.01.2019, and inasmuch as the notice pertained to the assessment year 2013-14, it could not be said to be belated, going by the amended provisions of the KVAT Act.

The Division Bench found that the amendment to Section 25(1) of the KVAT Act had come about in 2017 itself, when the time limit for issuance of notice was enlarged from five years to six years, and the notice issued to the assessee was within the six-year period of limitation that was operative for the assessment year 2013-14.

While allowing the writ appeal preferred by the State, the Division Bench also made it clear that it would be open to the assessee to approach the first appellate authority under the KVAT Act in a challenge against the assessment order on merits by filing a statutory appeal.

The bench found that the State has not preferred any writ appeal against the judgment of the Single Judge, which concludes the issue involved in the assessment order in the instant case on merits as far as the assessee is concerned, albeit for other assessment years.

The bench stated that when the issue on merits is now covered by a binding precedent of the Supreme Court, and the attempt of the State to distinguish the said precedent did not meet with any success before a Single Judge of this Court against whose judgment no appeal was preferred by the State, it would be meaningless to relegate the assessee before the statutory authorities in a challenge to the merits of the assessment order involving the same issue.

In view of the above, the bench allowed the appeal by quashing assessment order to the extent it demands tax under the KVAT Act on amounts received by the assessee 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.

Case Title: M/s Bharti Airtel Ltd. v. Union of India

Case Number: WA NO. 1745 OF 2025

Counsel for Appellants/Assessee: G. Mini, A. Kumar, P.J. Anil Kumar, P.S. Sree Prasad

Counsel for Respondent/Department: Mohammed Rqfiq and V. Girishkumar

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