1998 (12) TMI 590 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the Telecommunications Department is liable to pay sales tax on rentals collected from subscribers u/s 5-E of the A.P. General Sales Tax Act, 1957.
2. Whether the imposition of sales tax on the Telecommunications Department violates Article 285 of the Constitution of India.
3. Whether the provision of telephone services constitutes a transfer of the right to use goods.

Summary of Judgment:

Issue 1: Liability to Pay Sales Tax u/s 5-E
The respondents treated the Telecommunications Department as a dealer u/s 2(e) of the A.P. General Sales Tax Act, 1957, and levied a 5% sales tax on the rentals collected from subscribers for the use of telephone instruments. The court examined whether the rentals collected for telephone services constituted a transfer of the right to use goods. It was determined that the rentals were not for the telephone instruments but for the maintenance of the connection line to the exchange system. Therefore, the court concluded that there was no transfer of goods, and the rentals were not subject to sales tax u/s 5-E.

Issue 2: Violation of Article 285
The petitioners argued that the imposition of sales tax on the Telecommunications Department violated Article 285 of the Constitution, which exempts Union property from State taxation. The court referred to the Supreme Court's decision in re: Sea Customs Act, AIR 1963 SC 1760, which clarified that sales tax is a tax on the event of sale, not on the property itself. Consequently, Article 285 did not exempt the Telecommunications Department from paying sales tax on the rentals collected.

Issue 3: Provision of Telephone Services
The court analyzed the nature of the telephone services provided by the Telecommunications Department. It was found that the service involved maintaining a system at an exchange connected to the subscriber's premises, not merely the installation of a telephone instrument. The rentals charged were for the maintenance of the connection line, not for the use of the telephone instrument. Thus, the provision of telephone services did not constitute a transfer of the right to use goods.

Conclusion:
The court allowed the writ petitions, quashing the demand notices, assessment orders, and consequential orders passed in appeals/revisions. The rentals collected by the Telecommunications Department were not subject to sales tax within the meaning of the A.P. General Sales Tax Act. No order as to costs.