2007 (7) TMI 602 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to sales tax assessment orders including activation charges for cellular mobile telephone service under the Haryana General Sales Tax Act, 1973.

Analysis:
The petitioner, a company providing cellular mobile telephone services in Haryana, challenged sales tax assessment orders including activation charges for assessment years 1996-97 to 1999-2000. The petitioner argued that cellular mobile telephone service is not goods under section 2(f) of the Act and providing the service does not constitute a sale under section 2(l) of the Act. The petitioner also sought a declaration that sections 2(f) and 2(l) of the Act are ultra vires the Constitution. The matter was adjourned by the court awaiting the decision of the Supreme Court.

The Supreme Court's judgment in Bharat Sanchar Nigam Ltd. v. Union of India clarified that electromagnetic waves or radio frequencies are not considered "goods" under relevant legislation. The Court held that goods in telecommunication are limited to handsets supplied by service providers, leaving the issue of SIM cards open for determination by assessing authorities. The Court also addressed the nature of transactions involving telephone connections as composite contracts of service and sale, allowing states to tax the sale element if discernible. The judgment emphasized that the value of services cannot be included in the sale of goods or vice versa under the aspect theory.

Based on the Supreme Court's ruling, the High Court determined that activation charges do not constitute goods and, therefore, are not assessable to sales tax. Consequently, the court quashed the impugned assessment orders that included activation charges for computing sales tax. The petitioner was directed to seek a refund of the amount from the respondents in accordance with the law. The writ petition was disposed of accordingly.