2009 (1) TMI 828 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to the validity of a provision in the Punjab General Sales Tax Act, 1948 as ultra vires of the Constitution.

Analysis:
The Union of India filed an appeal challenging the order of the single judge dismissing their writ petition seeking a declaration that a specific provision of the Punjab General Sales Tax Act was ultra vires. The Union argued that the provision was in conflict with Article 285(1) of the Constitution, which exempts Union property from State taxation. Additionally, they contended that an amendment made by the State of Punjab post the Forty-sixth Amendment to the Constitution should not include certain services provided by a specific entity. The court considered various writ petitions and previous judgments related to the issue.

A Division Bench of the High Court held that the charges levied by the Union of India for connecting telephone instruments did not constitute a "sale of goods" under the Punjab General Sales Tax Act. The court emphasized that the activation of telephone apparatus through telegraphic lines was crucial, and mere rent or fees for services did not amount to a sale of goods. This interpretation was further supported by a similar view taken by the Supreme Court in a previous case involving the Union of India.

The Supreme Court, in the case of Bharat Sanchar Nigam Ltd. v. Union of India, upheld the view that the charges for telephone services did not amount to a sale of goods. The Court overruled a previous judgment and clarified that in cases where no deliverable goods were involved, there was no transfer of user. The provision for telephone connection did not grant possession of electromagnetic waves to the subscriber. Therefore, the judgment of the single judge was set aside based on the Supreme Court's ruling, and the Union of India's appeal was allowed.

As a result of the decision, the order passed by the Assessing Authority imposing sales tax and penalties was quashed. The High Court's judgment aligned with the Supreme Court's interpretation, emphasizing that the charges for telephone services did not fall under the purview of the Punjab General Sales Tax Act as a sale of goods.