2010 (9) TMI 990 - HC - VAT and Sales Tax

Interim order passed by the learned single judge directing them to deposit a sum of ₹ 550 crores within four weeks as a condition for staying the impugned reassessment order passed by the third respondent challenged Held that - Appeals are allowed in part. The direction issued in the interim order passed by the learned single judge to the effect that the assessee should deposit ₹ 550 crores within four weeks from the date of the order is hereby set aside. The rest of the order remains undisturbed.

Issues Involved:
1. Legality of the reassessment order demanding sales tax from the assessee.
2. Validity of the interim order directing the assessee to deposit Rs. 550 crores.
3. Applicability of the Supreme Court judgment in Bharat Sanchar Nigam Ltd. v. Union of India to the present case.
4. Determination of whether the transactions in question constitute a sale of goods or a service.

Detailed Analysis:

1. Legality of the Reassessment Order:
The reassessment order by the third respondent contended that the data carrier energy used in telecommunications, referred to as artificially created light energy (ACLE), is analogous to electrical energy, which has been classified as "goods" by the Supreme Court. The assessing officer argued that ACLE, being possessable and usable by customers, should likewise be considered "goods" subject to sales tax. Despite the Supreme Court's ruling in Bharat Sanchar Nigam Ltd. v. Union of India, which held that electromagnetic waves are not "goods," the assessing officer maintained that this judgment did not apply to the present case involving data transfers.

2. Validity of the Interim Order:
The learned single judge issued an interim order staying the reassessment order on the condition that the assessee deposits Rs. 550 crores. The assessee challenged this, arguing that the reassessment order contradicted the Supreme Court's established law and that the interim order lacked justification for the substantial deposit requirement. The State countered that the court could review the case's merits to determine the interim order's validity and suggested that the writ petition was not maintainable due to the availability of an alternate appellate remedy.

3. Applicability of the Supreme Court Judgment:
The Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India addressed whether electromagnetic waves in telecommunication services constitute "goods" under Article 366(29A)(d) of the Constitution. The Court concluded that electromagnetic waves are not "goods" as they are not delivered, stored, or possessed and are merely a medium for communication. The judgment specified that the "goods" in telecommunications are limited to handsets supplied by the service provider. The High Court noted that this judgment was not confined to mobile telephones but applied broadly to telecommunications.

4. Determination of Sale of Goods vs. Service:
The Supreme Court's judgment indicated that telecommunication services primarily involve the transmission of messages via telegraph, with no part of the telegraph itself being transferable or deliverable to subscribers. The assessing officer's reliance on the expert opinion that light energy is merely a data carrier and not a saleable commodity further supported the argument that the transactions in question do not constitute a sale of goods. The High Court observed that the reassessment order's demand for sales tax contradicted the Supreme Court's ruling and required careful scrutiny.

Conclusion:
The High Court allowed the appeals in part, setting aside the interim order's condition for the assessee to deposit Rs. 550 crores. The rest of the interim order remained undisturbed, and the case was scheduled for final hearing. The court clarified that its observations were solely for the purpose of the interlocutory appeals and directed the learned single judge to hear the case on its merits without being influenced by these observations.

← Previous Next →