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2015 (8) TMI 1289 - HC - VAT and Sales TaxLevy of VAT or service tax - activity is in nature of sale or service - activity of providing passive infrastructure and related operations and maintenance services to various telecommunication operators in India - Held that - When the petitioner has not transferred the possession of the passive infrastructure to the sharing telecom operators in the manner understood in law, the limited access provided to them can only be regarded as a permissive use or a limited licence to use the same. The possession of the passive infrastructure always remained with the petitioner. The sharing telecom operators did not therefore, have any right to use the passive infrastructure. There is no intention on the part of the Indus to transfer the right to use; it is only a licence or an authority granted to telecom operator as defined in Section 52 of the Easements Act, 1952. A licence cannot in law confer any right; it can only prevent an act from being unlawful which, but for the licence, would be unlawful. A licence can never convey by itself any interest in the property - The entire MSA has to be read as a whole without laying any undue emphasis upon a particular word or clause therein. What is permitted under the MSA is a licence to the telecom operators to have access to passive infrastructure and a permission to keep equipments of the sharing telecom operator in a prefabricated shelter with provision to have ingress and aggress only to the authorized representatives of the mobile operator. - Decision in the case of INDUS TOWERS LTD. 2013 (6) TMI 81 - KARNATAKA HIGH COURT followed. The order of demand on the basis that the petitioner transferred the right to use passive infrastructure to the sharing telecom operators is quashed. - Decided in favor of assessee.
Issues Involved:
1. Whether the provision of Passive Infrastructure Services by the petitioner to telecom operators constitutes a 'transfer of right to use goods' under Section 2(u)(vi) of the Madhya Pradesh Value Added Tax Act, 2002. 2. Whether the transaction is liable to value added tax under the MP VAT Act, 2002. Detailed Analysis: Issue 1: Transfer of Right to Use Goods The petitioner, M/s. Bharti Infratel Limited, provides passive infrastructure and related operations and maintenance services to various telecommunication operators in India. The question is whether this provision constitutes a 'transfer of right to use goods' under Section 2(u)(vi) of the MP VAT Act, 2002, and thus is liable to value added tax. The petitioner argued that the entire passive infrastructure, including towers, shelters, DG sets, batteries, air conditioners, and electrical works, remains under its control and ownership. The telecom operators are granted access to use the infrastructure but do not gain possession or control over it. The petitioner maintains the infrastructure and ensures its operation, and the telecom operators only have limited access for installation and maintenance of their equipment. The petitioner contends that this arrangement is purely a service transaction attracting service tax under the Finance Act, 1994, and does not constitute a transfer of the right to use goods. The respondents argued that the agreement between the petitioner and the telecom operators effectively transfers the right to use the passive infrastructure, as the operators have access to install and operate their equipment on the petitioner's infrastructure. This, they argue, falls within the definition of 'sale' under Article 366(29A)(d) of the Constitution, which includes a tax on the transfer of the right to use goods. Issue 2: Liability to Value Added Tax The Additional Commissioner, Commercial Tax, Indore, held that the provision of passive infrastructure by the petitioner amounts to a transfer of the right to use goods and is thus liable to value added tax under the MP VAT Act, 2002. The Commissioner relied on the decision of the Karnataka High Court in the case of M/s. Essar Telecom Infrastructure (P) Ltd. v. Union of India, which held that the right to use goods had been transferred to telecom operators and was subject to VAT. The petitioner countered that the Karnataka High Court's decision was based on an erroneous assumption that the transaction was a service provided by the petitioner. The petitioner cited the judgment of the Karnataka High Court in the case of M/s. Indus Towers Limited v. The Deputy Commissioner of Commercial Tax, which held that the provision of passive infrastructure does not constitute a transfer of the right to use goods and is not liable to VAT. The Madhya Pradesh High Court examined the Master Service Agreement (MSA) between the petitioner and telecom operators, noting that the agreement provides only limited access to the infrastructure for installation, operation, and maintenance of the telecom operators' equipment. The court found that the possession and control of the passive infrastructure remained with the petitioner, and the telecom operators did not gain any right, title, or interest in it. The court concluded that the arrangement is a permissive use or a limited license, not a transfer of the right to use goods. Conclusion: The Madhya Pradesh High Court quashed the order of the Additional Commissioner, Commercial Tax, Indore, holding that the provision of passive infrastructure by the petitioner does not constitute a transfer of the right to use goods and is not liable to value added tax under the MP VAT Act, 2002. The court relied on the judgment of the Karnataka High Court in the case of M/s. Indus Towers Limited and found that the arrangement between the petitioner and the telecom operators is a service transaction subject to service tax, not VAT. The court allowed all five writ petitions filed by the petitioner.
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