2011 (4) TMI 234 - HC - Service Tax

Facility of providing mobile telephone towers for various service provider - Referring to various judgments of the Apex Court and other courts, petitioner s counsel contended that petitioner has already remitted the entire service tax due to the Centre. Directing the petitioner to pay tax as per section 2(29)(d) of the VAT Act is impermissible and also it would be in the form of double jeopardy - the petitioner has leased out the towers to cellular operators in the form of transfer of rights to use the goods and the superstructure which cannot be easily dismantled without damage but, can be reinstalled elsewhere - having regard to the nature of the agreement entered into and the nature of transaction, the effective control is with the petitioner and, the component of delivery is also involved and the maintenance and over all control is also with the petitioner, it could be specifically said that the right to use the goods has been transferred by the petitioner to the telecom companies and that very much falls within Article 366(29A)(d) of the Constitution - Held that - the right to use the goods has been transferred by the petitioner to the telecom companies and that very much falls within Article 366(29A)(d) of the Constitution. - VAT is applicable - State government can recover amount from central government - For the assessment years in question, the amount is paid by the petitioner to the 1st respondent and it is for the State to seek for recovery of the amount so paid by the petitioner to the 1st respondent in a separate proceedings based on the judgment rendered herein. Further, in future, it is for the petitioner to file returns/assessment under the provisions of sections 3 and 4(1b) of the VAT Act, 2003 - Petition is allowed partly

Issues Involved:
1. Imposition of VAT on leasing cellular telephony towers.
2. Distinction between movable and immovable property.
3. Jurisdiction and applicability of Service Tax vs. VAT.
4. Double taxation and double jeopardy.
5. Validity of reassessment orders and penalties.

Issue-wise Detailed Analysis:

1. Imposition of VAT on Leasing Cellular Telephony Towers:
The petitioner, a company providing infrastructure services for cellular telephones, argued that their transactions are service contracts subject to service tax under the Finance Act, 1994. The respondent authority, however, levied VAT under the Karnataka Value Added Tax Act, 2003, on the premise that leasing cellular telephony towers constitutes a 'deemed sale' under section 2(29)(d) of the Act. The petitioner contended that this activity is a service, not a sale, and thus not subject to VAT.

2. Distinction Between Movable and Immovable Property:
The petitioner claimed that cellular telephony towers are immovable property as they are permanently fixed to the earth. The respondent countered that the towers are movable property since they can be dismantled and relocated, thus falling under the VAT Act. The court noted that while the towers appear to be permanently fixed, they can be dismantled and reinstalled elsewhere, making them movable property. The court referenced various judgments, including Hutchison Max Telecom (P.) Ltd. and Triveni Engg. & Industries Ltd., to support this view.

3. Jurisdiction and Applicability of Service Tax vs. VAT:
The petitioner argued that the imposition of service tax by the Centre on providing mobile telephone towers precludes the State from imposing VAT, as it would result in double taxation. The court observed that the transaction involves the transfer of the right to use goods, which falls within the scope of VAT. The court upheld the reassessment orders, stating that the nature of the agreement and the control retained by the petitioner indicate a lease of movable property subject to VAT.

4. Double Taxation and Double Jeopardy:
The petitioner contended that paying both service tax and VAT amounts to double taxation. The court acknowledged that the petitioner had paid service tax for the relevant assessment years and directed that the State could seek recovery of the amount from the Union. The court also indicated that future transactions should be assessed under the VAT Act, 2003.

5. Validity of Reassessment Orders and Penalties:
The respondent authority issued reassessment orders for the years 2007-08 and 2008-09, proposing to impose VAT on the lease of cellular telephony towers. The court upheld these orders, noting that the equipment used in the towers is movable and the transaction involves the transfer of the right to use goods. However, the court ruled that penalties or interest could not be imposed, as the petitioner had acted in good faith by paying service tax. The court allowed the petitions in part, directing that any differential amount be adjusted from the amount already deposited by the petitioner, and any excess refunded.

Conclusion:
The court concluded that the leasing of cellular telephony towers constitutes a transfer of the right to use movable goods, subject to VAT under the Karnataka Value Added Tax Act, 2003. The court upheld the reassessment orders but ruled against imposing penalties, directing the State to recover the amount from the Union and adjust any differential amounts.

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