2015 (10) TMI 2783 - HC - VAT and Sales Tax

Transfer of right to use - Levy of KVAT - Deemed sale - treatment by respondents of the petitioners as dealers for the purposes of the KVAT Act - HELD THAT - It will be apparent from a consideration of the various clauses in the Master Services Agreement that, what is contemplated therein is the provision of certain infrastructural facilities by the petitioner, which could be tapped into by various mobile services operators, who have entered into an agreement with the petitioners, on payment of a fee as consideration. What is evident from a perusal of the various clauses is that the ownership of the infrastructural facility continues to be with the petitioners. The obligation to maintain and control the passive infrastructure is also retained with the petitioners. The risk attached to the maintenance of the infrastructural facility continues to lie with the petitioners and for this reason, the obligation to take out an insurance in respect of the passive infrastructure is also with the petitioners. The mobile service operators are given only a limited permission to use the infrastructural facility in accordance with the terms and conditions in the agreement. Applying the said test, a Division Bench of Karnataka High Court in the case of INDUS TOWERS LTD. VERSUS DEPUTY COMMR. OF COMMERCIAL TAXES, BANGALORE 2013 (6) TMI 81 - KARNATAKA HIGH COURT , considered the scope and ambit of a Master Services Agreement, identical to the agreements entered into in the instant writ petitions, and found that the terms of the said agreement could not be construed as having transferred a right to use passive infrastructure to the mobile service operators. The Master Services Agreement was found to have merely permitted access to the sharing telecom operators to the passive infrastructure to the extent it was necessary for the proper functioning of the active infrastructure - The possession of the passive infrastructure was found to have always remained with the provider of the passive infrastructural services and therefore, the sharing telecom operators did not have any right to use the passive infrastructure. There is no transfer of the right to use the passive infrastructure, that is made available by the petitioner to the various mobile service operators. As already noted above, the petitioners retained control over the passive infrastructure that was maintained by them and this degree of control, that was exercised by the petitioners over the passive infrastructure, ensured that the mobile service operators, who were given permission to use the infrastructural facility, obtained only a licence to access the infrastructural facilities offered by the petitioner, and did not get a right to use the goods transferred to them in the process - there is no transfer of the right to use the infrastructural facilities, from the petitioners to the mobile services operators, that could be brought to tax under the KVAT Act. Petition allowed.

Summary

Issues Involved:
1. Whether the consideration received by the petitioner for providing passive infrastructure services constitutes a "deemed sale" under Section 6(1)(c) of the KVAT Act.
2. Whether the arrangement between the petitioner and the mobile service operators results in a transfer of the right to use the passive infrastructure.
3. Whether the assessment orders issued under the KVAT Act are valid given the petitioner's payment of Service Tax on the same consideration under the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Deemed Sale under Section 6(1)(c) of the KVAT Act:
The primary issue addressed is whether the consideration received by the petitioner for providing passive infrastructure services can be deemed as consideration for the transfer of the right to use the passive infrastructure, thus constituting a "deemed sale" under Section 6(1)(c) of the KVAT Act. The court examined the Master Services Agreement and found that the ownership, control, and maintenance of the passive infrastructure remained with the petitioner. The mobile service operators were only given limited permission to use the infrastructure, which does not amount to a transfer of the right to use the goods. Therefore, the arrangement does not fall under the definition of a "deemed sale" as per the KVAT Act.

2. Transfer of Right to Use Passive Infrastructure:
The court applied the tests laid down by the Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India to determine if there was a transfer of the right to use the passive infrastructure. The attributes required for such a transfer include the availability of goods for delivery, consensus ad idem on the identity of the goods, legal right to use the goods, exclusive use by the transferee, and the transferor's inability to transfer the same rights to others. The court found that the petitioner retained control over the infrastructure, and the mobile operators were granted only a license to access and use the infrastructure, not an exclusive right. Hence, there was no transfer of the right to use the passive infrastructure.

3. Validity of Assessment Orders under KVAT Act:
The court noted that the petitioner was already paying Service Tax on the consideration received for providing passive infrastructure services under the Finance Act, 1994. The court held that there cannot be a simultaneous levy of KVAT on the same consideration amount. Furthermore, the assessment orders were quashed due to non-application of mind by the assessing officer, who failed to address the crucial aspect of whether the arrangement resulted in a transfer of the right to use the passive infrastructure.

Conclusion:
The court concluded that there was no transfer of the right to use the passive infrastructure to the mobile service operators, and thus, the consideration received by the petitioner could not be subjected to tax under the KVAT Act. The impugned assessment orders were quashed on the grounds of both non-application of mind and the absence of a deemed sale. Consequently, all the writ petitions were allowed, and the related assessment orders and recovery notices were quashed.