2018 (8) TMI 71 - HC - VAT and Sales Tax

Levy of Sales Tax - sale of voice transmission service - goods or not - sales or not - tax was imposed on the ground that they goods under Section 2(5) of the said Act - According to the petitioners, the petitioner s voice communication service is only a service and eligible to Service Tax as laid down in the Finance Act, 1994 and therefore they got themselves registered with the Central Excise Authorities and the petitioners are regularly depositing service tax. Held that - By the said judgment of the Hon ble Apex Court in the case of Bharat Sanchar Nigam Limited and Another V/s. Union of India and Others 2006 (3) TMI 1 - SUPREME COURT , the nature of transaction by which the mobile connections are enjoyed has been put to rest by holding that it is not a sale but it is a service for if it would have been sale then the State legislature would have been competent to levy sales tax on the said transaction by invoking entry 54 of List II of the Seventh Schedule to the Constitution. However, it was only service then the Central Government alone would be entitled to levy service tax under Entry 97 List I - The said judgment therefore has settled the issue that goods do not cover the electromagnetic waives or radio frequencies for the purposes of Article 366(29 A)(d) and the goods in telecommunication are limited handset used for permissions of voice through airwaves. The impugned notices issued by the Sales Tax Officer (Enforcement), Mazagaon, Mumbai i.e. respondent No.3 for imposition of tax from voice transmission service cannot be sustained and are liable to be quashed and set aside - petition allowed - decided in favor of petitioner.

Issues Involved:
1. Whether the Cellular Mobile Telephone Services provided by the petitioner are "goods" under Section 2(5) of the Bombay Sales Tax Act, 1959.
2. Whether the provision of telecommunication services constitutes a "sale" under Section 2(10) of the Bombay Sales Tax Act, 1959.
3. The applicability of sales tax on the services provided by the petitioner.
4. The applicability of service tax on the services provided by the petitioner.
5. The validity of the notices issued under Section 49 of the Bombay Sales Tax Act, 1959.
6. The jurisdiction of the State of Maharashtra to levy sales tax on telecommunication services.

Detailed Analysis:

1. Definition of "Goods":
The petitioners argued that the Cellular Mobile Telephone Services they provide are not "goods" within the meaning of Section 2(5) of the Bombay Sales Tax Act, 1959. They contended that their services involve the conveyance of messages and transmission of voice, which do not fall under the definition of "goods." The court examined the nature of the services and the equipment used, concluding that the services provided by the petitioner do not constitute "goods" as there is no tangible item being transferred or sold.

2. Definition of "Sale":
The petitioners sought a declaration that the provision of telecommunication services does not constitute a "sale" under Section 2(10) of the Bombay Sales Tax Act, 1959. The court referred to the nature of the service provided, which involves the transmission of voice through airwaves, owned by the Government of India. The court found that there is no transfer of property in goods or any tangible item, thus ruling that the services provided do not constitute a "sale."

3. Applicability of Sales Tax:
The petitioners contended that the imposition of sales tax on their services was unconstitutional and without jurisdiction. They argued that their services are purely transmission services and not the sale of any goods. The court referred to the Constitution (46th Amendment) Act, 1982, which allows states to levy tax on the transfer of the right to use goods. However, the court found that the necessary ingredients for such a levy were not present in the petitioner's services, as there was no transfer of property in goods or the right to use any goods.

4. Applicability of Service Tax:
The petitioners argued that their services were already subject to service tax under the Finance Act, 1994, and they were regularly paying this tax. The court acknowledged that the Central Government had levied service tax on telecommunication services since 1994 and that the petitioners were compliant with this requirement. The court emphasized that the services provided by the petitioners were indeed services and not goods, thus falling under the purview of service tax rather than sales tax.

5. Validity of Notices:
The petitioners challenged the notices issued under Section 49 of the Bombay Sales Tax Act, 1959, which sought to impose sales tax on their services. The court found that the notices were based on an incorrect interpretation of the nature of the services provided by the petitioners. Given that the services were not "goods" and did not constitute a "sale," the court ruled that the notices were invalid and quashed them.

6. Jurisdiction of the State:
The court referred to the judgment of the Hon'ble Supreme Court in Bharat Sanchar Nigam Limited and Another v. Union of India and Others (2006) 3 SCC, which clarified that telecommunication services are services and not sales of goods. The court reiterated that electromagnetic waves or radio frequencies are not "goods" within the meaning of Article 366(12) or for the purposes of Article 366(29A)(d). The court concluded that the State of Maharashtra did not have the jurisdiction to levy sales tax on the telecommunication services provided by the petitioners.

Conclusion:
The court ruled in favor of the petitioners, stating that the Cellular Mobile Telephone Services provided by them are not "goods" and do not constitute a "sale" under the Bombay Sales Tax Act, 1959. The court quashed the notices issued under Section 49 of the Act and held that the services provided by the petitioners are subject to service tax under the Finance Act, 1994, and not sales tax. The court directed the assessing authority to re-examine the issue and pass a final order of assessment after giving the petitioners an opportunity to be heard. The writ petition was allowed, and the rule was made absolute.

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