2019 (1) TMI 766 - HC - VAT and Sales Tax

Levy of VAT or service tax - gross receipts of the petitioner from providing the Passive Infrastructure Services in Gujarat - transfer of right - GVAT Act - It is the case on behalf of the petitioners that the transaction in question i.e. the revenue under the MSA is governed completely by Finance Act, 1994 and is liable to service tax. Whether the transactions under reference can be said to be and/or considered as transfer of right to use goods as contemplated under Section 2(23)(d) of the GVAT Act or in the nature of service contract (as contended on behalf of the petitioner)? Held that - On perusal of the MSA as amended from time to time it can be seen that the petitioner Company has agreed to provide passive telecommunication infrastructure to the telecom operator so as to facilitate them to install and operate requisite equipments to provide telecommunication services. The said infrastructure would be provided to the telecom operator on use only basis for installation, operation and maintenance etc. of the active infrastructure of a telecom operator - It also appears that the petitioner Company grants the right to the telecom operator to enter the concerned site for installing necessary equipments, machineries owned by it at such site as may be required by it as well as also grants the right to operate and maintain the same. It also appears that the petitioner Company grants the right to the telecom operator to enter the concerned site for installing necessary equipments, machineries owned by it at such site as may be required by it as well as also grants the right to operate and maintain the same. The telecom operator can be said to have effective control over the manner, time and nature of use of passive infrastructure by virtue of its right to use goods acquired through such contract. Even the telecom operator has right to select the particular height, direction or other equipments. The petitioner Company does not have any freedom to allot the same height, direction on the same tower. Thus, once a particular placed is allotted by way of passive infrastructure, to any telecom operator, the said telecom operator can be said to be in exclusive domain and/or possession and/or use of such passive infrastructure by virtue of its right to use acquired through the contract subject to the conditions of MSA as amended from time to time once it is allotted to the petitioner Company does not appear to have the effective control over the manner, time and nature of use of a specified access to passive infrastructure allotted to a particular operator - Therefore, the transaction in question between the petitioner Company and the respective telecom operators pursuant to the respective MSA as amended from time to time cannot be said to be in the nature of service contract as contended on behalf of the petitioner. The impugned SCN cannot be said to be wholly without jurisdiction and/or without authority under the law - appeal dismissed.

Summary

Issues Involved:
1. Whether the transaction between the petitioner and the sharing operators under the Master Service Agreement (MSA) can be considered a "sale" under Section 2(23)(d) of the Gujarat Value Added Tax Act (GVAT Act).
2. Whether the petitioner is liable to pay VAT under the GVAT Act for the transaction in question.
3. Whether the impugned show-cause notice is valid and within jurisdiction.
4. Whether the transaction can be subjected to both VAT and service tax, leading to double taxation.
5. The applicability and interpretation of Section 52 of the GVAT Act concerning amalgamated companies.

Detailed Analysis:

1. Nature of the Transaction:
The court examined whether the transaction between the petitioner and the sharing operators under the MSA, as amended, constitutes a "sale" under Section 2(23)(d) of the GVAT Act. The MSA provides passive telecommunication infrastructure to telecom operators. The court considered the definition of "Passive Telecommunication Infrastructure" and various clauses of the MSA, concluding that the telecom operators have effective control over the infrastructure, indicating a transfer of the right to use goods. This transfer meets the criteria for a "sale" under the GVAT Act, as the operators have exclusive control over the infrastructure during the contract period.

2. VAT Liability:
The court held that the transaction qualifies as a "deemed sale" under Section 2(23)(d) of the GVAT Act and is thus liable for VAT. The court emphasized that the telecom operators' control and use of the infrastructure meet the statutory requirements for a sale, making the transaction subject to VAT.

3. Validity of the Show-Cause Notice:
The court found the show-cause notice to be valid and within jurisdiction. It rejected the petitioners' argument that the notice was arbitrary and illegal, stating that the notice was issued based on the amended MSA clauses and the nature of the transaction.

4. Double Taxation:
The court dismissed the argument of double taxation, stating that the liability to pay service tax and VAT arises under different statutes and circumstances. The court referred to the "aspects" doctrine, which allows the same transaction to be taxed under different aspects by different authorities without constituting double taxation.

5. Section 52 of the GVAT Act:
The court upheld the applicability of Section 52 of the GVAT Act, which treats amalgamating companies as distinct entities for tax purposes until the date of the High Court order sanctioning the amalgamation. The court rejected the argument that Section 52 is beyond legislative competence or conflicts with the Companies Act, stating that it aims to prevent tax evasion during the interregnum period between the amalgamation order and its effective date.

Conclusion:
The court dismissed the petition, holding that the transaction between the petitioner and the sharing operators constitutes a "sale" under the GVAT Act, making it liable for VAT. The show-cause notice was deemed valid, and the court found no issue of double taxation. Section 52 of the GVAT Act was upheld as a valid provision to prevent tax evasion during the amalgamation process.