2021 (7) TMI 788 - HC - VAT and Sales Tax

Nature of transaction - Sale or service - installation of Customer premises network equipment by the company - transfer of right to use - dominant purpose is to use the only machinery in the telephone instrument, or to avail telecommunication service - HELD THAT - The revision is admitted on substantial questions of law. Learned Standing Counsel prays for and is granted time to file reply within four weeks - List this case on 18.08.2021.

Summary

Issues:
1. Interpretation of transfer of right to use telephone instrument for telecommunication service.
2. Liability to pay Value Added Tax for Direct to Home services.
3. Legal justification of Commercial Tax Tribunal's findings on transfer of right to use customer premises network equipment.
4. Control over machinery transferred to customer in service contracts.
5. Admissibility and impact of judgments from Supreme Court and Tripura High Court on the present case.

Issue 1: Interpretation of transfer of right to use telephone instrument for telecommunication service

The judgment discusses the dominant purpose of transferring telephone instruments for telecommunication services, emphasizing that the primary intention is to avail the service provided by the appellant. It highlights that the transfer of right to use the telephone instrument is not solely for the machinery's use but for the telecommunication service. This distinction is crucial as it affects the classification of the transaction for tax purposes, indicating that it is not a sale transaction liable for Sales Tax.

Issue 2: Liability to pay Value Added Tax for Direct to Home services

Reference is made to a judgment of the Tripura High Court regarding the liability to pay Value Added Tax for Direct to Home services provided to customers. While acknowledging the persuasive value of the Tripura High Court judgment, it is noted that the judgment is not binding on the present High Court. The discussion implies that the liability to pay Value Added Tax for such services remains open for determination based on the settled law by the Supreme Court.

Issue 3: Legal justification of Commercial Tax Tribunal's findings on transfer of right to use customer premises network equipment

The judgment raises questions regarding the legality of the Commercial Tax Tribunal's findings on the installation of customer premises network equipment. The revisionist questions the Tribunal's conclusion on whether such installations constitute a transfer of right to use, sale, or any other form of alienation independent of the service contract. The revisionist argues that the Tribunal's findings may be contrary to the legal principles established by the Supreme Court in previous cases.

Issue 4: Control over machinery transferred to customer in service contracts

The argument presented by the petitioner focuses on the control over machinery, specifically the set-top box, transferred to the customer. It is asserted that even though the customer possesses the machinery, the effective control remains with the company providing the service. The petitioner highlights that the customer's use of the machinery is limited to the service provided by the company, indicating a level of control retained by the company over the equipment.

Issue 5: Admissibility and impact of judgments from Supreme Court and Tripura High Court

The judgment outlines specific questions of law framed by the revisionist, referencing judgments from the Supreme Court and the Tripura High Court. The questions raised pertain to the legal justification of the Commercial Tax Tribunal's findings in light of the Supreme Court's decisions. The revisionist seeks clarification on whether the Tribunal's conclusions align with the established legal principles set by the Supreme Court in previous cases, emphasizing the need for a thorough examination of the legal precedents in resolving the present dispute.

This detailed analysis of the judgment provides insights into the interpretation of transfer of rights, tax liabilities, legal justifications, control over machinery, and the impact of previous judgments on the current case before the High Court.