2023 (5) TMI 969 - HC - VAT and Sales Tax

Validity of SCN demanding VAT - charges collected for supplying and installation of goods in respect of internet and cable services - respondent was registered during the periods in question - taxability of charges collected by the Respondent for supplying and installation of goods in respect of internet and cable services provide by the Respondent to its customers - HELD THAT - The electromagnetic waves are not goods and waves are merely carriers of information and are not consumed by the customers in any form. Therefore, in the transaction between the cable service provider and the customer there is no sale of any tangible goods. Hence, the transaction is not taxable. The KAT has rightly held that the notices sent by AO has merely made a bald allegation that the assessee had supplied goods without referring to the particular goods or the sale transaction. Thus, the notice proposing the demand by itself was vague and contained no legal basis for proposing the demand. It has further held that the companies may receive installation charges from the customers for providing cable internet services. From such a contract it needs to be ascertained whether there is an implied transfer of cable to the customer or whether other service provider may also use the same cable for internet signal supply in which case, a deemed transfer of property can be ascertained. It is settled that strict interpretation of the words used in taxing statutes is warranted. No tax can be levied by implication, unless the subject falls within the four corners of statutory provision of the levy. There are no error in the findings recorded by the KAT - petition dismissed.

Summary

Issues:
1. Jurisdiction of the Karnataka Appellate Tribunal regarding registration of the respondent.
2. Taxability of charges collected for supplying and installing goods in relation to internet and cable services under the KVAT Act.

Jurisdiction Issue:
The revision petition by the Revenue challenged the Karnataka Appellate Tribunal's order questioning the jurisdiction based on the respondent's registration status during the relevant periods. The Tribunal held that the orders in question were without jurisdiction as the respondent was registered during the periods under consideration. The Revenue argued that the respondent failed to obtain registration under the KVAT Act for the assessment years, making it liable to be assessed under Section 38(7) of the Act. However, the Tribunal found that the notice proposing the demand lacked legal basis and specificity, rendering it vague. The Tribunal emphasized that tax cannot be levied by implication and strict interpretation of taxing statutes is required.

Taxability Issue:
The dispute also revolved around whether charges collected by the respondent for supplying and installing goods for internet and cable services were taxable under the KVAT Act. The Revenue contended that transferring the right to use goods constitutes a sale under the Act, making the transactions taxable. However, the Tribunal, supported by legal authorities, held that electromagnetic waves are not goods and that the transaction between the cable service provider and the customer did not involve the sale of tangible goods. The Tribunal highlighted that the notice lacked specificity regarding the goods supplied and the sale transaction, leading to the conclusion that the transaction was not taxable. The Tribunal upheld that no error existed in its findings, ultimately dismissing the revision petition and confirming the order in favor of the Assessee.

In conclusion, the High Court dismissed the revision petition, answering the substantial questions of law in favor of the Assessee and against the Revenue. The order passed by the Karnataka Appellate Tribunal regarding the taxability of charges for internet and cable services was confirmed, with no costs awarded.