2025 (2) TMI 883 - HC - VAT / Sales Tax

Scope of Revision Petition - Set Top Boxes (STBs) are goods within the meaning of section 2(15) of the Karnataka Value Added Tax Act 2003 or not - consideration for transfer of right to use STB - mutual exclusiveness of service tax and VAT - retrospectivity of Government notification dated 15.03.2021. Scope of Revisional Jurisdiction - HELD THAT - Revision is more a matter of power of the Revising Authority than the right of revisionist. Several Statutes provide for suo moto Revision whereas suo moto Appeals are almost unknown - The scope of Appeal or Revision depends upon the text of the provision of a statute which creates the right of Appeal or vests revisional power. It has been a long settled position of law that normally scope of Appeal is wider than that of Revision. Ordinarily first appeal is both on law and facts unless the statute otherwise says. Thumbnail description of Section 65 - HELD THAT - In terms of order on Revision Assessment Orders have to be modified and any excess payment has to be refunded to and any deficit is to be made good by the Assessee says Sub-section (9). Sub-section (10) (a) provides for review of the order made on Revision on the basis of facts that were not there when the Revision was decided. Sub-section (10) (b) empowers the government to make rules prescribing limitation period for Review and the manner in which Review should be preferred. Sub-section is on par with section 152 of Code of Civil Procedure 1908 and it provides for rectification of mistakes in the order made in Revision. This would include order made in review as well. Rectification can be sought for at any time within five years; before effecting rectification stakeholders need to be heard. Sub-section (12) provides for discretionary levy of cost while making orders on Revision. Question of law within the meaning of section 65 - HELD THAT - It is well settled that a question may be treated as of law even if in Salmondian sense it is not when a finding of fact is recorded without evidence or contrary to evidence or founded on inadmissible evidence ordinarily they are treated as questions of law. It may also arise when on the basis of evidentiary material on record no reasonable person in the armchair of the authority would have entered a finding that has a bearing on the outcome of the proceeding. These are only illustrative. It is the specific case of Assessees that a finding in the form of answers in the affirmative has been recorded to the above questions without or contrary to evidentiary material; this has been done in disregard of decisions of Apex Court and High Courts. Therefore it is opined that the preliminary objection as to maintainability of the Revision Petitions is not sustainable. Whether a set top box is goods u/s 2(15) of the Act - HELD THAT - A Set Top Box is an appliance between cable outlet and a subscriber s receiver cannot be disputed. Regulation 2(z) of the Telecommunication (Broadcasting and Cable Services) Interconnection (Digital Addressable Cable Television Systems) Regulations 2012 defines Set Top Box means a device which is connected to or is part of a television and which allows a subscriber to receive in unencrypted and descrambled form subscribed channels through an addressable system - It is not out of place to refer to a Central Government Office Memorandam dated 13.08.2014 which says that STBs fall within the definition of goods for the purpose of Central Sales Tax Act 1956 and therefore Form-C facility to be extended to them. STB is capable of exclusive use by the subscribers or not - HELD THAT - Regulation 17 obligates every Multi Service Operator like the Assessees herein to provide to the subscribers STBs conforming to standard set by the Bureau of Indian Standards with a minimum warranty of one year unless the subscriber himself has bought one on his own. There is a statutory obligation to repair the STBs within 24 hours of the complaint that too free of cost. It is admitted before us by both the sides that the STBs are installed in the premises of subscriber only albeit license to visit the same for service/repair is accorded under the subject agreements. In deciding the question what are the goods involved in a sale transaction of the kind and with what intent the parties have entered into it would assume importance. The seller and purchaser the words being used in their widest amplitude have to be ad idem as to the subject matter of the arrangement. To this to be added the intent of law also. In finding answers to questions of the kind the approach of the court should be of a reasonable person of average intelligence. There being nothing to substantiate pervasive control of the Assessee over the STBs merely because they have license to gain entry to the premises of the subscriber for periodic inspection/repair. Consideration for transfer of right to use STB - HELD THAT - The simple question is whether the transfer of right to use STBs is for consideration or it is free. The Authorities and the Tribunal have held that the consideration for right to use STB is Rs. 2, 000/-. That estimate is made inter alia on the basis of a clause in the Inter-connect Agreement that obtained between the Assessees and their local cable operators. A clause in the agreement prescribes Rs. 2, 000/- payable by the local operator if STB is damaged or it is not used for the purpose for which it is installed - The authorities having accumulated expertise in the matter have formed a considered opinion that a sum of Rs.2, 000/- is the consideration for transferring the right to use the STBs. A Court exercising a limited revisional jurisdiction cannot run a race of opinions with the authorities and Tribunals which have recorded concurrent findings. Service tax and VAT are mutually exclusive or not - HELD THAT - There can be levy of more than one tax on a subject matter if incidence of each of the taxes is different from the other and such taxes may be imposed under different statutes. A tax on the sale of goods is envisaged under Entry 54 of List II (Sales Tax) of Schedule 7 of the Constitution and the taxable event is transfer of goods including fictional sale envisaged under Article 366 (29A). In the case at hand sales tax is levied under the State Enactment. There the State is not levying tax on service aspect of the transaction since that exclusively belongs to the domain of the Parliament which has enacted Finance Act 1994 - In the case at hand sales tax is levied under the State Enactment. There the State is not levying tax on service aspect of the transaction since that exclusively belongs to the domain of the Parliament which has enacted Finance Act 1994. Retrospectivity of Government notification dated 15.03.2021 - HELD THAT - Sub-section (2) of Sec. 174 has to be read with sub- section (3) of Sec. 164. Added sub-section (4) of Sec. 174 in a way enacts Sec. 6 of the Mysore General Clauses Act 1899. In view of this it cannot be assumed that the tax regime during the transition period between repeal of 2003 Act and enactment of 2017 Act was ever intended to be left as a vacuum creating a limited/partial tax heaven in the mere absence of a notification under sub-section (2) of Sec. 174. If legislature intended to make operation of sub- section (1) of Sec. 174 dependent upon a notification to be issued under sub-section (2) the language of the provision would have been much different. An argument to the contrary would offend the tax jurisprudence evolved over centuries in civilized jurisdictions. Therefore the vehement submission made on behalf of the Assessees that the notification of 2021 could not have been issued with retrospective effect pales into insignificance. Conclusion - i) STBs are goods within the meaning of section 2(15) of the Act capable of exclusive use by subscribers and that the right to use them is transferred for valuable consideration. ii) Service tax and VAT are not mutually exclusive. iii) The notification dated 15.03.2021 could have retrospective effect. Petition dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment were:

(i) Whether Set Top Boxes (STBs) are goods within the meaning of section 2(15) of the Karnataka Value Added Tax Act, 2003.

(ii) Whether STBs are capable of being exclusively used by the subscriber.

(iii) Whether the right to use the STBs is transferred to the subscribers.

(iv) Whether such a transfer is for valuable consideration.

(v) Whether service tax and VAT are mutually exclusive in the context of the transaction.

(vi) Whether the notification dated 15.03.2021 issued under the Karnataka Goods and Services Tax Act, 2017, could have retrospective effect.

ISSUE-WISE DETAILED ANALYSIS

Whether STBs are goods within the meaning of section 2(15) of the Act:

The legal framework considered includes the definition of "goods" under section 2(15) of the Act, which encompasses all kinds of movable property barring specific exclusions. The court interpreted this definition to be broad, including STBs as they do not fall under the exclusions mentioned. The court referenced expert opinions and government notifications, which supported the classification of STBs as goods. The court concluded that STBs are goods as they are movable property and do not fall into any exclusion categories.

Whether STBs are capable of being exclusively used by the subscriber:

The relevant legal framework includes section 2(29) of the Act, defining "sale" to include the transfer of the right to use goods for consideration. The court examined whether STBs could be exclusively used by subscribers and found that STBs are installed at subscribers' premises, allowing them to choose channels and use the device as intended. The court concluded that STBs are capable of exclusive use by subscribers, as they have control over their operation and functionality.

Whether the right to use the STBs is transferred to the subscribers:

The court considered the contractual terms and statutory obligations under the 2012 Regulations, which require Multi Service Operators to provide STBs to subscribers. The court found that the right to use STBs is indeed transferred to subscribers, as they have control over the device and can use it to access channels of their choice.

Whether such a transfer is for valuable consideration:

The court examined whether the transfer of the right to use STBs was for consideration, as required by section 2(29)(d) of the Act and Article 366(29A)(d) of the Constitution. It found that the consideration for the right to use STBs is included in the activation charges and/or monthly subscription fees. The court concluded that the transfer of the right to use STBs is indeed for valuable consideration.

Whether service tax and VAT are mutually exclusive:

The court considered the argument that service tax and VAT are mutually exclusive, referencing the Imagic Creative Private Limited case. It found that different aspects of a single transaction can be taxed under different statutes, allowing for the levy of VAT on the sale element of a transaction involving both service and sale components. The court concluded that the payment of service tax does not preclude the levy of VAT on the sale aspect of the transaction.

Whether the notification dated 15.03.2021 could have retrospective effect:

The court examined the notification issued under section 174(2) of the KGST Act, 2017, and its retrospective application. It found that the notification was in the nature of a delegated legislation and that section 174(2) should be read with section 164(3), which allows for rules to have retrospective effect. The court concluded that the notification could have retrospective effect, as it was necessary to avoid a legal vacuum during the transition period between the repeal of the 2003 Act and the enactment of the 2017 Act.

SIGNIFICANT HOLDINGS

The court held that STBs are goods within the meaning of section 2(15) of the Act, capable of exclusive use by subscribers, and that the right to use them is transferred for valuable consideration. It also held that service tax and VAT are not mutually exclusive and that the notification dated 15.03.2021 could have retrospective effect. The court dismissed the petitions, finding no merit in the arguments presented by the Assessees.