2015 (4) TMI 286 - HC - VAT and Sales Tax

Claim of refund - Levy of VAT on activation of SIM cards - Authority of state to levy VAT - whether the State of Haryana has collected Value Added Tax on activation of SIM cards, without authority of law - unjust enrichment - Held that - State of Haryana does not deny that in Bharat Sanchar Nigam Limited (2006 (3) TMI 1 - Supreme court), the Supreme Court has held that activation of SIM cards is a service and not a sale. The State of Haryana also does not deny that the collection of VAT on activation of SIM cards is not relatable to any statutory provision. As postulated by Article 265 of the Constitution of India a tax shall not be levied except by authority of law i.e., a tax shall be valid only if it is relatable to statutory power emanating from a statute. The collection of VAT on the sale of SIM cards, not being relatable to any statutory provision, must be held to be without authority of law and as a consequence non-est Factual situation so permitting, particularly where the levy and collection of tax is without authority of law, Article 226 of the Constitution of India would come to the aid of an aggrieved party, even where the assessment order has not been challenged by appeal or revision, to undo a collection of tax made without authority of law. As held by the Supreme Court 1996 (8) TMI 113 - SUPREME COURT OF INDIA , no State has the right to receive or retain taxes or monies realised from citizens without authority of law. To hold otherwise would, in our considered opinion, perpetuate an un-constitutional levy, an unconstitutional collection of a tax, and an unconstitutional retention of monies. The mere fact that orders have been passed levying and collecting tax would not confer legitimacy, on the acts of the State of Haryana in seeking to retain the amount of tax collected and retained, without authority of law. The State of Haryana would have been justified in raising such a plea if the judgment in Bharat Sanchar Nigam Limited (2006 (3) TMI 1 - Supreme court) had been held to be prospective. A perusal of the aforesaid judgment reveals that the declaration of law is not prospective and like all general declarations of law, would be deemed to apply from the inception of the statute. The judgment having clearly held that VAT cannot be collected on activation of SIM cards, the assessment orders levying and collecting VAT, are from their inception a nullity and, therefore, the levy and collection of VAT is without authority of law and violative of Article 265 of the Constitution of India. - Decided in favour of assessee. The argument that refund of this amount would amount to unjust enrichment of the petitioner is without foundation in fact or in law. The Union of India has raised a demand for service tax for the period for which the State of Haryana has levied and collected VAT. If the petitioner is called upon to pay VAT and service tax, it would be the case of double taxation. Even otherwise all that we propose to do is to direct the State of Haryana to forward this amount to the Union of India. - State of Haryana shall transfer the amount of VAT collected from the petitioner to the Service Tax Department of the Union of India

Issues Involved:
1. Refund of Sales Tax/VAT on Activation of SIM Cards
2. Validity of Assessment Orders
3. Authority of the State to Retain VAT
4. Applicability of Supreme Court Judgments
5. Unjust Enrichment and Double Taxation

Issue-wise Detailed Analysis:

1. Refund of Sales Tax/VAT on Activation of SIM Cards:
The petitioner, a telecom service provider, sought a writ of mandamus directing the State of Haryana to refund VAT collected on the activation of SIM cards, asserting that the Supreme Court had determined such activation to be a service, not a sale. The petitioner argued that the VAT collected was without statutory authority and should be refunded or remitted to the Union of India. The State of Haryana collected VAT based on assessment orders, which the petitioner contended were invalid following the Supreme Court's ruling in Bharat Sanchar Nigam Limited and Idea Mobile Communication Ltd. that activation of SIM cards is a service.

2. Validity of Assessment Orders:
The petitioner challenged the validity of assessment orders dated 22.02.2006, 26.03.2008, and 22.02.2006, arguing that these orders were void ab initio as they were based on an incorrect classification of the activation of SIM cards as a sale. The State of Haryana countered that the assessment orders had attained finality and could not be challenged or quashed at this stage. However, the court held that since the Supreme Court had declared the levy of VAT on SIM card activation as without authority of law, the assessment orders were null and void from their inception.

3. Authority of the State to Retain VAT:
The court examined whether the State of Haryana had the statutory authority to retain VAT collected on SIM card activation. The State admitted that it had no statutory power to levy VAT on such transactions following the Supreme Court's ruling. The court noted that Article 265 of the Constitution mandates that taxes can only be levied by authority of law, and since the VAT collection was not backed by statutory authority, it was deemed non-est and unconstitutional.

4. Applicability of Supreme Court Judgments:
The court referred to several judgments, including U.P. Pollution Control Board v. Kanoria Industrial Ltd. and Fizz Drinks P. Ltd. v. State of Haryana, to support the argument that taxes collected without authority of law must be refunded. The court emphasized that the declaration of law by the Supreme Court in Bharat Sanchar Nigam Limited applied retrospectively, invalidating the VAT collection on SIM card activation from the inception of the statute.

5. Unjust Enrichment and Double Taxation:
The State of Haryana argued that refunding the VAT would result in unjust enrichment of the petitioner. The court rejected this argument, noting that the Union of India had raised a demand for service tax for the same period, leading to potential double taxation. The court held that directing the State to forward the VAT amount to the Union of India would prevent unjust enrichment and ensure compliance with the law.

Conclusion:
The court allowed the writ petition, declaring the assessment orders null and void. It directed the State of Haryana to transfer the VAT collected to the Service Tax Department of the Union of India, clarifying that this transfer would not constitute a full and final discharge of the petitioner's service tax liability, which would be subject to further adjudication.

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