SET TOP BOX. RIGHT TO USE, VAT + CST

[Sadanand Bulbule]

Dear experts

Plz offer your constructive feedback on the following judgement since it has PAN India implications:

2025 (2) TMI 883 - KARNATAKA HIGH COURT - M/S. ATRIA CONVERGENCE TECHNOLOGIES LTD., TATA PLAY LIMITED., (FORMERLY KNOWN AS TATA SKY LTD) , M/S. KAIZEN DIGITAL CABLE SERVICES (P) LTD., DEN NETWORKS LIMITED., VERSUS DEPUTY COMMISSIONER OF COMMERCIAL TAX (AUDIT) BENGALURU., THE JOINT COMMISSIONER OF COMMERCIAL TAXES (APPEALS) -2, BENGALURU., ASSISTANT COMMISSIONER OF COMMERCIAL TAXES (AUDIT) , BANGALORE, JOINT COMMISSIONER OF COMMERCIAL TAXES (APPEALS) , BENGALURU, THE STATE OF KARNATAKA, COMMERCIAL TAX OFFICER (AUDIT) BENGALURU.

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.