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TMI Blog2011 (2) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Assessing Authority. Therefore they have no power to levy tax. - The judgment of BSNL and other Vs. Union of India and others reported in [2006 (3) TMI 1 - Supreme court] squarely applies to the facts of these cases. - WA Nos.530 -541/2011 - - - Dated:- 25-2-2011 - N Kumar and Ravi Malimath, JJ. For Appellant: M/S P S Dinesh Kumar KPSD Partners and Sri Atul K Alur , Adv For Respondent: Sri T K Veda Murthy, AGA, Sri N R Bhaskar , Sr. Standing Counsel JUDGEMENT In all these appeals, the questions raised relates to the competence of the State to levy Sales Tax/VAT on telecommunication service, interpretation of constitutional and statutory provisions and upholding the rule of law. Therefore, they are taken up for consideration together and disposed off by this common order. 2. For the purpose of clarity, the facts pleaded by appellants/petitioners in each of these cases are set out in brief. FACTUAL MATRIX W.A. Nos. 654/2011, 817-828/2011, 789/2011, 790/2011, 805-816/2011, 792-803/2011, 791/2011 and 829-840/2011. 3. The appellant in all these appeals M/s. Bharath Sanchar Nigam Limited (for short herein after referred to as the 'BSNL' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to as 'KST Act')/Karnataka Value Added Tax, 2003 (for short hereinafter referred to as the ' KVAT Act') as certain transactions such as sale of scrap, sale of tender forms and sale of used directories, fall under the definition of the 'Sales under the Act. BSNL was filing regulary monthly returns under the Act and the said returns were accepted and assessments were concluded by the authorities. 6. That on 08.05.2007, the 3rd respondent issued a notice to the BSNL to furnish the year wise particulars of total receipts from the OFC lease-lines in the State of Karnataka from the date of inception or commencement and produce books of accounts. The BSNL filed a writ petition challenging the same in W.P.No.2460 /2008, which came to be disposed off by an order, dated 22.02.2008 permitting BSNL to submit written submissions before the 3rd respondent. Subsequently, the 3rd respondent issued a notice under Section 12-A of the KST Act/Section 39 of the DVAT Act dated 03.02.2009 and 04.05.2009 and directed the BSNL to furnish information with regard to the services provided by them. The BSNL challenged the said notice dated 04.05.2009 in W.P.No.13315 /09 which came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislators and officials of its Finance, Commercial Tax Department, etc., was formed which took a decision to file a review petition before the Hon'ble Supreme Court seeking review of the judgment in the aforesaid BSNL case. Review Petition (C) 33523/2007 was accordingly filed. The only ground urged in the said review petition was that the State of Karnataka is entitled to levy sales tax on the Artificially Created Light Energy (for short hereinafter referred to as the 'ACLE'). The Supreme Court declined to entertain the review petition and accordingly, the same to be rejected both on the grounds of delay as well as on merits. 9. BSNL also contends that the 3rd respondent who has taken active part in the 35th report on the Committee of subordinate legislation and who ultimately passed the reassessment orders was based and therefore, the reassessment orders are null and void. They have set out all the relevant particulars, the grounds and the contentions of the review petition and contend that the 3rd respondent had a preconceived and predetermined mind on the subject matter of decision before him and was completely based. The 3rd respondent had already made up his mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and assessments were concluded by the authorities. On March 24, 2007, the 2nd respondent-Commissioner of Commercial Taxes, Karnataka, purportedly exercising the powers under Section 12 and 12(A) of the KST Act, 1957 and Sections 38 and 39 of KVAT , Act issued an order authorizing and conferring a jurisdiction on respondent No.3 for audit under Sections 38 and 39 of the KVAT Act, and for assessment under Section 12 and 12A of the KST Act in respect of light energy in broadband lines as goods. The said authorisation is one without jurisdiction. The 3rd respondent issued notice to the petitioner under Section 12A of KST Act and 39(1) of the KVAT Act claiming that telecommunication involves only the data transfer and nothing else and since for all types of data transfers, OFC's are used, wherein an artificially created light carrier is necessarily used for causing the data transfers in the telecom network and therefore, there is a definite transfer of property in goods for a consideration the goods being the artificially created, attracts levy of VAT under DVAT and called upon to show cause as to why the amount claimed by the petitioner as income from services may not be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir case is fully covered by the judgment of the Apex Court in BSNL case and for a direction to the authorities to give effect to the judgment of the BSNL case in their case and for other reliefs. 14. When these writ petitioners was listed before the learned Single Judge and on a submission made to the effect that the questions involved in the writ petition are the same as those involved in the above writ appeals, the writ petitions were ordered to be placed before this Bench along with the said writ appeals, by an order of the Hon'ble Chief Justice dated 11.02.2011, to be heard along with the writ appeals. W.A. Nos.530-541/2011 15. The appellant, M/s Bharti Airtel Limited is a company incorporated under the Indian Companies Act, 1956. It is one of the India's leading telecom conglomerates offering telecommunication solutions to its customers on its own state of the art network. The functioning of the appellant and its activities, i.e. rendition of services are governed in terms of the licence granted by the Government of India, Ministry of Telecommunications, under Section 4 of the Indian Telegraph Act, 1885. 16. The appellant treated the activity carried on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ird respondent has, through a series of assumptions, conjecture, surmises, tried to overreach the decision of the Hon'ble Supreme Court in BSNL's case. Therefore, aggrieved by the said impugned order the appellant preferred the Writ Petitions. 18. The learned single Judge has refused to entertain the Writ Petition on the ground that the BSNL judgment of the Apex Court is an open ended judgment and the case involves investigation of phenomenal scientific data and that the Courts are not well equipped to deal with such matters and relegated the appellant to the appellate authority. Aggrieved by the said order of the learned single Judge these appeals are filed. 19. From the facts set out above in these Writ Appeals it is clear that, the question involved in all these appeals is one and the same. 20. The respondent-State has field a common statement of objections. In the statement of objections, they have raised a preliminary objection regarding the maintainability of the Writ Petition which is reiterated in these proceedings also. They contend that there is an alternative remedy by way of appeal against the re-assessment orders under Section 20 of the KST Act and 62 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... telecommunication of data is not possible. Such data carrier in the modern day telecommunications is the Artificially Created Light Energy (ACLE) or the Light Carrier. In simple terms, when such data-carrier-energy/Light Carrier is added/attached to the customers' data in the network of the telecom dealer/petitioner, by a process called modulation, (embedding the data on the Light Carrier-data carrier energy), and the data gets carried/transferred to its intended destination in the network in a micro second. The ACLE/light carrier is reliable, economical, and commercially viable, which advantages have made it the best data carrier in the field of telecommunications across the world. Whatever be the ultra-sophistication of the network, it cannot carry the customers' data, without a data carrier energy therein. 22. The respondent-State further contends that the sole business activity in the telecommunications is data transfers (DT). This is done under a contract, claimed as pure service contract, but which in effect is a composite-cum-indivisible contract, as it requires compulsory utilization of not only the data transfer through specific infrastructure/network but also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erties of abstraction possession, transfer and delivery. The non-radiant energy that moves strictly within the confines of the cable under full control of the petitioner has been held to possess the aforesaid properties. 26. It is further contended that, once the presence of this discernible and transferable goods element in the telecom network is established, the telecom contracts for data transfers cease to be pure service contracts, (contracts not involving any goods element), as declared by the telecom dealers, and become composite contracts, consisting of both transfer of goods and service components therein. In such composite contracts, the 3rd Respondent applying the principles of dominant intention of the contract, as laid down by the Supreme Court in the BSNL case, has held that the contract in question is one for sale of goods and accordingly levied the sales tax/VAT on full amount. Absence of separate contract for supply of goods is common in composite contracts, as also other cases of sales of goods. In the case of composite contracts, Hon'ble Supreme Court in the BSNL case has categorically held that the dominant intention will determine whether it is the one fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for any type of data transfers. This Energy cannot be used for any other purpose. The above facts culminate in satisfaction of all conditions of sale under law, attracting levy of Sales Tax/VAT falling within the legislative powers conferred under Entry 54 of List II of the Seventh Schedule of the Constitution on the States. This energy is taxable at 12.5% u/s 4(1)(b) of the KVAT Act, as no exemption is available to Light Carrier Energy under law. 30. This levy is notwithstanding the fact that the telecom dealers are paying service tax on these transactions to the 5th Respondent under a different statute, wherein the term 'service' itself is not defined. On perusal of both statutes it can be noticed that sales tax/VAT and service tax are compensatory in nature. In these telecom contracts for data transfers, elements of goods and service cannot be separated for levy of sales tax on the goods portion. This is on account of the legal constraint that 46th Amendment of the Constitution provides for splitting of only two types of composite contracts, i.e., Works Contracts and the catering contracts. The telecom contract for data transfers are neither works contracts nor cateri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment records while distinguishing the judgment relied upon by the petitioners. The ACLE or the Light Carrier which is artificially generated by the petitioner in the network is made to carry the data to its intended destination within the confines of the optic fibre cable under full control of the petitioner. It is the light energy which is the data carrier in OFC, while in case of mobile phone, it is the EM energy which acts as the data carrier. They function in altogether different way. Therefore, the two cases are completely different and distinct. And the ratio laid down in the case of mobile phone in BSNL case cannot be applied to an entirely different case of OFC connectivity. The assessing authority has recorded a finding of the fact in the impugned order. 32. Subsequently, an additional statement of objections is filed on behalf of respondents 1 to 4 traversing the allegation of bias and prejudice made in the Writ Petitions. They have specifically denied those allegations. They contend that the impugned order is passed on technical opinion of reputed technical order is passed on technical opinion of reputed technical bodies in the country, detailed reasons a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufficient to cover transmission through optical fiber using ACLE. Service tax liability on transmission through optical fiber cable cannot be disputed. Therefore, they contend that the activities of BSNL would be leviable to service tax. The application of Sales Tax and Service Tax is not mutually exclusive. The same transaction can have both sales and service element embedded to it subject to the State Government qualifying the tests laid down by the Hon'ble Supreme Court of India. 34. Though in all the three cases, the third respondent has passed separate reassessment/assessment orders, substantially the reason given for holding that ACLE is 'goods', and that the same is capable of being abstracted and delivered is one and the same and it is the correctness of the said findings which is the subject matter of all these proceedings. ARGUEMENTS 35. Assailing the impugned order Sri. Mohan Parasaran , the Additional Solicitor General appearing for Bharat Sanchar Nigam Limited, contended that the questions involved in these appeals are fully covered by the judgment of the Apex Court in BSNL case. The State of Karnataka was a party to the said case in Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s initiated by the authorities on the assumption that there is suppression of sale of goods in the impugned transaction is without any basis and the reassessment orders which are impugned in these proceedings are liable to be quashed. 37. Sri. N. Venkataraman , learned Senior Counsel appearing for the Bharati Airtel Limited contended that Article 366(12) of the Constitution defines the word 'goods'. Before any tax could be levied on sale of goods, the activity in question should satisfy the requirement of goods. The Supreme Court in catena of decisions has clearly prescribed the test, which have to be satisfied before a commodity could be treated as 'goods'. The first and the foremost requirement is that the said goods should be marketable. Secondly, there must be an agreement to sell the said goods. Parties to the contract should be ad idem in so far as the goods to be sold is concerned. Apart from this it has to satisfy other requirements of abstraction, consumption and delivery of such goods. In the instant case, ACLE does not satisfy any of these conditions. As asserted by the respondents in the statement of objections and as held by the Assessing Authority i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titions and relegated the appellant to alternative remedy, Which is erroneous in the facts of this case. 38. Sri. Sunil Gupta, learned Senior Counsel appearing for Tata Tele Services contended that the case squarely falls within the law laid down by the Apex Court in BSNL case. There are two aspects, namely the positive aspect and negative aspect. At paragraph 71 of BSNL, the Apex Court has considered the question as to whether the electro magnetic waves are 'goods' and categorically held that electro magnetic waves are not 'goods'. It is only a carrier and therefore the said finding equally applies to the facts of this case. Further, on a careful consideration of the activity involved in the telecommunication services, the Apex Court has recorded a categorical finding that the tele communication is a simple, pure service and no element of sale is involved. It is also held therein that when Union of India passed Finance Act, 1994 and when the area is covered by the said Parliamentary Legislation, the question of State Legislating in respect of the same area on the ground that element of sale is involved in some portion of the service rendered by the service provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng precedent to the facts of the case. 40. The learned Advocate General supporting the impugned order firstly contended that against the order of assessment as well as the order of re-assessment, a statutory remedy of appeal is provided. When an attempt was made by one of the Service Provider, i.e., Bharathi Tele Ventures to by-pass this alternative remedy, the Supreme Court has relegated them to the alternative remedy. In the light of the aforesaid pronouncement of the Supreme Court, these cases also have to be relegated to the appellate authority and therefore writ petition is not maintainable. The writ appeal is also not maintainable as the learned Single Judge committed no illegality in refusing to exercise his jurisdiction. Secondly, he contended that there is no attempt on part of the Assessing Authority to ridicule the judgment of the Apex Court in BSNL case. The Apex Court has observed at paragraph 65 of the judgment that it cannot anticipate what may be achieved by scientific and technological advances in future. It is also observed that no one had argued that no electromagnetic waves were abstractable or capable of delivery. As the said question was not gone into th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommunication Services, which includes data transmission services including provision of access to wired or wireless facilities and services which is carried on by the service provider after obtaining a licence under Section 4 of the Telegraphic Act, whether the State Legislature can levy tax on any portion or aspect of the activity carried on by such service provider? 3. Whether the artificially created light energy used in transmitting the data or message through Optic Fibre Cable is 'goods' as defined under Article 366(12) of the Constitution of India and in the transmission of data, is there a sale of said goods'? 4. Whether the contract between the subscriber and the service provider is a composite contract or indivisible contract or a composite contract which is indivisible? 5. Whether the issue involved in this case is covered by the Judgment of the Apex Court in B.S.N.L . case ? 6. Whether these Writ Appeals/Writ Petitions are not maintainable on the ground of availability of alternative remedy? CONSTITUTIONAL ISSUES LIGHT ENERGY - FALLS UNDER WHAT LEGISLATIVE ENTRY 42. The question is whether the activity involved in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter not enumerated in List II of List III including any tax not mentioned in either of those Lists. It is under that legislative head or the field of legislation, the Parliament by virtue of the power conferred under Article 248 made the law in respect of service and imposed tax on such services. That is how Chapter V of the Finance Act, 1994 refers to Service Tax and the law imposing tax on such service was passed by the Parliament. 44. Service Tax was introduced for the first time in the year 1994 by making provisions in Chapter V of the Finance Act, 1994 (hereinafter for short referred to as 'the Act'). Initially the levy of service tax was introduced only in respect of three services in the organized sector, namely telephone, general insurance and stock trading. Subsequently, in the year 1996 the levy was extended to three more sectors, namely advertising, pager and courier. The Finance Act, 1997 extended the Act to as many as 12 more services, most of which are in the unorganized sector. The Finance Act, brought in 12 more services intro service tax net. Under the Finance Act passed annually more and more services were brought within the tax net. Thus, in all, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t transmission of data; and (vii) Communication through facsimile, pager telegraph and telex, but does hot include service provided by- (a) any person in relation to on line information and database access or retrieval or both referred to in sub-clause (zh) of clause (105); (b) a broadcasting agency or organisation in relation to broadcasting referred to in sub-clause (zk) of clause (105); and (c) any person in relation to internet telephone referred to in sub-clause (zzzu) of clause (105); Section 65(1 TO) defines telegram as under: S. 55(110)- telegraph has the same meaning assigned to in clause (1) of Section 3 of the Indian Telegraph Act, 1885. 65(111)- defines telegraph authority as S.65 (111)- telegraph authority has the meaning assigned to it in clause (6) of S.3 of the Indian Telegraph Act, 1885 and includes a person who has been granted a licence under the first proviso to sub-section (1) of Section 4 of that Act. 46. By the Constitution (Eighty-eighth Amendment) Act, 2003 Article 268A was inserted for appropriation of the service tax l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y not possible. Therefore, the State Legislature has power to levy tax on the sale of goods. 48. It is not in dispute that service or telecommunication service as such do not find an entry in any of the three Lists. Therefore, by virtue of Entry 97 of List I of VII Schedule read with Article 248 of the Constitution, the Parliament has the power to enact a law in respect of service and levy tax on such services. As this service aspect is not enumerated in the Concurrent List or State List, the Parliament has exclusive power to make the law and to impose tax. The stand of the State is that the contract in question is a composite but an indivisible contract. In other words, the element of service in the contract is admitted. Once the Parliament makes law in respect of the said service by virtue of the exclusive power conferred on it under Article 248, it would follow that the other fields in the legislative lists must be construed to exclude this field so that there is no possibility of legislative trespass. Thus, the power of the State Legislature to levy tax on service aspect is completely excluded. Both the parties contend that it is an indivisible contract- According to the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dominant nature of the contract to levy tax under the Finance Act of 1994 or under the Karnataka Sales Tax Act. To levy tax on the same aspect under both the legislation is impermissible. Though the service providers have taken a consistent stand throughout, that the contract in question is an indivisible contract and not a composite contract, it is the State which has taken inconsistent stand. It contends, in one breadth that the agreement is a composite contract but in another breadth, they contend it is an indivisible contract of sale simplicitor. The service providers categorically contend that, even if it is a composite contract and indivisible, as it does not fall under Article 366 (29-A) the State Legislatures have no competence to levy tax. Therefore, the question is if it is a composite contract, what is the dominant nature of the contract. In so far as testing the dominant nature of the contract the law is well settled. 51. When once the contract is reduced into writing the intention of the parties is to be gathered from the terms used in the said contract. The words used in such written contract has to be given its ordinary meaning. It is by looking into such cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponsible for interruption in service due to power failures, equipment malfunctions, or acts of natural calamity. 2. BSNL is not responsible for subscriber's computer hardware and software or areas of the Internet not under its control. BSNL does riot warrant privacy, security, or efficiency or the Internet. 3. BSNL is not responsible for actions taken by its customers or others as a result of its services. 4. BSNL is not responsible for material any person (including household members of the subscriber) may receive or transmit via the Internet, or for anything bought or sold via. the Internet or for any other result of an action taken by anyone using its service 52. If we look into the said contract, it is clear that there is no whisper about the word sale of goods . On the contrary, the written words are explicit and -that the contract is one for rendition of telecommunication service. The consideration is paid for the services rendered to the subscriber. Therefore, it is clear from the recitals in the written contract that it is a service contract which in fact is admitted by the assessing officer in the order, as well as in the statement of objectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for a moment that dominant intention is not sale of goods, the transfer of property in goods that is taking place in these telecom contracts for data transfers would take the shape of compulsory/involuntary transfer of property in goods for a consideration in which case too, these transactions would constitute a deemed sale, in term of Article 366 (29-A)(a) of the Constitution of India. 54. This takes us to the next question, what exactly is this artificially created light energy (ALCE) , is it Goods as understood in law and is there a sale of such goods , in telecommunication service. WHAT IS ARTIFICIALLY CREATED LIGHT ENERGY (ACLE)? 55. The assessing authority has relied on the opinion of the following experts to explain and understand what is artificially created light energy, to levy tax. (1) Centre for Development of Advanced Computing 56. According to them, mobile phones work on the principle of electromagnetic energy transmission in space -(wireless mode). Whereas OFC broadband uses artificially created light energy transmitted through an optic fibre line only. Hence these energies are quite different both in physics and chemistry and operate on differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equencies can be abstracted, possessed, transferred and delivered. The modern day telecommunication and associated businesses like data transfer activity uses the radio frequencies extensively. Hence, the radio frequencies have got highly important and crucial role in the modern day telecommunications system. 59. The radio waves used by the mobile (Cellular) network and the light waves used in the optical network are both electromagnetic waves which are a part of the electromagnetic spectrum. They merely happen to occur at different frequencies. The electromagnetic spectrum spans a large number of frequencies starting with gamma rays, X-rays, ultra-violet rays, visible light, infrared, terahertz radiation, microwave radiation and radio waves. Light used in OFC network is typically in the infra-red portion of the electromagnetic spectrum while microwave and radio waves occupy the lower end. 60. Digital information from the customer in cellular networks is impressed onto the radio wave, and digital information in optical networks is impressed onto the light wave. Just as digital information on radio frequency carrier is carried through the air from the customer's mobile to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ou stop light? Ans : As a matter of fact no waves can be stopped. 3. Is it possible to purchase light? Ans : I have not seen or heard where light is purchased and sold. It may not be in existence in that nature. 4. Do you have an internet connection at, home or office? Ans : I have at both places. At home I have BSNL Broadband and at office we have other service providers. 6. Through this connection do you send or receive data? Ans : Yes. We send and receive data. 7. What do you have in mind when you get internet connection? Ans : Internet connection is obtained for communication. 8. When you enter into agreement with BSNL what do you Ans : I enter with an agreement for supply and receiving of data. 9. Are you interested to know how data is sent? Ans : As a subscriber, I would expect the data to be send or received at a speed I expect to be done. 10. I, a BSNL if I am transfer data through a copper cable, would there be any objections by you? Ans : As a subscriber I am not worried about the manner in which they data is transferred may be wireless communication or wired communica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding it in the same method in which the voice is sent. At the other end there is a modem which recognizes that this VOICE FORM actually represents data and converts it into a printable version. This was the same method followed for sending all types of data. But there was restriction on speed and the use of the line. For instance if a line is used for sending data, the same line cannot be used for sending voice. Only one use is possible at a time Later on the technology developed by which it was found that using the difference in frequency of voice and data, both can be sent in the same line simultaneously, This is what, is called as DSL (Digital Subscriber Line) and ADSL (Advanced Digital Subscriber Line). In such a situation, BSNL provides what is called splitter at the subscriber's place where one line can be used for handset for voice purposes and the other line for data purposes. Beyond the subscriber's place both data and voice travel in the same line. The actual distinction between data and voice is done at the exchange by BSNL by appropriate methods. 15. Can you tell us what is LED? Ans : It is Light Emitting Diode. 16. Where are LEDs commonl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is available which boosts up the signals for them to travel further. The LED is part of either the modem or the multiplexer or equipment similar to that. The light signal that travels through the cable is converted back to the electrical signal by photo detector. The equipment would also have an LED for conversion of electrical signals to light signals for further signal. 23. Sir, In your answer to question No.11 you had explained to us the manner in which communications gets established between the speaker and receiver in a landline. Kindly tell us whether when a speaker lifts the handset and does not do the dialling, he gets a dial-tone; what is the source of energy for this dial tone; would it be right to say that in the connection between the speaker and the exchange there is an electrical current flowing from the exchange to the speaker point the moment the handset is lifted by him. Ans : The handset when lifted acts as a switch to establish a connection between the speaker and the exchange. At the exchange there is always a source of electrical energy dawn from stored sources like batters etc. The moment the handset is lifted and the switch is activated, using ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the electricity is flowing through that light waves are emitted from the junction converting the electrical energy that flows into it into light energy. It is basically a converter which converts electrical from of energy into light form of energy. That is the reason why I had indicated that the quantum of light generated by LED depends on the quantum of electricity flowing through it. 28. What is the difference between the dial-up telephone connection and not line? Ans : In the case of normal dial-up connection as explained above, the speaker is required to lift the handset arid dial the number to speak to the receiver. In the case of hotline, there is no need to dial the number. However, the manner in which communication takes place is the same. 29. Sir, Can you explain how the infrastructure is used to send voice/data of multiple users at the same time. Ans : When the telephone connection is established between two individuals it has been found that since only one person talks at one time, 50% of the capacity remains unused. Similarly when there is pause between words of the speaker about 30% of remaining 50% does not get utilised. Similarly, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e two computers. iii. The computer at point A is connected to a modem. iv. The Modern is connected to a Multiplexer (encoder) through a copper wire. v. Data from the customer's computer to the modem is transmitted by way of electrical signals. vi. the modern transmits the electrical signals to the Multiplexer. vii. The Multiplexer contains an SDH box. The SDH box contains a micro processor which is connected to an LED which beams optical signals or to the OFC. viii. The optical signals which are beamed by the LED are received a point B by a photo detector (decoder). ix. The optical signals which are beamed can be divided into two parts. One part for synchronization and the other part for transmitting the data In the absence of receipt of any data also the micro processor in the multiplexer glues instructions to the LED to beam containing synchronization signals and dummy bits. The photodetector recognizes the dummy bits and discards them. This is done to keep the system alive and to prepare for transmission/receipt of data of various customers. x. When data is being sent, the electrical sign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the receiving subscriber as it is in no way useful to the subscriber and is used us only a carrier. Do you still stand by this answer? Ans. Yes. 34. I put to you that in terms of the operation of transmission of data undertaken by the company, the consumption of energy is the same for sending the dummy bits/signals irrespective of whether the data in the forms of signals is received from the customers. Do you agree that this position is correct and whether you had visited the premises of this telecom operator while giving your opinion dated 11.9.2006? Ans : I agree that the method employed by the telecom operator is correct. In my opinion this is basically to optimize the use of (he network and thereby to reduce the cost and it represents the practical approach to the issue. I have not visited their premises to see the actual implementation of the network and my opinions are based on my understanding of the technology. 35. I put it to you that when the transmission of data takes place from one end to another and the data is delivered at the receiver's end, the energy that does not represent the data which is the carrier energy dissipates a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es after converting the signal from optical to electronic form) towards its destination through a system of routers. This system of routers may be electronic (a conversion of the data in the OFC cable to electronic form, followed by a routing of this data through a collection of explicitly chosen electronic network routers) or optical routers (in an all optical network). The created photon is almost never stored - the storage of photons is difficult though not impossible. An illusion of storage may be created by making the photon respondent-circulate in a long loop of optical fibre. While compensating for the inevitable losses that would occur during respondent-circulation. An electron is an electronic network may be stored almost indefinitely in a memory by setting the state of a electronic memory bit (a bi-stable or two-state element such as a Rip-flop) to either one or zero. Photons once created, may be transferred and the information impressed on them is delivered at the source-indeed. This is the reason why modern networks use optical communication. It makes the transfer of information using light, fast, reliable and secure. 63. The carrier light may carry the information f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and reproduces the original data If there is no modulation, there is no data also. The photo detector surface will absorb the light, so it does not travel any further and it is only the data that is given back to the user of the leased line . In other words, what is received by the leased line owner and what is given by him, i.e., only the data. To a question whether light energy is capable of being abstracted, the answer is he does not know and whether is capable of being possessed the answer is no. One can make light at will, but, it cannot be possessed or stored. However he agrees that it can be transferred and that it can be delivered. The revenue contends the aforesaid opinion of experts represents long established and confirmed scientific truths. It is not disputed by the petitioners. 67. In the BSNL case the Supreme Court has approved the description of electromagnetic waves given by David Gilles Roger Marshal: Telecommunications Law: Butterworths: 1.14. Electromagnetic waves travel through free space from one point to another but can be channeled through waveguides which may be metallic cables, optical fibres or even simple lubes. All electromagnetic waves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion from one place to another in an OFC broad band line. Without such light energy, data or information cannot be transmitted through this OFC broad band line. (b) This light energy is created by LED (Light Emitting Diode) or Laser Device (LD). This light energy is artificially created by the telecom dealers by deploying LD and LED sources which are basically light emitting devices and which emit waves of particular frequencies only, which have the energy required for data transfer in the telecom network. LED are in the nature of electrical junction, wherein the electrical signals are converted into light. The quantum of light generated by LED depends on the quantum of electricity passing through the diode within its limit. It can be generated even in the absence of a data to be transmitted. For Example, LEDs. (Light Emitting Diodes) are used in display systems, traffic lights, modern torches etc. While laser diodes are used as a bar code readers, printers etc. The data gets transmitted from point A to point B in the telecom network in one of two ways - as digital data or as analog data. Modern computer networks use digital transmission. It is the photon (or, equivalently, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnetic waves which are a part of the electromagnetic spectrum They merely happen to occur at different frequencies. Light is also one form of electromagnetic wave. Electromagnetic waves are those waves which have two inseparable components viz., electrical waves and magnetic waves. Optical signals used in optical fibres are also electromagnetic waves. Electromagnetic waves could be of a lower range of frequency up to higher range of frequency. The waves of lower frequency are used for radio purposes while waves at the higher frequency are light rays. 70. Internet connection is obtained for communication. Customer enters into an agreement for supply and receiving of data. As a subscriber, one would expect the data to be sent or received at a speed he expects to be sent. A subscriber is not worried about the manner in which the data is, transferred. it may be wireless communication or wired communication. He is not worried about method of communication so long as the communication happens without any disruption. The purpose and the mechanism of both the phones are similar. However while in the case of mobile phone there is greater mobility, in case of landline there is no mobility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from electrical energy and therefore it also falls under the definition of 'goods'. In order to appreciate this contention, it is necessary to first see the definition of goods in the Constitution and the statutes. 74. The word goods is defined under the Constitution of India at Article 366(12) as under: Goods includes all materials, commodities, and articles. 75. In Karnataka Sales Tax Act 1957, Section 2(m) defines Goods as under: 2(m) Goods means all kinds of movable property (other than newspapers, actionable claims, stocks and shares and securities) and includes livestock, all materials, commodities and articles [(including goods, as goods or in some other form involved in the execution of a works contract or those goods to be used in the fitting out, improvement or repair of movable property)] and all growing crops, grass or things attached to, or forming part of the land which are agreed to be severed before sale or under the contract of sale 76. In Karnataka Value Added Tax Act ,. 2003, Section 2 (15) defines the term Goods as under: Goods means all kinds of movable property (other than newspaper, actionable claims, stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e market. 80. Again in the case of BHOR INDUSTRIES LTD. VS. COLLECTOR OF CENTRAL EXCISE reported in 1989 (40) E.L.T 280 (S.C.), the Apex Court held as under: It appears to us that under the Central Excise Act as is stood at the relevant time, in order to be goods as specified in the entry the first condition was that as a result of manufacture goods must come into existence. For articles to be goods these must be known in the market as such or these must be capable of being sold in the market as goods. Actual sale in the market is not necessary, user in the captive consumption is not determinative but the Articles must be capable of being sold in the market or known in the market as goods. 81. In the case of MOTI LAMINATES PVT. LTD VS. COLLECTOR OF CENTRAL EX. AHMEDABAD reported in 1995 (76) ELT 241(S.C.), the Apex Court held as under: 9. Although the duty of excise is on manufacture or production of the goods, but the entire concept of bringing out new commodity etc , is linked with marketability. An article does not become goods in the common parlance unless by production or manufacture something new and different is brought out which can be bought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manual are supplied with several oilier goods including electronic ones. What is essential for an article to become goods is its marketability. The Supreme Court in the case of COMMISSIONER OF SALES TAX, MADHYA PRADESH, INDORE VS. MADHYA PRADESH ELECTRICITY BOARD, JABALPUR reported in (1969) 2 SCR 939 where a question arose whether Madhya Pradesh Electricity Board is a dealer of electricity and whether electricity is goods, it held as under: The Electricity Board carried on the business of selling, supplying and distributing electricity which fell within the meaning of the expression 'goods' in the two Acts viz , Madhya Pradesh General Sales Tax Act and Central Sales Tax Act- The definition of goods is very wide and includes all Kinds of movable property. What has essentially to be seen is whether electric energy is goods within the meaning of the relevant provisions of the two Ads. The definition in terms is very wide according to which goods means all kinds of movable property Then certain items are specifically excluded or included and electric energy or electricity is not one of them. The term movable property when considered with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded to be covered by the definition of goods . However, A.N.Grover , J-, speaking for three-Judge Bench of this Court went on to observe that electric energy can be transmitted, transferred, delivered, stored, possessed, etc., in the same way as any other movable property''. In this observation we agree with Grover, J., on all other characteristics of electric energy except that it can be stored and to the extent that electric energy can be stored', the observation must be held to be erroneous or by oversight. The science and technology till this day have not been able to evolve any methodology by which electric energy can be preserved or stored. 84. Another significant characteristic of electrical energy is that its generation or production coincides almost instantaneously with its consumption. In the case of INDIAN ALUMINUM COMPANY VS. STATE OF KERALA AND OTHERS reported in AIR 1996 SC 1431 at Para 25, it is held as under: Continuity of supply and consumption starts from the moment the electrical energy passes through the meters and sale simultaneously takes place as soon as meter reading is recorded. All the three steps or phases take place without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the customer to his residence, office or industry. Therefore, when a customer puts on the switch, he abstracts electricity from the electrical line and then consumes it. In other words, before a customer abstracts electricity, electricity is in existence in abundance. He abstracts only so much of energy, which he requires. Even in the ease of a software , when it is embedded in a floppy, there can be more than one programme or a series of instructions. A person who wants a programme or instructions, embedded in that software, can put the floppy into the computer and abstract that programme or instructions which he requires. Therefore, the Apex Court has held that both in the case of electricity as well as in the case of software it is abstractable. 89. In the case of ACLE, it is not something which is manufactured or generated by the service provider. It is derived from electricity. For abstraction, the light energy must be available in abundance and if the service provider is making use of a portion of it, he abstracts a portion of it. However, by a technology called LED and LD. the service provider converts electricity into light energy. Therefore, the ACLE is not in exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stic, which is recognised, is that the goods should be capable of being delivered- in the case of electricity, electricity is delivered to the customer at his residence, office or industry. After taking delivery, he consumes pays for it. Similarly, a software is also delivered to the customer after the same is embedded in the CD and physically handed over to the customer- In the case of ACLE, the subscriber sends his voice or data and the recipient receives only the voice or data and not any portion of ACLE. Neither the subscriber nor the recipient of the message or data ever comes in contact with the light energy. In fact both of them are completely ignorant of the existence of the light energy. 91. In BSNL case, the Supreme Court has held as under: 63. It is clear, electromagnetic waves are neither abstracted nor are they consumed in the sense that they ore not extinguished by 'their user, they are not delivered, stored or possessed. Nor are they marketable. They are merely the medium of communication. What is transmitted is not an electromagnetic wave hut the signal through such means. The signals are generated by the subscribers themselves. In telecommunication w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 353 referred to supra, the Constitution Bench has clearly laid down the legal position. At para 15 it is held as under: 15. The concept of sale, as it now obtains in our jurisprudence, has its roots in the Roman law. Under the law, sale, emptio venditio , is an agreement by which one person agrees to transfer to another the exclusive possession (vacuam possessionem tradere) of something (merx) for consideration. In the earlier stages of its development, the law was unsettled whether the consideration for sale should he money or anything valuable. By a rescript of the Emperors Diocietian and Maximum of the year 294 A.D., it was finally decided that it should be money, and this law is embodied in the Institutes of Justinian , vide Title 23. Emptio Venditio is, it may be noted, what is known in Roman law as a consensual contract. Trial is to say, the contract is complete when the parties agree to it, even without delivery as in contracts re or the observance of any formalities as in contracts verbis and litteris. The common law of England relating to sales developed very much on the lines of the Roman law in insisting on agreement between parties and price as essential elem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the very same BHARAT SANCHAR NIGAM LTD vs. UNION OF INDIA reported in (2006) 3 SCC 1 it is held as under: 64. A subscriber to telephone service could not reasonably be taken to have intended to purchase or obtain any right to use electromagnetic waves or radio frequencies when a telephone connection is given. Nor does the subscriber intend to use any portion of the wiring, the cable, the satellite, the telephone exchange, etc. At the most the concept of the sale in a subscriber's mind would be limited to the handset that may have been purchased for the purposes of getting a telephone connection. As far as the subscriber is concerned, no right to the use of any other goods, incorporeal or corporeal, is given to him or her with the telephone connection. 78. But if there are no deliverable goods in existence as in this case, there is no transfer of user at all. Providing access or telephone connection does not put the subscriber in possession of the electromagnetic waves any more than a toll collector puts a road or bridge into the possession of the toll payer by lifting a toll gate . Of course the toll payer will use the road or bridge in one sense. But ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elating to one kind of property and sale of different property. On the other hand there must be a definite agreement between the parties for the sale of the very 'goods' in which eventually property passes. 97. To sum up, the expression sale of goods in Entry 48 is a nomen juris , its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. A customer approaches the service provider to transmit voice or a data and the agreement he enters into with the service provider is for transmission of voice or data. He is not concerned with the technology adopted by the service provider to transmit the said voice or data. In the instant case, ACLE is used for transmitting the said voice/data as is clear from the technical information as well as the reasoning of the assessing authority. ACLE is only a carrier. The subscriber has not entered into an agreement to purchase ACLE or any portion thereof. The consideration paid by him is for the service rendered and transmitting the voice/data to its destination. He does not come in contact with this carrier at all. Therefore none of the conditions prescribed to const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity all or any of its powers under the first proviso to sub- section (1). The exercise by the telegraph authority of any power so delegated shall be subject to such restrictions and conditions as the Central Government may, by the notification, think to impose 100. interpreting these provisions, the Apex Court in BSNL case held as under: 60. Section 4 of the 1885 Act gives exclusive privilege in respect of telecommunication and the power to grant licences to the Central Government. Pursuant to such power, licences have been granted to service providers. According to the service providers, in terms of their licence no further transfer of the rights to use the telegraph could be affected by them. Therefore, what was provided was a service by the utilisation of the telegraph licensed to the service providers for the. benefit of the subscribers.'' Again at paras 112, 113, 115 and 116 it held as under: 112. The licence clearly manifests that it is one for providing telecommunication service and not for supply of any goods or transfer of right to use any goods. It expressly prohibits transfer or assignment. The integrity of the licence cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods (even when it is assumed that there are any goods at all involved) except when it falls under sub clause (f). This will also result in an anomaly of the entire payment by the subscriber to the service provider being for alleged transfer of a right to use goods and no payment at all for service. The licence granted by the Central Government fixes the tariff rates and all are for services. 101. Therefore, it is clear the licence granted under the Telegraph Act is for providing telecommunication services and not for supply of any goods or transfer of right to use any goods. It expressly prohibits transfer or assignment. The licence clearly interdicts the licencee and prohibits the licencee from assigning or transferring his rights in any manner whatsoever under the licence to a third party. It is not in the contemplation of both the parties that the contract between them involves transfer of ACLE or right to use any goods. In terms of the licence no transfer of the rights to use the telegraph could be effected by them. What was provided is service by utilization of the telegraph licence for the benefit of the subscribers. In this context it is also necessary to refer Art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Similarly the title to the goods under sub-clause (d) remains with the transferor who only transfers the right to use the goods to the purchaser. In other words, contrary to A.V . Meiyappan decision (AM. Meiyappan v. CCT . (1967) 20 STC 115 (Mad) a lease of a negative print of a picture would be a sale Sub-clause (e) covers cases which in law may not have amounted to sale because the member of an incorporated association would have in a sense begun as both the supplier and the recipient of the supply of goods. Now such transactions are deemed sales. Sub-clause (f) pertains to contracts which had been held not to amount to sale in State of Punjab v. Associated Hotels of India Ltd. (1972)] 1 SCC 472. That decision has by this clause been effectively legislatively invalidated. 42. All the sub-clauses of Article 366(29-A) serve to bring transactions where one or more of the essential ingredients of a sale as defined in the Sale of Goods Act ,, 1 930 are absent, within the ambit of purchase and sales for the purposes of levy of sales tax. To this extent only is the principal enunciated in Gannon Dunkerley Ltd. (sic modified). The amendment especially allows specific composite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a pill, can the Sales Tax Authorities tax the transaction as a sale ? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking, with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. 45. The reason why these services do not involve a sale for the purposes of Entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley's case, namely, if there is an instrument of contract which may be composite inform in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29A) continues to be did the parties have in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion by the assessing authorities . 104. Therefore from the aforesaid discussion and the law declared by the Supreme Court, it follows that: The Forty-sixth Amendment does not give a licence, for example, to assume that a transaction is a sale and then to look around for what could be the goods. The word goods has not been altered by the Forty-sixth Amendment. That ingredient of a sale continues to have the same definition. By introducing separate categories of deemed sales , the meaning of the word goods was not altered. Transactions which are mutant sales are limited to the clauses of Article 366(29-A). Apart from cases falling under sub-clause (b) and (f) of clause (29-A) of Article 366 there is no other service which has been permitted to be so split. If there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, the. State do not have the power to separate the 'agreement to sell' from the 'agreement to render service', and impose tax on the sale. The question is did the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to mobile phone connections, is it a sale or service or both? If it is a sale, are the Stale Legislature competent to levy sales tax on the transaction under Entry 54 List 2 of the VII Schedule of the Constitution? If it is a service, then the Central Government alone can levy sales lax under Entry 97 List 1. If the nature of transaction partakes the character of both sales and service, then the moot question would be whether both the Legislative Authorities could levy tax together at only one of them? 109. In this case, as also the BSNL case before the Supreme Court, the petitioners are service providers and the respondents are State Government. The specific case pleaded by service provider BSNL before the Supreme Court was that there is no sale transaction involved and the attempt of the several States to levy tax on the provision of mobile phone facilities provided by them to the subscribers was constitutionally incompetent. It was their specific case that the transaction in question was merely a service and the Union Government alone was competent to levy tax thereon; 110. BSNL initiated a proceeding under Article 32 of the Constitution of India complaining that the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves travel through free space from one point to another but can be channelled through wave guise which can be transmitted through optic fibres or even simple tubes. These electromagnetic waves are neither abstracted nor arc they consumed in the sense that they are not extinguished by the user, they are not delivered or sent or transferred nor arc they marketable. They are only a medium of transmission What is transmitted is not an electromagnetic wave but the signal through such means. In telecommunication, what is transmitted is the message by means of a telegraph-. No part of the telegraph itself is transferable or deliverable to the subscribers. Therefore, they categorically declared that the electromagnetic waves are not goods within the meaning of the word, either in Article 366(12) or in the State Legislation. 113. Further, it is held therein there are no deliverable goods in existence, there is no transfer of user at all. Providing access or telephone connection does not put the subscriber in possession of the electromagnetic waves any more than a toll collector puts a road into the possession of toll payer by lifting the toll gate . Therefore the Supreme Court has ultima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... modulated. It is not possible to interpret the contract between the service provider and the subscriber to mean that the assessee was to modulate the integrity of contract as a transfer of right to use goods and rendering service. Such a modulation is not possible except in the case of deemed sale ailing under Sub-clause (b) nor the service element be disregarded and the entirety of contract be treated as a sale of goods except where it. falls under Sub-clause (f). The Stare as slated earlier is a party to this judgment. 115. The authority who has passed the reassessment orders and assessment orders has categorically stated that he has read the judgement of the Apex Court in BSNL case and understood the ratio laid down in the said judgment and in his opinion, the said judgment has no application to the facts of this case for the following reasons: 1. In the BSNL case, the question involved was regarding radio frequency in mobile telephones, whereas in the instant case it is OFC technology involving light energy, 2. In the BSNL case, OFC light energy was not the subject matter of the proceedings at all. 3. The BSNL case was dealing with the deemed sale wherea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nication, what is transmitted is the message by means of the telegraph. In such electromagnetic waves, there are no deliverable-goods in existence as in this case, there is no transfer of user at all and ultimately their Lordships have declared that the goods do not include electromagnetic waves or radio frequencies. It is not in dispute that light energy, as the Assessing Officer describes it as artificially created light energy, is one form of electromagnetic waves and therefore, the said declaration by the Apex Court includes this artificially created light energy and the said judgment applies to this ACLE also. Therefore, the argument that the said case dealt only with mobile phone, radio frequencies, on the face of it, is erroneous. 119. In so far as the second distinguishing feature is concerned, the Assessing Authority has repeatedly asserted that this light energy is derived from OFC; that it was not the subject matter of the BSNL case; that the said question was not gone into nor agitated by any of the parties. When the Apex Court has approved the description of David Gilles and Roger Marshal given in their book Telecommunication Law and the said description includes Op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnology was very much in existence and every one knew how the messages are sent through optic fibre and if they have not argued the said position before the Apex Court, taking advantage of the aforesaid sentence in the judgment, it is not open to the Assessing Authority to over turn a binding judgment of the Supreme Court on the ground that this aspect was not argued nor considered by the Supreme Court, 124. Yet another, reason given by the Assessing Authority is that in the BSNL case, the Supreme Court has categorically stated that no one has argued the present electromagnetic waves arc abstractable or capable of delivery. Therefore, he was of the view that as this light energy is abstractable and capable of delivery and that the said question was not agitated before the Apex Court while deciding the BSNL case, the said question could be re-agitated. It is on the very same ground, they moved the Supreme Court for review of the said judgment. The review petition was dismissed both on merits as well as on the ground of delay and laches. In other words, the said contention was negatived . Therefore it was not open to the Assessing Authority to initiate re-assessment proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Sessions Court and the High Court recorded a finding contrary to the law declared by the Apex Court under Article 141. In that context they characterised the conduct of the Sessions Court and High Court as: we say lawlessely , because no disciplined judge bound by the decision of this Court which lays down the law for the nation under Article 141 of the Constitution of India could have defied the crystal clear riding of this Court in Bai Tahira v. Ali Hussaiin Fidaali Chothia reported in (1979) 2 SCC 316: 1979 SCC (Cri) 478 by the disingenuous process of distinguishing 'he decision. No Judge in India, except a larger Bench of the Supreme Court, without a departure from judicial discipline can whittle down, wish away or he unbound by the ratio thereof. The language used is unmistakable, the logic at play is irresistible, the conclusion reached is inescapable, the application of the law as expounded there is an easy task. And yet, the Division Bench, if we may with, respect say so, has by the fine art of skirting the real reasoning had down unlaw in the face of the law in Bai Tahira which is hardly a service and surely a mischief unintended by the court may be, but em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... role is to interpret the constitutional and other statutory provisions bearing in mind the fundamental philosophy of the Constitution. The Supreme Court is expected to decide questions of law for the country and not to decide individual cases without reference to such principles of law. The supreme Court under Article 141 of the Constitution is enjoined to declare law. The expression 'declared' is wider than the words 'found or made'. To declare is to announce opinion. The law declared by the Supreme Court is the law of the land. The Supreme Court has always been a law maker and its role travels beyond merely dispute-settling. It is a problem-solver in the 'nebulous areas' without ignoring statutory provisions. The Supreme Court only interprets the law and cannot legislate it. The general principle of law laid down by the Supreme Court is applicable to every person including those who were not parties to that order. Judicial discipline to abide by declaration of law by the Supreme Court, cannot be forsaken under any pretext by any authority or court, be it even the highest court in a Stale, oblivious to Article 141 of the Constitution. What is binding in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same, but also all the authorities such as Tribunal, Quasi judicial functionaries, State and its instrumentalities are bound by such law declared by the Apex Court and they are under an obligation to give effect to the said law. This aspect has been completely lost sight of by the State, Committee constituted by State Legislature, the Revenue and the Assessing Authority. 133. Therefore, it is obvious that there is a deliberate attempt on the part of the State and its officials not to accept the judgment of the Apex Court, which has attained finality and have over looked the effect of such judgment as declared in Article 141 of the Constitution of India, which provides that the law declared by the Supreme Court shall be binding on all the Courts within the territory of India, Instead of giving effect to the law declared by the Apex Court, they employed their entire official machinery to over reach the said judgment, misinterpreted the said judgment and tried to levy tax without the authority of law. This conduct, at any rate, cannot be countenanced by the Court of law. ALTERNATIVE REMEDY - MAINTAINABILITY OF WRIT PETITION 134. Learned Advocate General submitted that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the same. He also pointed out that the Sub-ordinate Legislation Committee in its 35th report while greatly appreciating the maiden and painstaking work of the Karnataka Commercial Taxes Department in this behalf, as a first time event in the entire country, clearly evaluated as to how all Karnataka based IT companies were transmitting the data/information, with the sole help of artificially created light energy in an OFC medium. How the said artificially created light energy is having all distinctive features of goods. All ISP dealers, who were providing such OFC services to the IT Companies, had to pay very huge taxes to the Government, for the past 8 years. The said Committee of Sub-Ordinate Legislation apart from consisting of members of Legislative Assembly, Legislative Council also consisted of Departmental Officers such as Commissioner of Commercial Tax Department, Additional Commissioner of Commercial Taxes, Joint Commissioner of Commercial Tax Department, Deputy Commissioner of Commercial Tax Department. A reading of the aforesaid report shows that they have accepted the enquiries conducted by A.K.Chitaguppi , which discloses that the artificially created light energy i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the BSNL case, insofar as its observations on the Radio Frequencies in that verdict are concerned, in the light of the indisputable and well documented truths about the radio frequencies. The Department is of the opinion that if this patent anomaly is set right, the Radio Frequencies naturally would be treated as goods, and all States would stand to gain very huge revenues from these sections, from the transactions involving transfer of property in these goods. Incidentally, it was felt that this also would automatically raze down the false defence edifice fabricated in the crosshairs of the BSNL verdict, which was framed in the above background of non-submission of the scientific facts regarding the properties of the Radio Frequencies. Further that would certainly help the State's rightful and lawful cause in the ongoing Writ Appeal proceedings before the Hon'ble High Court, then pending. 136. After the said judgment, the Commissioner of Commercial Taxes (Karnataka), Bangalore came to the conclusion that BSNL, VSNL , Tata Tele Services Limited, Pecific Interest India Private Limited, Escotel Communications, Gateway Systems( India) Limited and host of other Companies ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d who are not prepared even to follow the Supreme Court judgment and sit in judgment over the same and therefore, the argument of alternative remedy in the facts of this particular case has no substance. Therefore, he submits that this is a fit case where this Court should alone decide the case on merits, as it involves interpretation of constitutional provisions, the application of rule of precedent and its disobedience by the authorities through out the Country. He further submitted that as contended by the State, it is a scientific truth which is not in dispute and based on the scientific truth, the law has to be interpreted. Therefore, he submits that this Court has the jurisdiction and it should be heard on merits. 139. The learned counsel appearing for both the sides have cited various judgments of the Supreme Court both on the question when this Court has to entertain a writ petition or relegate the parties to avail an alternative remedy. The rulings which hold that, notwithstanding the availability of an alternative remedy, this Court can entertain the writ petitions in appropriate cases, have also been cited. Ultimately, it depends on the facts of the case. As a rule, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue of the State would be seriously effected and made an unsuccessful attempt to get a review of the order. In fact, the material on record shows that virtually State has taken a policy decision to levy sales tax on the telecommunication services. After being unsuccessful to get a binding judgment of the Supreme Court reviewed, a direction was issued by the Commissioner of Sales Tax appointing a specialist who is not the regular Assessing Authority at all to carry out these reassessments in all cases involving these questions. It is thus clear that the entire Government machinery was bent upon to levy tax on this activity of the service providers. In fact in the recommendation there is a veiled threat of punitive action against those officials who do not tow the line of the Government in this matter. In those circumstances, exhaustion of alternative remedy is only an empty formality. (iii) In the course of the order, the Assessing Authority was of the opinion that the contract in question is a contract of sale of goods simplicitor and in fact, it is not a contract of service. According to him, the imposition of service tax is not proper. He pleads his ignorance and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ergy. Whereas the experts do not agree on the nomenclature, but there is no dispute on the fact that it is light energy. It is also not in dispute from the technical report available on record that the subscriber's message after it reaches the nearest network gets embedded or mixed in this light energy and this light energy acts as a carrier to carry the voice/data and when it reaches the network at the destination, this light energy carrying message is deposited on photo detector where this carrier light energy drops down and message gets separated and then it is delivered to the recipient. This is the technical aspect over which there is absolutely no dispute between the parties . Therefore, now the question for consideration is whether this light energy used as a carrier for transmitting the message from one network to another network has the characteristic of goods as defined under Article 366 (12) of the Constitution of India read with the definition of goods found in the KST as well as the KVAT Acts. This is not the matter to be decided by any technical expert. This is the matter to be decided by the Judges or the taxing authorities, who are imposing taxes. Therefore, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umption of service as both satisfy the human needs. It is this concept which is translated into a legal principle of taxation by the Finance Act, 1994 and 1998. Service tax is Value Added Tax. Service tax is on value addition by rendition of service. Service tax is the tax on notified services provided or to be provided. 146. It is undisputed fact that these service providers are paying service tax in pursuance of the provisions contained in the Finance Act, 1994 in particular Entry 65 (109-a) as the activities are all squarely falls within the said provision. In the BSNL case as well as in Tata Tele Services the Assessing Authorities had concluded the assessment orders without imposing any sales tax or VAT for the services so rendered. It is only in the reassessment proceedings, they have imposed sales tax/VAT treating the said activity as amounting to sale of goods. The way, the litigation has been fought gives an impression that in the Telecom Sector, IT sector as it is blooming in this country, there is an attempt on the part of the Union and the States to have a share in profit, the entrepreneurs are making. The Parliament has enacted the Finance Act, 1994 bringing on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national level is constituted to resolve the dispute between the service tax and sales tax or other taxes whether on the commercial activity or product when both the Central Government and the State Government want to levy tax. If, in the end of the day, the courts have to decide, they would have the sufficient material on the basis of which they could come to a conclusion one way or the other. Such exercise would be very helpful in the present day globalization, liberalization of Indian economy and also it will achieve the purpose of certainty on tax which is a crucial factor in a developing economy like ours. COSTS 147. The way, the State and its authorities have ignored, disobeyed, by-passed a binding judgment of the Supreme Court and if permitted and remains unchecked, it will lead to a total disintegration of the system in which we are working. It will lead to total lawlessness and uncertainty. However, as this matter will not end here and it will be agitated before the Supreme Court, we leave it to the Hon'ble Supreme Court to take appropriate action against the State and its officials in order to prevent reoccurrence of such mis -adventures. However, the State ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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