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TMI Blog2013 (5) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... n under the CST Act granted to them against issue of C forms and where the goods have been employed in erection and maintenance of cell phone towers which are integral to telecommunication network, fall within the ambit of section 8(1) read with section 8(3)(b) of the CST Act and are entitled to be taxed accordingly. The fact that the goods purchased by the petitioners were neither sold nor used in the manufacture of goods for re-sale does not constitute violation of the C forms. Consequently, levy of penalty, on the factual parameters apparent on the record of these cases, is unsustainable. - Penalty waived - Decided in favor of assessee. - W. P. Nos. 31462 and 31482 of 2011 And W. P. No. 8205 of 2012 - - - Dated:- 12-6-2012 - Goda Raghuram and N. Ravi Shankar, JJ. N. Venkat Raman, Sr. Counsel for R. Raghunandan and S. Dwarakanath for the Petitioner P. Balaji Varma, Special Standing Counsel for Commercial Taxes for the Respondent ORDER The order of the court was made by:- Goda Raghuram, J:- Heard Sri Venkat Raman, senior advocate, instructed by Mr. R. Raghunandan, learned counsel for the petitioners (in W. P. Nos. 31462 and 31482 of 2011) ; Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) A shelter/room; (iii) Battery set and power plant; (iv) Diesel generation set; (v) Servo and static stabilizers and line conditioning equipment; (vi) Air conditioners; (vii) Incoming EB connection; (viii) Site electrical system ; Surge protection system ; and lightning protection system; (ix) Civil construction; (x) Fire alarm system. (D) Service is provided by the dealer to several telecom operators by enabling operation of their cellular and microwave antennas, which are mounted on towers installed by the dealer. (E) For establishing and maintaining the infrastructure the dealer purchases towers, shelters, generators, air-conditioners, batteries and other equipment. The purchases on occasion, are inter-State. (F) The dealer claims that in view of the provisions of section 8(1) and 8(3)(b) of the CST Act read with rule 13 of the Central Sales Tax (Registration and Turnover) Rules 1957, it is entitled to purchase equipment for its business, in the course of inter-State trade at the concessional rate of tax of two per cent from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted by them to CDSC. On verification from the return filed by the dealer, it is noticed that the dealer has not paid any tax on resultant use. of C forms which is forbidden under the GST Act (sections 8(1), (3)(b), 10(b), (d), 10A). The dealer has not utilized the goods for the purposes specified in the form C. They have not paid any tax on resultant goods so purchased under form C either for resale or manufacture, the dealer is liable for penalty for misuse of C form as under for the year 2009-10. . . (K) The dealer filed objections to the show-cause notice on July 15, 2010 clearly asserting that the goods purchased against form C declarations had been used by it in telecommunication network ; that the registration certificate ought to be read along with the application for registration ; and none of the ingredients requisite for invoking provisions of section 10(d) was present. (L) By the order dated October 14, 2010 the first respondent confirmed the proposal in the show-cause notice and levied penalty under section 10(d) of the CST Act. The reasons set out for the levy of penalty are (in brief):- (i) The dealer though engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) or sub-section (6) of section 8) and fails, without reasonable excuse, to make use of the goods for any such purpose the same constitutes an offence ; and such offences are liable for penalty in lieu of prosecution under section 10A ; and (ix) Accordingly penalty is assessed at ₹ 79,22,15,458. (M) Aggrieved, the dealer preferred an appeal to the Appellate Deputy Commissioner. The appeal was rejected on October 7, 2010. The core reason recorded by the appellate authority for rejecting the appeal is revealing. After observing that the crucial point (in issue) is whether the purchases made by the appellant (the dealer) can be considered as for use in the telecommunications network , the appellate authority states:- There is no dispute with regard to the fact that the appellant is not a telecom service provider, but is only engaged in construction of towers equipped with generators and other equipment that are provided to actual telecom service providers/operators though they have wrongly represented themselves as telecommunication network service provider in form A while filing the application for registration under the CST Act. In order to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (two per cent.) of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that State, whichever is lower:- Provided that the Central Government may, by notification in the Official Gazette, reduce the rate of tax under this sub-section. ... 8. (3) The goods referred to in sub-section (1):- (a) ... (b) . . .are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or (in the tele-communications network or) in mining or in the generation or distribution of electricity or any other form of power; ... (d) are containers or other materials used for the packing of any goods or classes of goods specified in the certificate of registration referred to in clause (b) or for the packing of any containers or other materials specified in the certificate of registration referred to in clause (c). (4) The pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars, in the prescribed form obtained from the prescribed authority. The appropriate form is form C. The concessional rate of tax of two per cent is thus available either for resale, for use by the purchasing dealer in the manufacturing or processing of goods for sale or for use in the telecommunications network. There is no condition attached to the last limb of clause (b) of section 8(3) that the purchasing dealer must either re-sell the goods as such or must use them in the manufacture or processing of goods for sale. There is no obligation to sell or re-sell and mere use in the telecommunications network is sufficient to bring the transaction within the fold of section 8(1). The benefit of the two per cent rate of tax (set out in sub-section (1) of section 8) is applicable once the goods purchased fall within the contours of sub-section (1) read with c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the sales of these goods to the dealer in the course of inter-State trade shall be taxable at the rate specified in section 8(1) subject to the provisions of section 8(4). (a) to (c) . . . (d) For use in telecommunication network : As per list attached. The list of goods to be purchased for resale, against form C as per section 8(3)(b) of the CST Act is appended to this certificate of registration. The relevant policy formulations by the Department of Telecommunications (DOT) and recommendations and policy formulations of the Telecom Regulatory Authority of India (TRAI) are:- (a) On April 8, 2006, the DOT addressed TRAI for its views regarding bringing in appropriate legislation/amendment in the licensing agreements for ensuring effective sharing of new passive infrastructure (towers) by mobile service providers. This letter (by the DOT) stated that with the exponential growth of mobile services in the country it is felt that mobile service providers should be sharing the new passive infrastructure especially towers while extending networks so as to bring down the cost of providing the services and to prevent deterioration of the skyline ; that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing themselves of the task of infrastructure provision. In para 1.14 TRAI noted that telecom towers are an integral part of a wireless telecom infrastructure. General analyses:- This court's BSNL judgment [2012] 49 VST 98 (AP):- The jurisdiction of revisional/appellate/assessing authorities under the Andhra Pradesh Value Added Tax Act, 2005, to levy tax under section 4(1) and (8), on sim cards pre-paid and post-paid ; re-charge coupons ; value added services ; telephone instruments, mobile hand-sets, modems and caller I. D. instruments ; mobile telephone rentals ; sharing of infrastructure ; non-refundable deposits ; refundable deposits, etc.; fell for consideration in the State of Andhra Pradesh v. Bharat Sanchar Nigam Limited [2012] 49 VST 98 (AP). On the sharing of infrastructure it was the case of the Revenue that other service providers are also allowed space on the tower of the owner service provider on a non-exclusive basis ; the space provided is a pre-identified place on the tower where they have exclusive right over all other service providers including the passive service provider ; except the beneficiary party, no one can either place equipment or have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as are fixed on the tower to receive and transmit messages. On a reciprocal basis, other service providers are permitted to fix their antennas on the tower, and share the infrastructure, namely, the other equipment, against monthly payment described as 'infrastructure share fee'. Other cellular operators are permitted to bring their own equipment, like BTS, access radio, etc., and station such equipment at the site. Each site has a minimum lock in period of three years. Apart from the antenna fixed on the tower by the beneficiary party, the entire infrastructure is under the control, possession and maintenance of the passive service provider. The service provider, who erects the tower and locates various equipment thereat, is called the PASSIVE INFRASTRUCTURE SERVICE PROVIDER. Under the 'infrastructure sharing agreement' entered into with various other cellular operators, the PASSIVE INFRASTRUCTURE SERVICE PROVIDER shares its infrastructure, i.e., tower sites (along with identified assets thereat like room shelter, air-conditioning equipment, diesel generator, electrical wiring, power plant, etc.), and generates revenue from its infrastructure. The beneficiar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earth, as in the case of trees and shrubs; (b) imbedded in the earth, as in the case of walls or buildings; or (c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached. The question whether a chattel is imbedded in the earth so as to become 'immovable property' is to be decided on the principles of annexation to the land. The twin tests are the degree or mode of annexation, and the object of annexation. (Commissioner of Central Excise v. Solid and Correct Engineering Works [2010] 2 GSTR 481 (SC) ; [2010] 5 SCC 122). From a combined reading of the definition of 'immovable property', in section 3 of the Transfer of Property Act and section 3(26) of the General Clauses Act, it is evident that, in an immovable property, there is no mobility. The test of permanency is whether the chattel is movable to another place of use in the same position, or is liable to be dismantled and re-erected at the latter place? If the answer is yes to the former it must be a movable property and, thereby, it must be held that it is not attached to the earth. If the answer is yes to the latter, it is attached to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffective control and possession of such equipment continues to remain with the passive service provider, and is not parted to the other service providers who are merely permitted to use these equipment. 44. Though there is user of the equipment on a sharing basis there is no transfer of the right to use these goods and, as such, would not constitute 'deemed, sales' either under article 366(29A)(d) of the Constitution of India or under Explanation IV to section 2(28) of the Act. Such sharing of infrastructure is incidental to, and a means of, rendition of telecommunication service'. The impugned orders passed by the revisional/appellate/assessing authorities, levying tax on the proceeds received by the passive service provider on sharing their infrastructure equipment with other sendee providers, treating it as 'sale' under Explanation IV to sub-section (28) of section 2 of the Act, is without jurisdiction and is illegal. The Rajasthan Electricity Board ruling:- Provisions of section 8(1) of the CST Act in the context of the issue whether trucks, trolleys, trailers and the like purchased by the Rajasthan State which is engaged in the business of gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 VST 587 (Orissa), the Orissa High Court upheld the claim of the dealer (the petitioner) and held that:- (a) survey and drawing instruments used for the purpose of laying the foundation of the power house building and associated structure; (b) building materials related to the construction of the power house building and associated civil structures; (c) H. S. motors, G. I. pipes, C. I. pipes, and streetlight fittings required for the construction of a power house and control room and required for operation and maintenance of the thermal power plant; (d) road material like tar, road-rollers, concrete mixer and water treatment plant, filtration plants and associated materials; and (e) goods for protection and control of boiler turbines and generator during operation for generating power, operation of the switch yard to transmit power from the generating station to grid sub-stations and for operation of the power house plant, are all goods and material required for use in the generation and distribution of electricity falling within the provisions of section 8(1) read with section 8(3)(b) of the CST Act and therefore liable to tax at the rate spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh [2011] 43 VST 522 (AP). A dealer who intended to develop, distribute and sell electricity and towards that end was setting up a Mega Power Project at Krishnapatnam, Nellore District, preferred a revision (to this court) against an order of the Sales Tax Appellate Tribunal confirming the order of the Appellate Deputy Commissioner. The petitioner (in Coastal Andhra Power Limited [2011] 43 VST 522 (AP) was registered as a dealer under the CST Act as well as the 2005 Act. While applying for registration it sought inclusion of various items including goods, machinery, equipment, building material, etc., claiming that these were integrally connected with the generation and distribution of electricity. The petitioner was issued a certificate under section 7 of the CST Act enabling purchase of the application specified goods during the course of inter-State transactions for availing of the benefit of a concessional rate of tax under section 8(1) read with section 8(3)(b) of the CST Act. Later, the CTO issued a show-cause notice proposing to delete several items from the certificate of registration on the ground that the items specified for deletion were used for construction of build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of telecommunications technology. Cell phones are wireless phones which receive their signals from towers. A cell is typically a geo-specific area several miles around a tower, within which a signal can be received. Division of a city or an area into small cells enables extensive frequency re-use so that a large number of people can use cell phones simultaneously. Cell phones operate within cells and are capable of switching cells as they move around and thus have an incredible range. A person using a cell phone can therefore drive or move long distances and yet maintain a conversation during the entire time, on account of the cellular matrix. Typically each cell has a base station that consists of a tower and a small building containing the radio equipment. A cell phone tower is either a steel pole or a lattice structure that rises several feet into the air, erected either on land or on roof-tops. The box contains radio transmitters and receivers that enable the tower to communicate with the phones. The radio transmitters and receivers connect with the antennae on the tower through a set of cables and all these are grounded. Telecommunications network as a matrix, is inter al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged in the construction of towers equipped with generators and other equipment that are provided to actual telecom service providers/operators and that the petitioners' wrongly represented themselves as telecommunication network service providers. Another contention of the Revenue is that in order to be a telecom service provider a person or a dealer has to possess a licence issued by the DOT and no such licence is produced (insofar as the petitioners in W. P. Nos. 31462 and 31482 of 2011). The above contention and assumption by the Revenue is wholly erroneous. As earlier noticed the petitioner (in W. P. Nos. 31462 and 31482 of 2011) is registered under section 7 of the CST Act and the certificate of registration describes the petitioner as engaged in the business of telecommunication network service provider. That the petitioner in W. P. No. 8205 of 2012 is also in the same business, is also not in dispute. In fact, in the show-cause notice dated December 2, 2010, issued under section 10 of the CST Act to this petitioner, the clear assertion by the Revenue is that the petitioner cannot be called as a telecommunication network as it only supports the telecommunication net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I. On this analyses, the Revenue cannot be heard to contend that the petitioners are not comprehended within the generic area telecommunications network , an expression employed in section 8(3)(b) of the CST Act as well (also a Union legislation, traceable to entry 92 A of List I (Union List)). The Revenue additionally contends that the registration certificate issued under the CST Act specifies certain goods eligible to be purchased in the course of inter-State trade or commerce for the purpose of resale. This assertion overlooks the fact that while the initial certificate of registration dated March 29, 2008 did state the specified goods as for use in manufacture or processing of goods for resale, apart from use in telecommunication network, the revised registration certificate issued on March 21, 2011 and with effect from March 1, 2008 clearly states in clause (f) that the goods were for use in telecommunication network as per the list attached. The transactions pertaining to purchase of goods, which were considered for the issue of the impugned penalty orders, are all goods set out in the annexure to the revised registration certificate dated March 21, 2011 (W. P. Nos. 314 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him in the telecommunications network. The expression telecommunication network is not defined. The TRAI, an expert regulatory body constituted under an Act of Parliament to regulate and evolve policy for the systematic development of telecommunications in the country has, as a part of its recommendations on telecommunications infrastructure policy, in the report dated April 12, 2011 clearly observed that telecom towers are an integral part of the wireless telecom infrastructure. This is not a recommendation but an observation by an expert body as to the functional integrality of telecommunication towers with the telecommunications network, an opinion which we defer to and see no reason and justification to differ from. The BSNL ruling that a telecommunication tower is immovable property may not be of direct relevance to the issue on hand in the present lis as the impugned orders of penalty are not predicated on a premise by the Revenue that the income received by the passive infrastructure providers is exigible to tax under the 2005 Act. The case of the Revenue is that there was a misuse of C forms and that the incorporation and use for provision of the passive telecommun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issues arising from the policy view taken by the CCT and observed that the CCT's letter is neither a circular, direction nor has a direct bearing on the disputes involved in the appeals. We do not refer to the above aspect to indicate that the letter of the CCT constitutes a circular binding on the assessing or appellate authority but observe that since it constitutes a normative policy view taken on the identical aspect by the Commissioner of Commercial Taxes, due deference must have been accorded to it by the assessing and appellate authority. In the facts and circumstances of this lis (adverted to supra), in view of the rationes deducible from the judgments of the Supreme Court in Rajasthan Electricity Board [1997] 104 STC 89 (SC) ; [1997] 10 SCC 330 and in J. K. Cotton Spinning and Weaving Mills Co. Ltd. [1965] 16 STC 563 (SC), we are of the considered view that the purchase of goods by the petitioners from outside the State, comprising goods specified in the certificates) of registration under the CST Act granted to them against issue of C forms and where the goods have been employed in erection and maintenance of cell phone towers which are integral to telecommunic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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