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TMI Blog2003 (2) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... ivil Appeal No. 5886 of 2000, Civil Appeal No. 877, W.P. No. 115 of 1995, Civil Appeal No. 878, Civil Appeal No. 879, Civil Appeal No. 880, Civil Appeal No. 881, Civil Appeal No. 882, Civil Appeal No. 883, Civil Appeal No. 884, Civil Appeal No. 885, Civil Appeal No. 886, Civil Appeal No. 887, Civil Appeal No. 888, Civil Appeal No. 889, Civil Appeal No. 890, Civil Appeal No. 891, Civil Appeal No. 892, Civil Appeal No. 893, Civil Appeal No. 894, Civil Appeal No. 895, Civil Appeal No. 896, Civil Appeal No. 897, Civil Appeal No. 898, Civil Appeal No. 899, Civil Appeal No. 900, Civil Appeal No. 901, Civil Appeal No. 902, Civil Appeal No. 903, Civil Appeal No. 904, Civil Appeal No. 905, Civil Appeal No. 906, Civil Appeal No. 907, Civil Appeal No. 908, Civil Appeal No. 909, Civil Appeal No. 910, Civil Appeal No. 911, Civil Appeal No. 912, Civil Appeal No. 913, Civil Appeal No. 914, Civil Appeal No. 915, Civil Appeal No. 916, Civil Appeal No. 917, Civil Appeal No. 918, Civil Appeal No. 919, Civil Appeal No. 920, Civil Appeal No. 921, Civil Appeal No. 922, Civil Appeal No. 923, Civil Appeal No. 924, Civil Appeal No. 925, Civil Appeal No. 926, Civil Appeal No. 927, Civil Appeal No. 928, Civi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) there is no legislative competence in the State to levy Trade Tax in view of the fact that the Parliament authorised imposition of service tax under the Finance Act, 1994 on the use of the telephone service by the subscribers; (iv) Article 285(1) of the Constitution of India prohibits the State from imposing any tax on the property of the Union of India; and (v) in providing telephone service through the DoT, Union of India is discharging its sovereign function which cannot be subjected to trade tax. 3. Mr. Sunil Gupta, the learned Senior Counsel appearing for the appellants-State, assailed the validity of the reasoning and conclusions of the High Court on all the points, referred to above. 4. Mr. Mukul Rohtagi, the learned Additional Solicitor General, appearing for the respondents-DoT, conceded, in our view rightly, that he would not be supporting the judgment of the High Court on the grounds (iv) and (v) mentioned above. But he contended, rather vehemently, that the DoT would not fall within the definition of 'dealer' under the U.P. Act and that the activity of providing telephone service would not answer the definition of' the transfer of right to use the go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 9-A in Article 366 of the Constitution, which, to the extent relevant, reads as under : "29A. 'Tax on the sale or purchase of goods' includes - (a) to (c) xxx xxx xxx (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) to (f) xxx xxx xxx" After insertion of the aforementioned clause in regard to tax on the sale or purchase of goods, the State Acts, including the U.P. Act, were amended to fall in line with the above definition. 8. The charging section in the U.P. Act is Section 3, which, insofar as it is relevant for our purposes, is quoted here under : "Section 3 - Liability to tax under the Act - (1) Subject to the provisions of this Act, every dealer shall, for each assessment year, pay a tax at the rates provided by or under Section 3A or Section 3D on his turnover of sales or purchases or both, as the case may be, which shall be determined in such manner as may be prescribed." The liability under Section 3 is on every dealer, for each assessment year, to pay a tax at the rates provided by or under various sections of the U.P. Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 3F in its entirety and erred in confining it only to 'goods involved in the execution of works contract'. 9. For understanding the true import of the aforementioned provisions, it would be appropriate to notice the definitions of the terms 'business', 'dealer', 'goods', and 'sale' defined in clauses (aa), (c), (d) and (h) respectively, of Section 2 of the U.P. Act, which read as under : "(aa) 'business', in relation to business of buying or selling goods, includes - (i) xxx xxx xxx (ii) the execution of any works contract or the transfer of the right to use any goods for any purpose (whether or not for a specified period. (iii) xxx xxx xxx but does not include any activity in the nature of mere service or profession which does not involve the purchase or sale of goods." (c) 'dealer' means any person who carries on in Uttar Pradesh (whether regularly or otherwise) the business of buying, selling, supplying or distributing goods directly or indirectly, for cash or deferred payment or for commission, remuneration of other valuable consideration and includes - (i) to (iii) xxx xxx xxx (iv) a Government which, whether in the course of business or otherwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'dealer' means a person who (whether regularly or otherwise) carries on the business in U.P. and includes, inter alia , a government [sub-clause (iv)] which (whether in the course of business in or otherwise) undertakes buying, selling, supplying or distributing goods directly or indirectly for cash or deferred payment or for commission, remuneration or other valuable consideration. Now it becomes necessary to look into the definition of 'buy' and 'sell'. The word 'buy' is not defined. It is an antonym of 'sell' and has to be construed accordingly in the light of the definition of 'sale' in clause (h), quoted above. It is an inclusive definition. It means any transfer of property in goods and includes among other transactions, a transfer of the right to use any goods for any purpose (whether or not for a specified period), for cash, deferred payment or other valuable consideration. It is thus clear that in regard to a transfer of the right to use any goods both a person and a government will be within the ambit of the definition of 'dealer' subject to the following distinction : A person to be a 'dealer' should carry on the business of buying, selling etc., whether regularly or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as was done in sub-clause (viii) in regard to a person, that he must be carrying on the business of a transfer of the right to use any goods for any purpose; in the absence of those words in clause (iv), the DoT, even if it transferred a right to use any goods for any purpose for rentals, would not fall within the meaning of the term 'dealer'. He urged that every section, every clause and every word in a legislation should be given some meaning; it could not be presumed that the legislature carried out the exercise in futility in adding sub-clause (viii) to Section 2(c). The intention of the legislature, it was submitted, in adding sub-clause (viii) to Section 2(c) was only to make it clear that 'a government' would not be a 'dealer' in regard to the extended meaning of 'sale' which included the transfer of a right to use any goods but only in regard to sale of goods in its traditional meaning. Mr. Gupta countered that contention by inviting our attention to the Statement of Objects and Reasons of U.P. Act 31 of 1995 that sub-clauses (vii) and (viii) are added in the definition of the term 'dealer' to remove difficulties in the assessment or tax in the transaction relating to trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it would have said so specifically. It follows that in view of the extended meaning of sale of goods, the DoT would continue to be within the ambit of a dealer' under the U.P. Act even in regard to transfer of a right to use any goods after insertion of sub-clause (viii) in clause (c) of Section 2 by U.P. Act 31 of 1995. We are, therefore, unable to uphold the reasoning of the High Court that in view of amendment of Section 2(c) in 1995, adding sub-clause (viii), sub-clause (vi) had to be interpreted differently so as to exclude the DoT from the meaning of 'dealer' and also the contention of the learned Additional Solicitor General. In our view, insertion of sub-clauses (vii) and (viii) in clause (c) of Section 2 was, as submitted by Mr. Gupta, by way of abundant caution. This is not an unusual feature of the legislation. As long back as in 1865 in The Wakefield Local Board of Health v. The West Riding and Grimsby Railway Company [LR (1865) QB 84], Cockburn, C.J. held : "I am opinion that the objection raised by the respondents was untenable. I think the words inserted at the end of the definition in the interpretation clause, section 3 of the 8 Vict.c.20, were interested, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commencement of the Act. The introduction of an express provision to the above effect does not have the effect of altering the true legal position as explained by us above even without the aid of such express provision. This becomes further clear from the observations found in the decision of this Court in Raghunath Laxman Wani v. State of Maharashtra [1971 (3) SCC 391]." 16. It may be that the same amount of precaution was not taken by the legislature in defining 'dealer' with respect to 'a government' in sub-clause (iv) as was done regarding 'a person' by inserting sub-clauses (vii) and (viii) in clause (c) of Section 2; but that, in our view, in the light of the above discussion, would hardly make any difference in construing the provisions of sub-clause (iv) of clause (c) in Section 2 of the U.P. Act. 17. Before taking up the other contentions, we may conveniently dispose of a short point - ambit of the definition of the term 'goods' - quoted above. It is defined in very wide terms so as to bring in both tangible and intangible objects. It takes in its fold every kind or class of movables, including all material commodities and articles involved in the execution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the liability to pay tax under the U.P. Act is on every dealer on his turnover of sales of purchases; it is also concluded that telephone connection along with all accessories fails within the meaning of 'goods'; we have also opined that the definition of 'sale' in clause (h) of Section 2 is an inclusive definition and includes a transfer of the right to use any goods for any purpose. 20. It is necessary to notice here certain provisions governing supply of telephone connection provided by the DoT which alone has exclusive privilege and control. We have perused 'the General Rules Governing the Provision of Telephone Connections, Telex Connections and Accessories, Etc.' (for short, 'the general rules'). Rule 3 of the general rules says that all telephone connections and other similar services provided or authorised by the department shall, unless governed by a separate contract, be subject to the conditions set forth in the Indian Telegraph Rules. It further says that the Divisional Engineer shall install and, subject to observance of the Indian Telegraph Rules or the specific Hiring Contract by the subscriber, maintain in good working order the equipment and apparatus provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any telegraph line, appliance or apparatus for telegraphic communication shall be established, maintained, worked, repaired, transferred, shifted, withdrawn or disconnected. Sections 20 and 21 make unauthorised use of telegraph an offence. 21. The Indian Telegraph Rules, 1951 (for short, 'the Rules') were framed in exercise of the power under Section 7 of the ITA, 1885. Rules in Part-V thereof deal with telephones. Under the Rules, the subscribers are required to take care of the telephone apparatus and in the event of the apparatus, in the premises of the subscribers, being damaged or lost, they are obliged to pay the cost of replacing and repairing. Rule 413 says that all services will be subject to the said Rules. Rule 411 gives classification of the connections under various Heads. Rule 412 provides for supply and maintenance of equipment by the Divisional Engineer, Telegraph. The Rules also provide for disconnection of service in certain conditions. Rule 434 prescribes charges for various services, like installation and additional facilities, reconnection, transfer, shifting, etc. For 'Measured Rate System' bi-monthly rentals have to be paid by the subscriber at the prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity or activities are comprehensively termed as 'service' but they answer the description, of 'sale' within the meaning of a Statute, they can nonetheless be regarded sale for the purpose of that Statute. In other words, it is possible, an activity may be service for purposes of one Act and sale for purposes of another Act. It may also be that in a given case, on the facts of that case, a particular activity can be treated as 'service' but in a different fact situation the same could be sale under the same Statute. In M/s. Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1980 (2) SCC 167] the question that fell for consideration of the Constitution Bench of this Court was, whether the service of meals to casual visitors in the restaurant was taxable as a 'sale', (i) when the charges were lump sum per meal or (ii) when they were calculated per dish? It was held that in both the above situations it would be 'service'. On an application filed to review the said judgment while dismissing the review petition it was observed that the judgment had rested on the factual foundation and must be understood in that light. Rejecting the contention that the respondent there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (h) of Section 2 of the U.P. Act. And the second is, only such service is excluded from the definition of the term 'business' which does not involve the purchase or sale of goods. In the instant case, it cannot be legitimately disputed that the service involves installation of instrument and access to the exchange and telephone system as a whole which has been found to fall within the meaning of the term 'sale'. Therefore, the second part of the definition of the term 'business' is of no help to the DoT. 25. It was then urged that in providing telephone service by the DoT, installation of instrument/apparatus and appliances is insignificant and in many cases subscribers themselves have their own instruments; the more important part is access to the area exchange and the whole system connected thereto without which the installation is of no consequence and the same remains under the possession and full control of the DoT so there was no transfer of the right to use any goods so as to attract liability under the U.P. Act. We are not persuaded to accept this submission. It is true that under the Rules, referred to above, as service, a number is allotted, an instrument/apparat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o taxable services. 'Service tax' is defined in Clause (34) of Section 65 to mean tax chargeable under the provisions of that Chapter. 'Taxable service' is defined [under sub-clause (b) of Clause 41 of Section 65] to mean any service provided to, inter alia , a subscriber by the telegraph authority in relation to a telephone connection. No provision of the U.P. Act or the said Finance Act, 1994 or the Constitution of India is brought to our notice to hold that rentals collected by the DoT from the subscriber cannot be subjected to tax as is done under the U.P. Act. Merely because service tax is imposed by the Parliament under the said Finance Act in respect of telephone connection to a subscriber, is no ground to hold that the State cannot levy tax under the U.P. Act. 27. For the aforementioned reasons, we hold that providing telephone service by the DoT which comprises of allotment of number, installation of an instrument/apparatus and other appliances at the premises of a subscriber, which are connected with a telephone line to the area exchange to enable him to have access to the whole system, to dial and to receive calls, in effect, falls within the meaning of the extended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contract between the parties or, in case of a statutory contract, the rules governing such a contract. 31. Whereas in the case of a composite contract falling under the first category, where the service is the dominant object of the contract, the supply of goods is incidental to the enjoyment of the service; for example, in a hotel, where a room is hired, the supply of ornamental objects in the room, like chandelier, scenery, decoration pieces in the room or items, like linen, soap, shampoo etc., are incidental to make the service more useful, effective and attractive. In such a case, it is not possible to separate service from the supply of goods. This principle was laid down by this Court in State of Himachal Pradesh v. Associated Hotels of India Ltd. [1972 (29) STC 474 (SC)] and affirmed in Northern India Caterers (supra). 32. The insertion of Clause 29-A in Article 366 of the Constitution of India did not altogether obliterate the distinction between sale and service, except in a case falling under sub-clause (f) thereof which enables levy of tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by the British Airways to transport passengers by air, food was served to the passengers, the price was the same whether or not a passenger availed the facility of food. The Court of Appeal observed that the question was : whether British Airways had made one supply or two supplies. It was held that in flights catering was part of and integral to the supply of transportation and, accordingly, British Airways had made only one supply, that of air transportation. 36. To the same effect is the view in Customs and Excise Commissioners v. British Telecommunications plc. [Simon Tax Cases - 1999 (page 758)]. In that case British Telecommunications purchased new cars for its fleet of vehicles. The question that arose was : whether the sale of cars and their transportation to the agreed delivery point comprised two distinct supplies. The Tribunal found that the two are different and distinct services. The Court of Appeal held that the supply of the service of delivery was physically and economically distinct from the supply of the car. On appeal, the House of Lords held : "In order to identify the supply it was necessary to consider whether the delivers was ancillary or incid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment (CTII), Government of Andhra Pradesh Ors. [1999 (113) STC 203], the High Court of Andhra Pradesh took the view that the rentals are not subject to sales tax within the meaning of provisions of the Andhra Pradesh General Sales Tax Act, 1957. This judgment and the judgment under appeal was followed by the High Court of Punjab Haryana in Union of India Anr. v. State of Haryana Anr. [2001 (123) STC 539] to hold that the rentals collected by the DoT cannot be equated with sale of goods or deemed sale of goods by way of transfer of the right to use goods within the meaning of the Haryana General Sales Tax Act, 1973. For the aforementioned reasons we overrule those judgments. 40. We must, however, consider the last submission that the impugned demands relate to not only rentals but also to various other charges and, therefore, for working out the correct demand, the cases have to go back to the assessing officer for raising fresh demand. We find considerable force in that submission. We set aside the demand in question and direct the DoT (the respondent) to file the 'Returns' within three months from today. The Assessing Authority shall make order of assessment a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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