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TMI Blog2006 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2004, Civil Appeals No. 2471 of 2005, W.P. (Civil) Nos. 223, W.P. (Civil) Nos. 227, W.P. (Civil) Nos. 372, W.P. (Civil) Nos. 450 of 2003, W.P. (Civil) Nos. 144, W.P. (Civil) Nos. 145, W.P. (Civil) Nos. 149 of 2004, W.P. (Civil) Nos. 162, W.P. (Civil) Nos. 468 of 2005 Senior Standing Counsel of Jharkhanad: Ms. Pinky Anand, for the parties. Additional Solicitor-General of India: P.P. Malhotra, for the parties. Senior Additional Advocate-General for Punjab: Sarup Singh, for the parties. Additional Advocate-General for Rajasthan: Aruneshwar Gupta for the parties. Senior Advocates: Harish N. Salve, K. Parasaran, C.S. Vaidyanathan, Parag P. Tripathi, Dushyant A. Dave, A.M. Singhvi, Rajiv Dutta, Ashok Desai, Sunil Gupta, T.R. Andhyarunjina, A.K. Ganguli, Rakesh Dwivedi, T.L.V. Iyer, S. Balakrishnan, V.A. Bobde, S.K. Dubey, A.K. Panda and S. Ganesh for the parties. Solicitor-General of India: G.E. Vahanvati for the parties. Additional Advocate-General for Himachal Pradesh: J.S. Attri, for the parties. Other Advocates: Maninder Singh, Ms. Pratibha M. Singh, S. Fernandes, Tejveer Bhatia, Y. Handoo, Ms. Aprajita Singh, Ms. Meenakshi Grover, Ankur Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by Mrs. Ruma Pal J. Dr. Ar. Lakshmanan J. delivered a separate concurring judgment.] [Judgment per : Ruma Pal, J.]. - The principal question to be decided in these matters is the nature of the transaction by which mobile phone connections are enjoyed. Is it a sale or is it a service or is it both? If it is a sale then the States are legislatively competent to levy sales tax on the transaction under Entry 54 List II of the Seventh Schedule to the Constitution. If it is a service then the Central Government alone can levy service tax under Entry 97 of List I (or Entry 92C of List I after 2003). And if the nature of the transaction partakes of the character of both sale and service, then the moot question would be whether both legislative authorities could levy their separate taxes together or only one of them. 2. The contenders are the service providers on the one hand and the States on the other. It is the case of the service providers (who are for the purposes of convenience referred to in this judgment as "petitioners" irrespective of the capacity in which they are arraigned in the several matters before us) that there is no sale transaction involved and that the atte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 65(72)(b) of the Finance Act, 1994. In other words the Kerala High Court answered all three questions framed by us in the opening paragraph of this judgment, in the affirmative and in favour of the Revenue. 6. The service providers who were the writ petitioners before the Kerala High Court have questioned the correctness of the decision in appeals filed by them which are also disposed of by this judgment. Most of the other petitioners have however approached this Court by way of writ petitions under Article 32. When the Civil Appeals and writ petitions were listed before two learned Judges, an order was passed on 25th September, 2003 referring the matter to a Larger Bench as the "nature of the questions raised is important". 7. The State respondents have raised a preliminary objection and contended that the plea of BSNL and the other petitioners including the Union of India is barred by res judicata because the issue has been decided by this Court inter partes in State of U.P . v. Union of India - (2003) 3 SCC 239 . 8. The plea has been resisted by the petitioners on three grounds viz., (i) that the issue of the legislative competence of States to impose sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 226 or to petitions under Article 32. The Court noted that the judicial view was that even petitions filed under Article 32 were subject to the general principle of res judicata . The Court then considered whether the principle would apply to tax cases when the earlier decision was in respect of a different period and said :- "In a sense, the liability to pay tax from year to year is a separate and distinct liability; it is based on a different cause of action from year to year, and if any points of fact or law are considered in determining the liability for a given year, they can generally be deemed to have been considered and decided in a collateral and incidental way." 12. After considering various earlier authorities on the issue, it was held that :- "If for instance, the validity of a taxing statute is impeached by an assessee who is called upon to pay a tax for a particular year and the matter is taken to the High Court or brought before this Court and it is held that the taxing statute is valid, it may not be easy to hold that the decision on this basic and material issue would not operate as res judicata against the assessee for a subsequent year. That, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, unless there was any material change justifying the Revenue to take a different view of the matter". 15. Amalgamated Coalfields case No. 2 (supra) was distinguished in the case of Devi Lal Modi v. Sales Tax Officer - 1965 (1) SCR 86 in which the challenge was to assessment proceedings under the Madhya Bharat Sales Tax Act, 1950. The writ petition was dismissed by the High Court. The special leave petition was also dismissed. The same order of assessment was challenged by filing a second writ petition before the High Court. This was also dismissed by the High Court. The question, before this Court was whether it was open to the appellant to challenge the validity of the same order of assessment twice by two consecutive writ petitions under Article 226. The Court acknowledged that in regard to the orders of assessment for different years, the position may be different and said :- "Even if the said orders are passed under the same provisions of law, it may theoretically be open to the party to contend that the liability being recurring from year to year, the cause of action is not the same; and so, even if a citizen's petition challenging the order of assessment passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice, and (2) where in the proceedings a learned judge failed to disclose his connection with the subject-matter or the parties giving scope for an apprehension of bias and the judgment adversely affects the petitioner". To a similar effect is the case of Junior Telecom Officers Forum and Ors . v. Union of India Ors - (1993) Supp. 4 SCC 693 where the appellants had intervened in earlier proceedings. After the controversy was decided in those proceedings the appellants sought to reagitate the same issues in respect of the same matter contending that they had no opportunity of being heard. The submission was rejected and it was held that the second round was impermissible. 18. The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar Courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The Courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why Courts have held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the matter to a Larger Bench. This Bench being of superior strength, we can, if we so find, declare that the earlier decision does not represent the law. None of the decisions cited by the State of U.P. are authorities for the proposition that we cannot, in the circumstances of this case, do so. This preliminary objection of the State of U.P. is therefore rejected. 21. Coming now to the merits of the case, the petitioners contended that the service providers are licensees under Section 4 of the Telegraph Act, 1885 and provide 'telecommunication services' as provided under Section 2(k) under the Telecom Regulatory Authority of India Act, 1997. Service tax is imposed on them under the Finance Act, 1994 on the basis of the tariff realised from the subscribers. They further contended that in providing such service there is in fact no 'sales' effected by the service providers and that the States do not have the legislative competence to impose sales tax on the rendition of telecommunication services. Article 366(29A) which extended the definition of 'sale' in the Constitution did not apply to the transaction in question. Clause (d) of Article 366(29A) relied upon by the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w the voice/data is to be conveyed to the other end. It is for the service provider to choose the medium as it thinks fit. The SIM card was not goods it merely enables activation. 23. According to the petitioners prior to the 46th amendment composite contracts were not exigible to States sales tax under Entry 54, List II. The legal fiction created in Article 366(29A) provided for specific composite contracts to be subjected to sales tax. Therefore, even after the 46th amendment other transactions had been held not to be sales. Reliance has been placed on the Everest Copiers v. State of Tamil Nadu - (1996) 5 SCC 390, Rainbow v. State of Madhya Pradesh - (2000) 2 SCC 385 and Hindustan Aeronautics v. State of Karnataka - (1984) 1 SCC 707. It was contended in addition that the restrictions regarding the States inability to tax inter-state sales would continue to apply. Furthermore, the activity of providing the connection involved the use of instruments embedded to the earth or attached to what is embedded in the earth and therefore was immoveable property and outside the scope of sales tax. Thus there were no goods nor any transfer of any goods involved in the activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, there was transfer of the right to use the telegraph which right was further given to the subscribers in a transaction which would be covered by Article 366(29A)(d). On the interpretation of Article 366(29A) it has been submitted that prior to the introduction of 92C in List I, the residuary entry could not be relied upon in view of the specific entry in Entry 54 of List II. It has been submitted inter alia that delivery of the goods was not necessary for the purpose of transferring the right to use and this had been held in the decision of this Court in 20th Century Finance Corporation Ltd. and Anr . v. State of Maharashtra - (2000) 6 SCC 12. It is submitted that in any event different aspects of a given transaction can fall within the legislative competence of two legislatures and both would have the power to tax that aspect. It is submitted that the question whether the goods were moveable or immoveable property as well as the question whether the tax was being levied on inter state sales or not were all matters of assessment and that the judgment in State of U.P . v. Union of India should be affirmed. 28. In addition, it has been submitted for the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales would be inter- State sales, it is submitted that the situs of the taxable event under the Sales Tax Act would be where the transfer of the right takes place between the service providers and the subscribers. This was also a question which would vary from case to case and would have to be ultimately factually decided by an assessment authority. According to the respondents, apart from the transfer aspect of the transaction being isolated as an independent taxable event from the aspect of service, ultimately the question whether there was any splitting up of a composite transaction was also to be determined during assessment proceedings. 29. It was submitted that the mere fact that the union was levying tax on certain taxable services could not be used to deny the State's powers to tax the objects/provisions in the service. Therefore, the State's powers must be read harmoniously with the Union's power and it is only when such reconciliation is impossible that the primacy should be given to the non obstante clause under Article 248(1). Alternatively it was submitted that the theory of aspect would apply so that what was service in one aspect was a sale in the other. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 were not maintainable. The writ petitions raised questions relating to the competence of the States to levy sales tax on telecommunication service. This is not an issue which could have been raised and decided by the assessing authorities. If the State Legislatures are incompetent to levy the tax, it would not only be an arbitrary exercise of power by the State authorities in violation of Article 14, it would also constitute an unreasonable restriction upon the right of the service providers to carry on trade under Article 19(1)(g). [See Bengal Immunity Company v. State of Bihar - 1955 (2) SCR 603; Himmatlal Harilal Mehta v. State of Madras - 1954 SCR 1122.] We are consequently unable to accept either of these contentions of the respondents. 33. To answer the questions formulated by us, it is necessary to delve briefly into the legal history of Art. 366(29A). Prior to the 46th Amendment, composite contracts such as works contracts, hire-purchase contacts and catering contracts were not assessable as contracts for sale of goods. The locus classicus holding the field was State of Madras v. Gannon Dunkerley Co . - IX STC 353 (SC). There this Court held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Provincial Legislature under Entry 48 to impose a tax on the supply of the materials used in such a contract treating it as a sale". 34. Following the ratio in Gannon Dunkerley , that "sale" in Entry 48 must be construed as having the same meaning which it has in the Sale of Goods Act, 1930, this Court as well as the High Courts held that several composite transactions in which there was an element of sale were not liable to sales tax. 35. Thus in the State of Punjab v. M/s. Associated Hotels of India Ltd . - (1972) 1 SCC 472 the question was whether the meals served at hotels to the residents were subject to sales tax. The Court held that if the difference is not distinct, the Revenue would not be entitled to split up the contract, estimate approximately the charges for such materials and treat them as chargeable on the mere ground that the transaction involved transfer of goods, whose value must have been taken into consideration while fixing charges for the service. 36. In 1967 the Madras High Court in A.V. Meiyappan v. Commissioner of Commercial Taxes, Board of Revenue, Madras and Anr . - (1967) XX STC 115 had to consider a situation where the Sales Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (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) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;" 39. Clause (a) covers a situation where the consensual element is lacking. This normally takes place in an invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, delivery etc. would continue to be defined according to known legal connotations. This does not mean that the content of the concepts remain static. Courts must move with the times. But the 46th 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 46th Amendment. That ingredient of a sale continues to have the same definition. The second respect in which Gannon Dunkerley has survived is with reference to the dominant nature test to be applied to a composite transaction not covered by Article 366(29A). Transactions which are mutant sales are limited to the clauses of Article 366(29A). All other transactions would have to qualify as sales within the meaning of Sales of Goods Act, 1930 for the purpose of levy of sales tax. 42. Of all the different kinds of composite transactions the drafters of the 46th Amendment chose three specific situations, a works contract, a hire purchase contract and a catering contract to bring within the fiction of a deemed sale. Of these three, the first and third involve a kind of service and sale at the same time. Apart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the questions in the negative because, according to the Court:- "Prior to the amendment of Article 366, in view of the judgment of this Court in State of Madras v. Gannon Dunkerley Co . (Madras) Ltd . - (1958) 9 STC 353: AIR 1958 SC 560 the States could not levy sales tax on sale of goods involved in a works contract because the contract was indivisible. All that has happened in law after the 46th Amendment and the judgment of this Court in Builders ' case (1989) 2 SCC 645 is that it is now open to the States to divide the works contract into two separate contracts by a legal fiction : (i) contract for sale of goods involved in the said works contract, and (ii) for supply of labour and service. This division of contract under the amended law can be made only if the works contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer in property takes place as an incident of contract of service . What is pertinent to ascertain in this connection is what was the dominant intention of the contract On facts as we have noticed that the work done by the photographer which as held by this Court in STO v. B.C. Kame - (19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lass of movable property and includes all material commodities and articles involved in the execution of a works contract, and growing crops, grass, trees and things attached to or fastened to anything permanently attached to the earth which under the contract of sale are agreed to be severed but does not include actionable claims, stocks, shares, securities or postal stationery sold by the Postal Department." 50. The State Sales Tax legislations have, subject to minor variations, adopted substantially a similar definition of "goods" for the purpose of their Sales Tax Acts. There have been several decisions of this Court on the interpretation of the word 'goods' in the context of different State sales tax enactments. One of the such decisions was the case of Anraj v. Government of Tamil Nadu - (1986) 1 SCC 414 in which the question was whether sale of a lottery ticket was a sale of goods for the purpose of Entry 54 of List II. This Court held that the sale of a lottery ticket confers on the purchaser thereof two rights, (a) right to participate in the draw and, (b) a right to claim a prize contingent upon his being successful in the draw. It was held that the first was a rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their submissions had initially differed as to what constituted 'goods' in telecommunication. Ultimately, the consensus among the respondents appeared to be that the "goods" element in telecommunication were the electromagnetic waves by which data generated by the subscriber was transmitted to the desired destination. The inspiration for the argument has been derived from the provisions of the Indian Telegraph Act, 1885 which defines telegraph as meaning : "'telegraph' means any appliance, instrument, material or apparatus used or capable of use for transmission or reception of signs, signals, writings, images and sound or intelligence of any nature by wire, visual or other electro-magnetic emissions, Radio waves or Hertzian waves, galvanic, electric or magnetic means; Explanation. - "Radio waves" or "Hertzian waves" means electromagnetic waves of frequencies, lower than 3,000 giga-cycles per sound propagated in space without artificial guide." 55. What is also important are the definitions of the words 'message' and 'telegraph line' in the 1885 Act which read : "message" means any communication sent by telegraph, or given to a telegraph officer to be sent by telegraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the frequency". (Encyclopedia of Technology Terms of Techmedia) 58. It is clear, electromagnetic waves are neither abstracted nor are they consumed in the sense that they are 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 but the signal through such means. The signals are generated by the subscribers themselves. In telecommunication what is transmitted is the message by means of the telegraph. No part of the telegraph itself is transferable or deliverable to the subscribers. 59. The second reason is more basic. A subscriber to a 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the medium itself. Additionally in the State of Andhra Pradesh v. National Thermal Power Corporation (supra), the issue before the Constitution Bench was not whether electricity was goods for the purposes of sales tax but the situs of the sale of electricity. 63. The learned Judges also in State of U.P . v. Union of India drew support from the decision of the Supreme Court of Wisconsin (USA) in McKinley Telephone Co . v. Cumberland Telephone Co . - 152 Wis 359 : 140 NW 39 : 1913 Wisc Lexis 77 which had held that the furnishing of the telephone services might be classed as the supplying of a commodity constituting a subject of commerce. 64. The decision in Mckinley Telephone , even if it were to be held of persuasive value, is not really relevant. That was a case where two competing telephone companies contracted that one should confine its business to the city and the other to rural lines out of the city. The rural company had the option to buy the rural lines of the other. Two questions fell for consideration. The first question was whether the contract was specifically enforceable. This question was also answered in the affirmative. The second question was w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that decision the Court had to determine where the taxable event for the purposes of sales tax took place in the context of sub-clause (d) of Article 366(29A). Some States had levied tax on the transfer of the right to use goods on the location of goods at the time of their use irrespective of the place where the agreement for such transfer of right to use such goods was made. Other States levied tax upon delivery of the goods in the State pursuant to agreements of transfer while some other States levied tax on deemed sales on the premise that the agreement for transfer of the right to use had been executed within that State ( vide Paragraph 2 of the judgment as reported). This Court upheld the third view namely merely that the transfer of the right to use took place where the agreements were executed. In these circumstances the Court said that: - "No authority of this Court has been shown on behalf of respondents that there would be no completed transfer of right to use goods unless the goods are delivered. Thus, the delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods . We are, therefore, of the view that where the goods are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Para 4 page 315) 72. But in the case of Agrawal Brothers v. State of Haryana and Anr . - (1999) 9 SCC 182 when the assessee had hired shuttering to favour of contractors to use it in the course of construction of buildings it was found that possession of the shuttering materials was transferred by the assessee to the customers for their use and therefore, there was a deemed sale within the meaning of sub-clause (d) of Clause (29A) of Article 366. What is noteworthy is that in both the cases there were goods in existence which were delivered to the contractors for their use. In one case there was no intention to transfer the right to use while in the other there was. 73. 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 the distinction with a sale of goods is that the user would be of the thing or goods delivered. The deli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich were subject to levy of service tax were defined. Several different services were included in the definition. Section 65(16)(b) included service provided to a subscriber by the telegraph authority in relation to a telephone connection with effect from the coming into force of the 1994 as a taxable service. Under Section 66, tax was imposed at the rate of five per cent of the value of the taxable services provided to any person by the person responsible for collecting the service tax. The value of the taxable service in relation to a telephone connection provided to the subscribers, was to be the gross total amount received by the telegraph authority from the subscribers. The 1994 Act was amended from time to time by extending the meaning of taxable service. We are concerned with two amendments, one made in 2002 and the other in 2003. By Section 149(90)(b) of the Finance Act, 2002, service to a subscriber by a telephone authority was continued as a taxable service. "Telegraph" was defined in Section 149(92) as having the same meaning assigned to it in Clause (1) of Section 3 of the Indian Telegraph Act, 1885. "Telegraph authority" was defined incorporating the definition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were concerned, it was submitted that they had no sale value. A SIM card merely represented a means of the access and identified the subscribers. This was part of the service of a telephone connection. The Court rejected this submission finding that the SIM card was "goods" within the definition of the word in the State Sales Tax Act. 80. It is not possible for this Court to opine finally on the issue. What a SIM card represents is ultimately a question of fact as has been correctly submitted by the States. In determining the issue, however the Assessing Authorities will have to keep in mind the following principles: If the SIM Card is not sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sale, it would be open to the Sales Tax Authorities to levy sales tax thereon. There is insufficient material on the basis of which we can reach a decision. However we emphasise that if the sale of a SIM card is merely incidental to the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a liberal interpretation must be given to taxing entries, this would not bring within its purview a tax on subject-matter which a fair reading of the entry does not cover. If in substance, the statute is not referable to a field given to the State, the Court will not by any principle of interpretation allow a statute not covered by it to intrude upon this field." 83. We will therefore have to allow the appeals filed by BPL in Civil Appeal Nos. 3329-30 of 2002 and Escotel in Civil Appeal No. 2408 of 2002 and remand the matter to the Sales Tax Authorities concerned for determination of the issue relating to SIM Cards in the light of the observations contained in this judgment. 84. As far as the question whether providing of a telephone connection involves inter-State sales, now that it has been clarified that electromagnetic waves or radio frequencies are not goods, the issue is really academic. 85. For the reasons aforesaid, we answer the questions formulated by us earlier in the following manner: (A) Goods do not include electromagnetic waves or radio frequencies for the purpose of Article 366(29A)(d). The goods in telecommunication are limited to the handsets su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use including any permissions or licenses required therefor should be available to the transferee; d. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor this is the necessary concomitant of the plain language of the statute - viz. a "transfer of the right to use" and not merely a licence to use the goods; e. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others. 92. In my opinion, none of these attributes are present in the relationship between a telecom service provider and a consumer of such services. On the contrary, the transaction is a transaction of rendition of service. Pre-enacting history 93. In the present case, the history as it prevailed before 46th Amendment is as follows : The liability to sales tax of the goods involved in composite works contract fell for determination before this Court in The State of Madras v. Gannon Dunkerley Co. (Madras) Ltd . - (1959) SCR 379. This Court ruled at page 413 - "If the words 'sale of goods' have to be interpreted in their legal sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffice of a principal in one State to a branch or agent in another State or vice versa or transfer of goods on consignment account, to avoid the payment of sales tax on inter-state sales under the Central Sales Tax Act. While in the case of a works contract, if the contract, treats the sale of material separately from the cost of the labour, the sale of materials would be taxable but in the case of an indivisible works contract, it is not possible to levy sales tax on the transfer of property in the goods involved in the execution of such contract as it has been held that there is no sale of the materials as such and the property in them does not pass as movables. 99. The Parliament had to intervene as the power to levy tax on goods involved in works contract should appropriately be vested in the State legislatures as was pointed out in Gannon and Dunkerly Co ., the passages quoted hereinabove. There were 5 transactions in which, following the principles laid down in Gannon Dunkerly Co . relating to works contract, this Court ruled that those transactions are not exigiable to sales tax under various State enactments. The Parliament, therefore, in exercise of its constitue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively laid down in the Bengal Immunity Company Ltd . v. State of Bihar and Others - 1955 (2) SCR 603 at 647. "The operative provisions of the several parts of Article 286, namely, Clause (1)(a), Clause (1)(b), Clause (2) and Clause (3) are manifestly intended to deal with different topics and, therefore, one cannot be projected or read into another." (S.R. Das, J.) We can also see page nos. 720 and 721 (P.N. Bhagwati, J.) Nature of transaction in the present case : 103. The contract between the telecom service provider and the subscriber is merely to receive, transmit and deliver messages of the subscriber through a complex system of fibre optics, satellite and cables. 104. Briefly, the subscriber originates/generates his voice message through the handset. The transmitter in the handset converts the voice into radio waves within the frequency band allotted to the Petitioners. The radio waves are transmitted to the switching apparatus in the local exchange and thereafter after verifying the authenticity of the subscriber; the message is transmitted to the telephone exchange of the called party and then to the nearest Base Transceiver Station (BTS). The BTS transmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsensual. 110. Section 4 of the Telegraph Act maintains the integrity of subject-matter of the licence viz, "establish, maintain or work a telegraph". Therefore, the transaction of service is composite one not capable of disintegrated. Except in sub-clause (a) in all other sub-clauses the transactions are contractual. There is no scope for importing any doctrine of statutory agency of the service provider. Except in the case of sub-clause (a) where the transfer otherwise than in pursuance of contract of property in any goods is deemed to be sale in each one of the other sub-clauses the transaction is consensual. The contrast between sub-Article (a) and all other sub-clauses clearly manifests that the transaction involved in the present dispute are contractual. The fiction operates to deem what is not otherwise a sale of goods as a sale of goods i.e. even the transfer of a right to use goods is deemed to be a sale of the goods. 111. It is not possible to interpret the contract between the service provider and the subscriber that the consensus was to mutilate the integrity of contract as a transfer of right to use goods and rendering service. Such a mutilation is not possible e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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