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TMI Blog2015 (10) TMI 2783X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the passive infrastructure is also with the petitioners. The mobile service operators are given only a limited permission to use the infrastructural facility in accordance with the terms and conditions in the agreement. Applying the said test, a Division Bench of Karnataka High Court in the case of INDUS TOWERS LTD. VERSUS DEPUTY COMMR. OF COMMERCIAL TAXES, BANGALORE [ 2013 (6) TMI 81 - KARNATAKA HIGH COURT] , considered the scope and ambit of a Master Services Agreement, identical to the agreements entered into in the instant writ petitions, and found that the terms of the said agreement could not be construed as having transferred a right to use passive infrastructure to the mobile service operators. The Master Services Agreement was found to have merely permitted access to the sharing telecom operators to the passive infrastructure to the extent it was necessary for the proper functioning of the active infrastructure - The possession of the passive infrastructure was found to have always remained with the provider of the passive infrastructural services and therefore, the sharing telecom operators did not have any right to use the passive infrastructure. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the telecom operators are permitted to keep and maintain their base terminal stations, associated antenna, back-haul connectivity to the network of the shared telecom operators and associated civil and electrical works required to provide the telecom service. In addition to the towers and shelters, the petitioner also provides diesel generator sets, air conditioners, electrical and civil works, DC power system, battery bank etc. All these components are together referred to as the passive infrastructure under the Master Services Agreement entered into between the parties. The active infrastructure contemplated under the agreement consists of the base terminal stations, associated antenna, back-haul connectivity and other requisite equipment and associated civil and electrical works required to provide the telecommunication service by the telecom operators at a telecommunication sites other than the passive infrastructure. While the active infrastructure is owned and operated by the sharing telecom operator, the passive infrastructure is owned and maintained by the petitioner herein. The entire arrangement is such that there can be several operators who may use the tower and the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed into between the petitioners and the mobile service operators. Some of the relevant clauses in the said agreement are extracted hereunder: Active Infrastructure includes base terminal station equipment, associated antennae, backhaul connectivity to the Sharing Operators' network and other requisite equipment and associated civil and electrical works required to provide telecommunications services by the Sharing Operator at a telecommunications site other than Passive Infrastructure (as defined below): BTS means Base Transceiver Station, part of the Active Infrastructure, deployed by the Sharing Operator to establish the wireless communication between its customer's Mobile Handset/ other device and the Sharing Operator network. Indus Infrastructure means all infrastructure and equipment (other than Sharing Operator Equipment), including Passive Infrastructure, controlled or managed or owned by Indus and located at a Site. Operation and Maintenance Services means those services set out in Schedule 2 (Operations and Maintenance Services); Passive Infrastructure means at any Site, any infrastructure located at such site which is permitted by Law to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re set out in Schedule 1 (Site Access Availability), and the provisions of each Service Contract shall include the standard terms set out in Schedule 5 (Standard Site Access Terms). Each Service Contract shall be duly stamped and the applicable stamp duty shall be borne equally by both the Parties. 2.1.5 Upon the execution of a Service Contract in respect of a Site, the Sharing Operator shall have the right to install the Sharing Operator Equipment or any portion thereof at such Site at the mutually agreed place. The Sharing Operator shall have access to each such Site and the Passive Infrastructure for all installation activities and Indus shall provide to the Sharing Operator the necessary means of access for the purpose of ingress and egress from each such Site in accordance with the terms of the Service Contract. Provided, however, that only the representatives of the Sharing Operator with proper identification or its properly authorised sub-contractors shall be allowed such access to the Sites. 2.1.6 The right, title and interest in and to the Site and the Passive Infrastructure, including any enhancements carried out by Indus, shall vest with Indus and all such enhancem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to each Site and the Passive Infrastructure at each Site in accordance with the terms set out in Schedule 2 (Operation and Maintenance Services). 3.1.2 The Sharing Operator shall be responsible for the operation and maintenance of all Sharing Operator Equipment. In order to conduct such operation and maintenance activities, the Sharing Operator shall have the right to replace, repair, add or otherwise modify the Sharing Operator Equipment or any portion thereof and the frequencies over which such Sharing Operator Equipment operators. The Sharing Operator shall be provided access to the Sites in accordance with clause 1.8 of Schedule 2 (Operation and maintenance Services), unless otherwise specified in the relevant Service Contract, for the purpose of carrying out such operation and maintenance activities and Indus shall provide to the Sharing Operator the necessary means of access for the purpose of ingress and egress from each Site, provided, however, that only authorised employees of the Sharing Operator or its properly authorised sub-contractors shall be allowed such access to the Sites in terms of this Agreement. 3.3 Operation and Maintenance Service Levels 3.3.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99.50% or greater but less than 99.70% 10.0% 99.00% or greater but less than 99.50% 25.0% Less than 99.00% 30.0% Less than 94.00% 100.0% The Operation and Maintenance Service Credits payable by Indus in accordance with the table above shall be applicable in respect of those Sites in the relevant Circle which are below the Operation and Maintenance Service Level specified in paragraph 1.9.2 above. An example / illustration of this has been provided as Appendix 3. However the above shall not apply to sites where Electricity Board connection is not available or sites which are difficult to access. 4. Indus Rights 4.1 Sites Indus shall have the right: 4.1.1 where the Sharing Operator, any Approved Contractor or any other third party requires access to any Site for any reason, to require that such access is supervised by Indus or its nominee; and 4.1.2 to use and grant access to any Site, including any Passive Infrastructure, for the provision of such other services to any party or for such other purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to correct or eliminate such interference or obstruction, including but not limited to powering down the newly installed equipment; 5.2.3 shall endeavour to share the Passive Infrastructure in a manner that will enable the simultaneous use by other sharing operators, without affecting the Sharing Operator Equipment or the Sharing Operators utilisation of the same. 5.2.4 shall maintain the Passive Infrastructure in a good and safe state of repair and condition to enable Indus to meet the Operation and Maintenance Service Levels; 5.3 Sharing Operator Warranties and Covenants The Sharing Operator covenants, warrants and represents that it shall: 5.3.1 comply, and procure that its employees, agents and/or subcontractors comply, with the terms of all applicable Service Contracts: 5.3.2 not commence use of the Sharing Operator Equipment at any Site until: (i) it has secured any and all Sharing operator Licences and any Permit that the Sharing Operator requires from any Government Authority or any consent, approval, licence, authorisation or permission that Sharing Operator requires from any third party for the Permitted Use; and (ii) it has clearly labelled or ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious mobile services operators, who have entered into an agreement with the petitioners, on payment of a fee as consideration. What is evident from a perusal of the various clauses is that the ownership of the infrastructural facility continues to be with the petitioners. The obligation to maintain and control the passive infrastructure is also retained with the petitioners. The risk attached to the maintenance of the infrastructural facility continues to lie with the petitioners and for this reason, the obligation to take out an insurance in respect of the passive infrastructure is also with the petitioners. The mobile service operators are given only a limited permission to use the infrastructural facility in accordance with the terms and conditions in the agreement. It is in the backdrop of the said arrangement between the parties that one has to examine the legal provision under the KVAT Act, to see whether the agreement between the parties contemplates the transfer of a right to use the passive infrastructure to the various mobile service operators. In this connection, it would be apposite to refer to the decision of the Supreme Court in the case of Bharat Sanchar Nigam Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... frastructure and permission to keep the equipments of the mobile operator in the pre-fabricated shelter with permission to have ingress and egress only to the authorised representatives of the mobile operator. It is because an owner of a property has a bundle of rights, namely, right to possess, right to use and enjoy, right to usufruct, right to consume, to destroy, to alienate or transfer, etc. Therefore, to constitute a deemed sale under article 366 (29A)(d) having regard to the object with the 46th Constitutional Amendment was inserted, it is clear the right that is transferred under a contract should be a bundle of rights minus right to title. It is because of the earlier Constitution Bench judgment of the apex court where the right to use the property was transferred by the person who retained the title as only a nominal owner with the benefit of the goods has been passed on to the transferee, without paying taxes to the exchequer, that the Constitution was amended to bring within its fold such transactions which are styled as deemed sale. Therefore, in deciding whether a transaction falls within article 366(29A)(d) so as to constitute a deemed sale, the purpose of the 46th A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount to be refunded would carry simple interest at nine per cent after the expiry of 90 days till the date of payment. (g) No costs 7. The aforesaid decision of the Karnataka High Court has since been followed by the Delhi High Court in the judgment reported in Indus Towers Limited v. Union of India and Others [2013 (62) VST 422] wherein also, the Hon'ble High Court considered the various clauses in the Master Service Agreement and found that the right to use goods could be said to have been transferred by the provider of passive infrastructural facilities to the sharing telecom operators only if the possession of the said infrastructure had been transferred to them. It was found that, they would have the right to use the passive infrastructure, if they were in lawful possession of it. There had to be therefore, an act demonstrating the intention to part with the possession of the passive infrastructure. It was found that there was none in the case before the High Court. The passive infrastructure was found to be an indispensable requirement for the proper functioning of the active infrastructure, which was owned and operated by the sharing telecom operators. The Mast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the infrastructural facilities offered by the petitioner, and did not get a right to use the goods transferred to them in the process. I therefore, find that, in these cases, there is no transfer of the right to use the infrastructural facilities, from the petitioners to the mobile services operators, that could be brought to tax under the KVAT Act. The impugned assessment orders in all these writ petitions are therefore liable to be quashed and I do so. 9. Before parting with these cases, I must note that, in the assessment orders that are impugned in the writ petitions, the assessing officer has not dealt with the factual aspects of the case to the extent dealt with in this judgment. As a matter of fact, the finding of the assessing officer, in the assessment order, is solely on the issue of whether or not the passive infrastructure, that was set up by the petitioners, constituted an immovable property or a movable property, for the purposes of treating it as goods for the purposes of the KVAT Act. There is no consideration, whatsoever, of the main issue as to whether, the arrangement between the petitioners and the mobile service operators resulted in a transfer of a right ..... X X X X Extracts X X X X X X X X Extracts X X X X
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