By TIOL News Service

MUMBAI, MAY 23, 2018: THE ISSUE AT HAND BEFORE THE BENCH IS - Whether rendering of voice transmission service involves any transfer of equipment or transfer of right to use, to attract sales tax. NO is the verdict.

Facts of the case

The assessee-company is a leading provider of telecommunication services. It provides Cellular Mobile Telephone Services under a license issued by the Government, assigning it the tasks of establishing, maintaining and operating Cellular Mobile Service, upto the subscribers terminal connection in the local area served by it. During the relevant AY, it was served a notice u/s 49 of the Bombay Sales Tax Act, 1959, which proposed raising demand of sales tax duty on voice transmission service, on the premise that the assessee was selling goods apart from providing the telecom service. Hence the present writ was filed, seeking a declaration to the effect that such Cellular Mobile Telephone Services provided were not goods u/s 2(5) of the Act & that no sale had been made u/s 2(10) of the Act. Hence the assessee claimed that such services provided by it would not attract levy of sales tax u/s 3 of the Act.

On hearing the matter, the High Court held that,

++ the assessee are sought to be made exigible to the imposition of Sales Tax on transfer of rights to use any goods for any purpose. In this regard, considered the provisions of Article 366(29A) of the Constitution of India. However, in order to attract the provisions of the enactment imposing tax on sale or purchase of good, the necessary ingredients required is existence of the movable property constituting goods (not being newspapers or actionable claims or money, or stocks, or securities); existence of an agreement for transfer of property of such goods and actual transfer of property by one person to another;

++ in any contingency the said ingredients are not found to be involved in the service i.e. being rendered by the assessee inasmuch as there is no transfer of the property in goods nor transfer of rights to use any goods by the assessee to its subscriber's as contemplated under the said Act. Thus, the imposition of the levy of Sales Tax on the assessee voice telecommunication service is to far fetched. It is no doubt true that while providing the cellular mobile telephone services, at some point of time the assessee had facilitated the customers with provision of handsets and made it available to the customers who opted for it for a limited period from 1999 and 2000. This was however done for the benefit of the subscribers and with a view to expand the subscriber base, since there was a shortage of the instruments, the mobile handsets came to be offered. The petitioner company who become liable to sales tax on the sale of the said item had obtained sales tax registration with the sales tax authority. However, the sale of mobile equipment is not a part of the Cellular Mobile Telephone Service being provided by the assessee;

++ in light of the law declared by the Apex Court in the case of Bharat Sanchar Nigam Limited and Another V/s. Union of India and Idea Mobile Communication Ltd. V/s. C.C.E. & C., Cochin , the assessees who are the service providers have indulged into an activity of rendering telecommunication services cannot be held liable for payment of sales tax on those services. In cases where the subscriber purchases a telephone instrument, mobile handset or modem from a vendor other than the service provider, there cannot be any sale of goods or transfer of the right to use such goods by the service provider to the subscriber, and the levy of sales tax on "telecommunication services" rendered by the service provider, and utilized by the subscriber through these "goods" which he has purchased elsewhere, would be illegal. To the limited extent in the cases where the telephone instruments, mobile hand sets and modems are either sold or supplied by the service provider to the subscriber, the assessment orders levying tax thereupon must be upheld, provided the consideration brought to tax does not include the service element of such a composite transaction of sale and service. Therefore, the notices issued by the Sales Tax Officer (Enforcement), Mazagaon, Mumbai i.e. respondent No.3 for imposition of tax from voice transmission service cannot be sustained and are liable to be quashed and set aside.

(See 2018-TIOL-954-HC-MUM-CT)