Andhra Pardesh High Court in a very important judgement namely Indus Towers Limited vs Commercial Tax officer has held that C forms can be issued for the purchase of goods used in the telecommunication network even if such goods are not resold.
The Hon'ble High Court held as under:
The concessional rate of tax of 2% is thus available either for re-sale, 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 2% 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 clause (b) of sub-section (3) of Section 8 and Form ‘C’ declarations are issued, provided the goods are used in the telecommunication network.
Full Judgement is as follows:
* THE
HONOURABLE SRI JUSTICE GODA RAGHURAM
and
THE
HONOURABLE SRI JUSTICE N. RAVI SHANKAR
+ W.P.Nos. 31462 & 31482/2011 and 8205/2012
% TUESDAY, THE TWELFTH DAY
OF JUNE,
TWO THOUSAND AND TWELVE
TWO THOUSAND AND TWELVE
# M/s Indus Towers Limited, rep by Sri
P.Ramakanth,
Deputy
General Manager (F)
... PETITIONER
VERSUS
$ The Commercial Tax Officer,
Begumpet
Circle, Hyderabad and others.
... RESPONDENTS
! Counsel
for the Petitioners : Sri N. Venkat
Raman, Senior Counsel
assisted
by Mr. Raghunandan, Adv.,
Sri S. Dwarakanath.
^ Counsel
for the Respondents: Sri P. Balaji Varma, Special
Standing
Counsel for Commercial
Taxes
IN
THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH
AT HYDERABAD
AT HYDERABAD
(Special Original
Jurisdiction)
TUESDAY, THE TWELFTH DAY OF JUNE,
TWO THOUSAND AND TWELVE
:: PRESENT ::
THE HON’BLE SRI JUSTICE GODA
RAGHURAM
AND
THE HON’BLE SRI JUSTICE N. RAVI
SHANKAR
Writ Petition Nos.31462 & 31482
of 2011 and 8205 of 2012
W.P.No. 31462 /2011 :
Between:
M/s
Indus Towers Limited, rep by Sri P.Ramakanth,
Deputy
General Manager (F)
…
Petitioner
And:
1)
The Commercial Tax Officer,
Begumpet
Circle, Hyderabad
2)
The Appellate Deputy Commissioner,
Punjagutta Division, Hyderabad
3)
Commissioner of Commercial Taxes,
Hyderabad.
…
Respondents
The
petitioner prays that this Hon’ble court may be pleased to issue a writ or
order or direction more in the nature of Writ of Mandamus declaring the order
of the 2nd respondent vide proceedings ADC Order No.2169 in appeal
Nos. BV/94/2010-11 dated 07-10-2011 confirming the order of penalty dated
14-10-2011 passed by the 1st respondent for the year
2009-10/CST/Penalty as arbitrary, illegal and without jurisdiction and
violative of Article 14 of Constitution of India and consequently set aside the
same.
Counsel
for petitioner: Sri N. Venkat
Raman, Senior Counsel
assisted
by Mr. Raghunandan, Advocate
Counsel
for respondents: Mr. P.Balaji Varma, Special Standing
Counsel
for Commercial Taxes
W.P.No. 31482 /2011 :
Between:
M/s
Indus Towers Limited, rep by Sri P.Ramakanth,
Deputy
General Manager (F)
…
Petitioner
And:
1)
The Commercial Tax Officer,
Begumpet
Circle, Hyderabad
2)
The Appellate Deputy Commissioner,
Punjagutta Division, Hyderabad
3)
Commissioner of Commercial Taxes,
Hyderabad.
…
Respondents
The petitioner prays that this
Hon’ble court may be pleased to issue a writ or order or direction more in the
nature of Writ of Mandamus declaring the order of the 2nd respondent
vide proceedings ADC Order No.2169 in appeal Nos. BV/70/2009-10 dated
07-10-2011 confirming the order of penalty dated 05-10-2009 passed by the 1st
respondent for the year 2008-09/CST/Penalty as arbitrary, illegal and without
jurisdiction and violative of Article 14 of Constitution of India and
consequently set aside the same.
Counsel
for petitioner: Sri N.Venkat Raman Senior Counsel assisted
By Mr.
Raghunandan, Advocate
Counsel
for respondents: Mr. P.Balaji Varma, Special Standing
Counsel
for Commercial Taxes
W.P.No. 8205/2012 :
M/s
TVS Interconnect Systems Ltd., rep by its
Head-Legal
Operations, Hyderabad.
…
Petitioner
AND:
1.
Assistant Commercial Tax Officer, Hyderabad
2.
The Commercial Tax Officer, Hyderabad
…
Respondents
The petitioner prays that the Hon’ble Court may
be pleased to issue a writ of certiorari or any other appropriate writ or order
or direction quashing the order of 1st respondent in Proceedings in
AAO No. 8275, dated 29.2.2012 as without jurisdiction, barred by time, vitiated
by violation of principles of natural justice.
Counsel
for petitioner: Mr. S.Dwarakanath,
Counsel
for respondents: Mr. P.Balaji Varma, Special Standing
Counsel
for Commercial Taxes
THE HON’BLE SRI JUSTICE GODA RAGHURAM
AND
THE HON’BLE SRI JUSTICE N. RAVI
SHANKAR
W.P.Nos.31462 of 2011, 31482 of 2011
and
8205 of 2012
COMMON ORDER : (per Justice Goda Raghuram)
Heard Sri
Venkat Raman, Senior Advocate, instructed by Mr. R.Raghunandan, learned counsel for
the petitioners (in W.P.Nos.31462 & 31482 of 2011); Mr. S.Dwarakanath, the
learned counsel for the petitioner in W.P.No. 8205/11; and Sri P. Balaji Varma,
the learned Special Standing Counsel for the Commercial Taxes Department –
respondents.
W.P.Nos.
31462/11 and 31482/11 question orders dated
07-10-2011of the Appellate Deputy Commissioner confirming penalty orders
dated 14.10.2009 and 5.10.2009 passed by the 1st respondent (The
Commercial Tax Officer, Begumpet Circle, Hyderabad), for assessment years
2009-10 and 2008-09, respectively. These writ petitions are by M/s Indus Towers
Ltd. W.P.No. 8205/12 by M/s TVS
Interconnected Systems Ltd., assails the order of the 1st respondent
(the Asst. Commercial Tax Officer, Srinagar
Colony Circle, Hyderabad),
dated 29.2.2012 imposing penalty for assessment years 2006-07 to 2009-10. There is no appellate order in this writ
petition. The impugned orders impose
penalty under the Central Sales Tax Act, 1956 (the ‘CST Act’).
The relevant
facts are not in dispute and as the writ petitions present a challenge to
orders of penalty, on identical grounds we have taken up the writ petitions for
hearing together and having heard the respective parties, proceed to the common
judgment.
The relevant
chronology of facts and events in W.P.No. 31462/11 are set out, as illustrative
of the relevant facts and circumstances in the three writ petitions:
A) The Appellate
Deputy Commissioner on 7.10.2011 rejected the appeal and confirmed levy of penalty
imposed by the Assessing Authority by the order dated 14.10.2010. The penalty was imposed u/Sec. 10A r/w Sec.
10(d) of the CST Act.
B) The petitioner
(the dealer) is in the business of providing telecom infrastructure support
services to several telecom operators (such as Airtel, Vodafone, Idea,
Reliance, Aircel, BSNl, etc.) and is a registered dealer under the provisions
of the AP Value Added Tax Act 2005 (‘the
2005 Act’) and the CST Act.
C) The dealer
builds, operates and maintains passive telecom infrastructure, also owned and
controlled by it. Towards these
operations the dealer -
·
Rents/leases land on which to build the infrastructure;
·
Obtains the required statutory licenses for setting up the
infrastructure, including the following elements:
(i)
A tower;
(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 provisions of Sections 8(1) and 8(3)(b) of the CST Act
r/w Rule-13 of the CST (R and T) 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 2% from the selling dealer, provided the dealer is registered
under the CST Act and issues Form ‘C’ declaration to the selling dealer. The dealer pleads that goods purchased by it
against issue of Form ‘C’ declarations were for use as raw material, processing
material, equipment/tools, stores, accessories, fuel or lubricants in the
manufacture or processing of goods for sale or in the telecommunications network.
(G) The dealer
applied for registration under the CST Act in Form-A on 04.03.2008. In Col.7 of the application described its
business as a wholly telecommunication
network service provider and in Col. 16, (which requires for
details of goods ordinarily purchased by the dealer in the inter-State trade)
mentioned that the goods falling therein were as per the list attached.
This list set out 30 items stating that these are the list of goods to be purchased for resale/use in telecommunication
network.
(H) Pursuant to the
application, the dealer was issued a certificate of Registration in Form-D
which reads:
“ The business
is:
Wholly: TELECOMMUNICATION NTETWORK
SERVICE
PROVIDER
mainly:
Partly:
The class(es) of goods specified for
the purpose; of sub-section (1) of Sec. 8 of the said Act is/are as follows and
the sales of these goods in the course of inter-State to the dealer shall be
taxable at the rate specified in that sub-section subject to the provision on
sub-sec (4) of the said section: (As enclosed …
… …)
(a ) For
resale : Fabrication and Structures made of Steel or other Material, UPS &
POWER INVERTORS. Electrical Goods except Engines/Motors/Machinery. ”
(i) On the basis of the certificate granted in
Form ‘B’ the dealer purchased various goods specified in the Form ‘A’ list, at a
concessional rate of tax against issue of Form ‘C’ declarations.
(J) The 1st
respondent issued a show cause notice dated 5.7.2011 proposing levy of penalty
u/Sec.10 on the premise that the dealer has paid no tax on the resultant use of
Form ‘C’ and had not utilized the goods for the purpose specified in Form
‘C’. To the extent relevant and material
the show cause notice reads :
2009-10:
They have purchased various items
against “C” forms from different States amounting to Rs. 416,10,72,965/- as
seen from the C Forms utilization statements submitted 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 CST Act [Sec.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 15.7.2010 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
Sec. 10(d) were present.
(L) By the order
dated 14.10.2010 the 1st respondent confirmed the proposal in the
show cause notice and levied penalty u/Sec.10(d) of the CST Act. The reasons set out for the levy of penalty
are (in brief) –
i)
The dealer though engaged in the
business of leasing passive infrastructure such as telephone towers to telecom
operators throughout India contends that the amounts received are to be treated
as income from services;
ii)
The CST registration certificate
issued to the dealer records that it is not entitled to purchase the goods
listed therein for re-sale which involves fabrication and structures made of
steel and other material, UPS and power invertors, electrical goods except
engines/motors and machinery;
iii)
On the basis of the registration
certificate issued under the CST Act, the dealer purchased several goods at
concessional rates by issuing Form-C declaration but failed to disclose any
taxable turnover either under the 2005 Act or the CST Act;
iv)
Though the dealer contends that the
amounts received from telecom operators for leasing passive infrastructure is
towards providing service and not for transfer of rights to use any goods, the
annual report of the Company for the year 2008-09 records that the company is
engaged in leasing passive infrastructure to telecom operators throughout
India;
v)
Leasing of any goods is a sale
transaction under the 2005 Act and amounts received thereby are taxable u/Sec.
4(8);
vi)
Though the registration certificate
issued to the dealer under the CST Act mentions that the goods purchased by it
are for re-sale, the dealer failed to disclose any taxable turnover in its
returns;
vii) Clearly
for the purpose of obtaining registration and Form-C from the Department, the
dealer declared itself a dealer for re-sale of goods, but while filing returns
under the 2005 Act it claimed the transaction as service, thus not liable to
tax either under the 2005 Act or the CST Act;
viii) The
dealer has thus misutilised the Form ‘C’ declarations issued by it and is
liable to penalty under Section 10 A r/w 10(d) of the CST Act. The dealer is liable to penalty when he
furnishes a declaration which he knows or has reason to believe to be false
[Cl.(1) of Sec.10]; where a person being
a registered dealer falsely represents to purchase any class of goods that
goods of such class are covered by the certificate of Registration, the same
constitutes an offence [Cl.(b)]; where
any person purchases goods for any of the purposes specified in [Clauses (b),
(c) and (d) of sub-sec. (3) or sub-sec. (6) of Sec. 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 u/Sec. 10A; and
ix) Accordingly
penalty is assessed at Rs.79,22,15,458/-.
(M) Aggrieved, the
dealer preferred an appeal to the Appellate Deputy Commissioner. The appeal was rejected on 7.10.2010. 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 Net Work Service Provider in form ‘A’ while filing the
application for registration under the CST Act.
In order to be a Telecom service provider, a person or a dealer has to
possess a license issued by the Department of Telecommunication, Ministry of
Telecommunication, Government of India. The appellant could not produce any evidence
as being in possession of such a licence.
When the appellant constructs Towers equipped with Generators and
Telecom equipment and does not use themselves such equipment as a Telecom
service provider but only allows other Telecom service providers to utilize
such infrastructure, the appellant cannot be treated as Telecom service
provider. When the appellant is not a
Telecom service provider or Telecom operator duly licensed by the Department of
Telecommunication, Government of India, the question of the disputed
purchases being used in the Telecommunications net work does not arise. The business of the appellant is that they
construct Towers equipped with Generators, Telecom equipment etc. and allows
the same to be used by the actual Telecom service providers or operators. The towers constructed by the appellant in
themselves cannot be regarded as Telecommunication Network as the appellant is
not a Telecommunication service provider using such Towers and equipment. In the registration certificate issued to the
appellant under the CST Act, certain goods were mentioned which were eligible
to be purchased in the course of inter-State trade and commerce for the purpose
of re-sale. If there is a sale or deemed sale of such towers
constructed by the appellant by utilising the purchases made from outside the
State against ‘C’ forms that is admitted by the appellant, then it can be said
that the disputed purchases made by the appellant from outside the State of
Andhra Pradesh against ‘C’ forms were used in manufacture of goods for
sale. But, when the appellant neither
admitted nor disclosed any such sale or deemed sale of goods manufactured by
them, then the disputed purchases made by the appellant do not fall under
clause (b) of Section 8(3) of the CST Act.
The
provisions of the CST Act relevant for adjudication of the present lis are set out in Section 8,
sub-section (1); 3(b) & (d) and sub-section (4). These provisions read :
Section
8(1) :
Every dealer,
who in the course of inter-State trade or commerce, sells to a registered
dealer goods of the description referred to in sub-section (3), shall be liable
to pay tax under this Act, which shall be [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.
Section
8 (3) : The good referred to in sub-section
(1)
(a)
…
Clause (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 re-sale 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;
Clause (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).
Sub-section (4 )
:
The 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 a prescribed form obtained from the prescribed
authority.
Provided that
the declaration is furnished within the prescribed time or within such further
time as that authority may, for sufficient cause, permit.
On a true and fair construction and
an interactive analyses of the adverted to provisions of Section 8 of the CST
Act, the position is :
(a) Section 8(1) renders every dealer (who in
the course of inter-State trade or commerce sells to a registered dealer goods
of the description referred to in sub-section (3)), liable to tax under the Act
at 2% of the 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. Admittedly, the rate
of tax applicable to a dealer in respect of a transaction falling within
sub-section 1 of Section 8 is 2% of the rate applicable for the sale or
purchase of such goods within the appropriate State under the State sales tax
law, whichever is lower;
(b) Transactions falling outside sub-section 1
of Section 8 are governed by Section 8(2);
(c) Sub-section 3 of Section 8 has three
sub-clauses {(b), (c) and (d)} (after omission of clause (a) by Act 8 of 1963,
with effect from 01-04-1963).
(d) The seminal ingredient of Section 8 (3) (b)
is that goods referred to in sub-section 1 are goods of the class or classes
specified in the certificate of registration of the purchasing dealer intended
for re-sale 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 telecommunications network (the
provision of clause (b) is annotated in the context of the present lis).
(e) Sub-clause (d) of Section 8(3) applies the
provisions of sub-section 1 to 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).
(f) Sub-section 4 enacts that the 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 2%
is thus available either for re-sale, 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 2% 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 clause (b) of sub-section
(3) of Section 8 and Form ‘C’ declarations are issued, provided the goods are
used in the telecommunication network.
The appellate authority strangely
held that there is no dispute with regard to the fact that the
appellant is not a telecom service provider.
This conclusion is fundamentally misconceived, is contrary to the
invariable stand and pleadings of the petitioner and contrary to the facts on
record. The relevant facts in this
behalf may be stated in brief :
(i) On 04-03-2008, the petitioner applied for
registration as a dealer under Section (7)(1)/7(2) of the CST Act, in Form –
A. In para – 7 of this application (in
proforma) the petitioner described its business as wholly telecommunication
network service provider. Para – 16 of this Form requires
details of goods ordinarily purchased by the dealer in inter-State trade to be
set out. In this para the petitioner
stated that the details of goods are as per list attached.
Thirty items are set out in the list attached to Form ‘A’, as details of
goods ordinarily purchased by the petitioner in inter-State trade.
(ii) On 29-03-2008, the 1st
respondent – the specified/notified authority [under Section 7(1) & (2)
read with Rule 5 of the CST (Registration and Turnover) Rules, 1957] issued in
Form ‘B’ the certificate of registration to the petitioner, clearly specifying
the business to be wholly: TELECOMMUNICATION
NETWORK SERVICE PROVIDER. This certificate is
stated to be valid from 01-03-2008 until cancelled.
(iii) In the above certificate of Registration,
while stating that the classes of goods specified for the purpose of
sub-section 1 of Section 8 are as set out and that the sale of these goods in
the course of inter-State trade to the dealer shall be taxable at the rates
specified in that sub-section subject to the provisions of sub-section (4),
stated the purpose as being for use
in manufacture or processing of goods for re-sale. [emphasis is supplied].
(iv)
However, on 21-03-2011, a revised certificate of
registration in Form ‘B’ was issued to the petitioner and with effect from
01-03-2008 until cancelled. This
certificate of Registration reiterates that the petitioner is registered as a
dealer; that the business is wholly : Telecommunication
Network Service Provider; that the classes of goods specified for the purpose of
Section 8(1) are : And 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 provision of Section 8(4).
(a)
…
(b)
…
(c)
…
(d)
For
use in telecommunication network : As per list attached.
The
list of goods to be purchased for re-sale, 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 08-04-2006, 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 one of the ways of ensuring this is to bring
in appropriate amendments to the licensing agreements so that new passive
infrastructure like towers are effectively shared by mobile service providers.
(b) On 11-04-2007 TRAI (in response to DOT’s
letter dated 08-11-2006) forwarded its recommendations on infrastructure
sharing. In paragraph 5.1.1. TRAI
recommended amendments in licensing provisions and need for policy
intervention/legislation to encourage infrastructure sharing. In paragraph 5.1.1.1(ii) TRAI recommended :
Municipal
bodies/Corporations/Cantonment authorities shall grant permission to any
service provider/Infrastructure provider category I (IP I) to set up tower in
such notified sites only when the service provider gives a commitment that the
site would be shared by at least three service providers.
(c) Chapter
– 2 of the TRAI recommendations (referred to supra) clarified passive
infrastructure to mean : sharing of physical sites,
buildings, shelters, towers/masts, power supply and battery backup, etc.
(d) The DOT issued guidelines specifying that
for an infrastructure provider category – 1 (IP – 1) no license is issued and
the applicant company is only required to be registered; that a company
registered as IP – 1 can provide assets such as Dark Fiber, Right of Way, Duct
Space and Tower; that this area was opened to private sector with effect from
13-08-2000 and all Indian registered companies are eligible to apply.
(e) Consistent with the above policy the
petitioner applied and was granted a registration certificate No.177/2008 on
10-01-2008, certifying that it is registered as infrastructure
provider category – 1 (IP-1) to establish and maintain the assets such as Dark
Fibre, Right of Way, Duct Space and Tower for the purpose to grant on
lease/rent/sale basis to licensees of telecom services licensed under Section 4
of the Indian Telecom Act, 1885 on mutually agreed terms and conditions.
(f) On 12-04-2011, TRAI drew up a report
comprising a fresh raft of recommendations on telecommunications infrastructure
policy. In para – 1.9 of this report
TRAI observed that currently infrastructure provision is being made by infrastructure
providers who are being registered by the DOT and telecom service providers who
are licensees under Section – 4 of the Indian Telegraph Act, 1885 are divesting
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 :
The jurisdiction of
revisional/appellate/assessing authorities under the AP VAT Act, 2005, to levy
tax under Section 4(1) & (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 vs. M/s. Bharat Sanchar Nigam Limited[1][1].
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 access to the
designated space/place; other goods such as air conditioner, diesel generator,
electrical wiring, power plant, etc., are commonly provided to all
infrastructure sharing parties; since common assets are commonly leased to more
than one beneficiary party, the consolidated rent/lease amount received
represents the consolidated charge for lease of the said equipment and a
consolidated transfer of the right to use the goods; and the common facilities
include a part of the tower, movable goods such as shelter, air conditioning
equipment, diesel generator, electrical wiring, electrical installations, power
plant, batteries, electricity accumulators, etc. The Revenue urged that the transfer for joint
use to all co-service providers for consideration constitutes transfer of the
right to use such facility and is exigible to tax under the 2005 Act.
Per contra the petitioners
contended that infrastructure service providers enter into agreements with
other service providers for use by them of various kinds of infrastructure and
there is no transfer of the right to use the equipment and no deemed sale under
Article 366 [29A (d)]; that towers are permanent industrial structures and
constitute immovable property; are not “goods” and no tax is leviable on them
under this Act. These competing
contentions were analysed and this Court held :
38. For providing telecommunication services,
the service providers interconnect their networks with various other operators
by inter-connection agreements. The
calls generated from one network travels through various networks before they
reach the ultimate called party.
Telecommunication involves not only the network of one particular
operator, but several cellular operators for carriage and termination of the
call. The whole network system
constitutes the telecommunication network either of one operator or
collectively of various operators through which telephone services are provided
by telephone operators to their subscribers.
39. Service providers erect towers on sites
(either land or roof tops of buildings), for their network operation. As part of their network, other assets like
shelter, air conditioning equipment, diesel generator, electrical wiring, power
plant etc are also provided. The
structural towers are rooted to the ground with a height of upto 90
metres. Antennas 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 of period of 3 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.
40. 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 beneficiary party, (also a service
provider), bring their own BTS, access radio and other equipment. The right, title and interest on such sits,
and the identified assets thereon, remain with the PASSIVE INFRASTRUCTURE
SERVICE PROVIDER . The right, title and
interest in the BTS, access radio and other equipment brought in by the
beneficiary party remains with the beneficiary party. The PASSIVE INFRASTRUCTURE SERVICE PROVIDER
is responsible for obtaining necessary permissions/approvals from
local/municipal authorities/departments.
The beneficiary party is entitled to use the identified assets, subject
to technical feasibility. Upgradation is
required to be made by the principal owner, after consulting the beneficiary
party. The beneficiary party has free
access to the identified assets and/or the sites as per the procedure agreed
upon by the parties. Section 11(b)(iv)
of the TRAI Act relates to functions of the authority and, under sub-sections
(b)(iv) thereof, the authority is required to regulate arrangement amongst
service providers for sharing their revenue derived from providing
telecommunication services. The
consideration, for infrastructure sharing, is arrived at between the parties on
the basis of capital expenditure (CAPEX) and Operational expenditure (OPEX)
sharing at agreed rations/parameters.
These expenses are collected from each of the other service provider by
raising invoices.
41. The Telecommunication tower, of a height
of around 90 metres and embedded either to the earth or to the roof top of a
building, is under the control and possession of the passive service
provider. The manner in which this 90
meter huge structure is fastened would necessitate its being excluded from the
ambit of “goods”, and included within the category of “immovable property”. Transfer of the right to use “immovable
property” would not fall within the ambit of Section 4(8) of the Act as
“immovable property” is excluded from the definition of “goods” under Section
2(16) of the Act. Section 3(26) of the
General Clauses Act, 1897 includes, within the definition of the term
“immovable property”, things attached to the earth or permanently fastened to
anything attached to the earth. Section
3 of the Transfer of Property Act gives the following meaning to the expression
“attached to the earth” : (a) rooted in the
earth, as in the case of trees or 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.
(Solid and Correct Engineering
Works v. CCE (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 the earth. (T.T.G. Industries Ltd. V. CCE (2004) 4 SCC
751 (DB) = 2004-TIOL-49-SC-CX; Ad Age Outdoor Advertising Private Limited, Hyderabad v. The
Government of Andhra Pradesh Judgment of APHC DB in W.P.No.23811 of 2009 dated
11.02.2011). The 90 metre huge tower
can only be erected at another place after it is completely dismantled at the
existing site, and cannot be moved to another place of use in the same position. The telecommunication tower is, therefore,
“immovable property” and not “goods” liable to tax under the Act.
42. Under Article 366(29-A) (d) levy of tax
is not on the use of goods, but on the transfer of the right to use goods. The right to use goods accrues only on
account of the transfer of the right and, unless there is a transfer of the
right, the right to use does not arise.
It is the transfer which is the sine qua non for the right to use any
goods. The title to the goods, under
Sub-clause (d) of Article 366 (29-A), remains with the transferor who only
transfers the right to use the goods to the purchaser. Yet, by fiction of law, it is treated as a
sale. Article 366(29-A) has served to
extend the meaning of the word “sale” to the extent stated, but no
further. (20th Century Finance Corpn. Ltd. v. State of Maharashtra (2000) 6 SCC
12).
The BSNL conclusion :
43. As a telecommunication tower is
“immovable property” it does not stand to reason that a part of it, where a
beneficiary party fixes its antenna, would become “goods”. Even if the other equipment located near the
tower are held to be “goods”, merely by permitting other cellular operators to
use, or in giving them access, to identified assets does not involve any
transfer of the right to use such assets, as control and possession of these
equipment always remains with the service provider who owns them, and there is
no transfer of either control or possession of the equipment in favour of other
cellular operators. The distinction,
between mere use of “goods” and “transfer of the right to use goods”, must be
borne in mind. What the co-service
providers are permitted is use of the equipment provided at the site of the
tower by the passive service provider.
Such usage by them is along with the passive service provider, and other
service providers also. Effective
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 service
providers, treating it as “sale” under explanation (iv) to sub-section (2) of
Section 28 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
generation and distribution of electricity was a facility validly availed fell
for analyses in Commercial
Tax Officer Circle-D, Jaipur v. Rajasthan Electricity Board, Jaipur[2][2]. The Supreme Court noticed that what is used
in distribution of electricity or intended for such use falls within the scope
of Section 8(3)(b) read with Rule 13 of the CST (R & T) Rules, 1957. The Rajasthan High Court had held that
trucks, trolleys, trailers and the like but not passenger vehicles, as also
their accessories and spare parts, tyre and tubes could be purchased by the
respondent – Board at the concessional rate of tax prescribed under Section
8(1). The High Court further held that
soaps, paints and varnishes fall within the contours of Section 8(1) only
insofar as they were intended to be used for the purpose of cleaning boilers
and machinery and other equipment and for the purpose of painting machinery and
electrical goods; that raincoats could be purchased at the concessional rate of
tax so far as they were necessary for use by linesmen working on transmission
lines during rainy season and winter; that battery cells to the extent they
were necessary for the use by linesmen for working on transmission lines during
the night could also be purchased at the concessional rate of tax specified in
Section 8(1) of the CST Act.
Confirming the analyses and
conclusions of the High Court and dismissing appeals by the Revenue, the
Supreme Court, following its earlier judgment in J.K. Cotton Spg. & Wvg. Mills Co. Ltd. v. STO[3][3] ruled that if a
process or activity is so integrally related to the ultimate manufacture of
goods so that without that process or activity, manufacture may even if
theoretically possible be commercially inexpedient, goods intended for use in
the process or activity as specified in Rule -13 [of the CST (R & T) Rules,
1957] would qualify for special treatment.
The Court further held that motor vehicles aforementioned and soap,
paints, raincoats and battery cells to the extent spelt out by the High Court
are integrally related to the distribution of electricity and their non-use
would make such distribution commercially inexpedient.
The Orissa Power Generation
Corporation ratio :
In Orissa Power Generation Corporation
Limited v. Commissioner, Commercial Taxes and others[4][4], 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, filteration 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-substations 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 8(3)(b) of the CST Act
and therefore liable to tax at the rate specified in Section 8(1). In this case while initially the certificate
of registration issued to the petitioner – dealer under Section 7(2) of the CST
Act included all these goods, some of the goods and processes were deleted from
the certificate of registration by subsequent orders passed by the assessing
authority or amendments to the registration certificate. The writ petition was filed challenging the
deletions and excluding these goods from the benefit of concessional tax under
Section 8(1) of the CST Act.
In the above
factual context the learned Division Bench of the Orissa High Court held :
…The
petitioner-company is a registered dealer, which is seeking to purchase goods
for use by it “in the generation of power and distribution of
electricity”. Therefore, it is
imperative to take note of the fact that when the “functional test” is applied
to a dealer such as in the case of petitioner-company, it has to be ascertained
as to whether the goods being purchased by it are integrally related to the
generation and distribution of the electricity.
Even if theoretically possible, whether it would make it commercially
inexpedient for the purpose of generation of power and distribution of
electricity. In respect of this issue,
it is clearly covered by the decision of the honourable Supreme Court in the
case of Commercial Taxes Officer, Circle-D, Jaipur v. Rajasthan Electricity
Board (1997) 104 STC 89. In that case the honourable Supreme Court affirmed the
view taken by the Rajasthan High Court, wherein the Rajasthan High Court came
to hold that the Rajasthan Electricity Board which was engaged in the business
of generation and distribution of electricity to the consumers, could purchase
by way of inter-State trade, at concessional rate of tax under section 8(1) of
the Central Sales Tax Act, 1956, trucks, trolleys, trailers and the like (but
not passenger vehicles), as also their accessories and spare parts, tyres, and
tubes and that the board was entitled to have its certificate of registration
altered to include “tools and plants, including vehicles and other
transportable goods, including other spare parts, tubes and tyres.”
In the
present lis, the Revenue places
reliance on a judgment of this Court in Coastal Andhra Power Limited, Nellore
v. State of Andhra Pradesh[5][5]. 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) 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 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 buildings and other uses not directly related to power
generation and did not fall within the ambit of Section 8. Despite petitioner’s objections, the CTO
disallowed certain items. Aggrieved, the
petitioner preferred appeals to the appellate authority and thereafter to the
STAT unsuccessfully, and then moved this Court for revision.
This Court, distinguishing the
judgment in Orissa Power
Distribution Corporation Limited (supra) on the ground that certain
observations of the Supreme Court in J.K. Cotton Spg. & Wvg. Mills Co. Ltd. v. STO (supra) were not
noticed by the Orissa High Court, concluded that building material used by the
petitioner for the purpose of construction of a labour colony, administrative
building and boundary wall, cannot be considered as goods qualifying for
inclusion in the certificate of registration issued under Section 8(3)(b) of
the CST Act read with Rule 13 of the CST (R & T) Rules, 1957. This Court held that the mere fact that there
was a statutory obligation cast on the petitioner to construct a labour colony,
a compound wall or an administrative building would not constitute a sufficient
nexus between the goods used in such construction and the generation or
distribution of electricity or any other form of power, so as to render them
goods intended for use in those operations; and that refusal by the registering
authority to include such building material in the certificate of registration,
is unassailable.
The issue in
the present batch of cases, in the factual context of the Registration certificate
issued and the nature of the petitioner’s business, is whether goods purchased
by the petitioners/dealers (for the purposes of building, operating and
maintaining passive telecom infrastructure and where on the towers erected and
maintained but nonetheless continued to be owned by the petitioner – the
passive infrastructure provider; goods which are indisputably integrally
associated with the building and maintenance of the cell towers), are goods
falling within the ambit of Section 8(1) read with the provisions of Section
8(3)(b) of the CST Act, and thus exigible only at the concessional rate of tax
provided in Section 8(1).
Are cell phone towers part of the
Telecommunication Network ?
Cell phone
technology is a relatively recent species in the evolution 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 alia a synergy between
passive and active infrastructure. While
the telecom towers and associated apparatii - goods and materials like shelter,
air conditioning equipment, diesel generator, electrical wiring, power plant,
power back-up systems, surge and lightning systems, etc., functionally integral
to the establishing and maintaining of these towers, constitute the passive
infrastructure; the base transmission and reception systems including the
antennae fixed on the cell towers constitute active telecommunication
infrastructure.
The petitioners/dealers are
registered as infrastructure provider Category-1 (IP-1) by the DOT, Government
of India, a fact not in dispute. That
they are registered under the CST Act; that the certificate of Registration
describes the petitioners as telecommunication network service providers; that
the goods purchased by them against issue of ‘C’ Forms during the course of
inter-State transactions are goods specified for purchase for use in
telecommunications network specified by them in para – 16 of the Form ‘A’
application submitted for seeking registration under the CST Act, are also
facts not in dispute. It is also not in
dispute that the goods in respect of which the impugned penalty orders were
passed under the provisions of Section 10A of the CST Act were goods specified
in the list of goods stated by the petitioners while applying for registration
under the CST Act and enumerated in the respective certificates of
registration, and were used for the erection and maintenance of the passive
telecommunication infrastructure (the cell towers).
It is not the
case of the Revenue that the petitioners had purchased these goods against
issue of ‘C’ Forms but had not employed them for the purpose of erection or
maintenance of the towers, for supporting the active telecommunication
infrastructure mounted on these towers by the several cellular telephone
operators. Nor is it the case of the
Revenue that the goods so purchased during the course of inter-State
transactions were re-sold by the petitioners and the fact of such re-sale
suppressed.
The theme
song of the Revenue, to support the impugned orders of penalty and reiterated
in the counter-affidavit filed by the assessing authority (in W.P.No.31462 of
2011) is predicated on the fundamentally misconceived assertion that the
petitioners are not telecom service providers but are only engaged 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 license issued by the DOT and no such license is produced (insofar
as the petitioners in W.P.No.31462 and 32482 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 02-12-2010 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
network and does not form part of the network.
The Constitutional context :
The other contention of the Revenue
(that in order to be a telecom service provider, the person or a dealer has to
possess a license issued by the DOT but the petitioner has not been so
licensed); proceeds on a misconception of jurisdictional parameters and
separation of powers under our federal constitutional order. The legislative field posts
and telegraphs; telephones, wireless broadcasting and other like forms of
communication is
enumerated in Entry-31 of the Union list of the Seventh Schedule of the
Constitution. Since under the
Constitution, exercise of executive power is co-extensive with legislative
power, subject to legislation in the area, the legislative or executive
discretion whether telecommunications (the area falling under Entry-31 of
List-1) should be regulated, to what degree and in what manner, whether by the
requirement of mere registration or licensing, is an area within exclusive
federal discretion. As already noticed,
the DOT had clarified that an infrastructure provider Category – 1 (IP-1) is required to be registered only
and no license is required for (IP-1); and a company registered as (IP-1) can
provide assets such as dark fibre, right of way, duct space and tower, etc. It is not the case of the Revenue that the
control and limited regulation of infrastructure providers Category-1 by such
policy determination of the Union of India (DOT) or the grant of a registration
to the petitioners by the DOT is either beyond the powers and authority of the
Union or is in any event of no consequence.
The regulatory power in respect of telecommunications, conferred on the
TRAI (an independent Telecom Regulatory Authority) under a legislation enacted
in that behalf (The Telecom Regulatory Authority of India Act, 1997 – Central
Act 24 of 1997) is also traceable to the legislative field under Entry-31 of
List-1. Such being the position, the
Registration Certificate issued by the DOT, enabling establishment and
maintenance of assets such as dark fibre, tower, etc., for the purpose of
granting on lease/rent/sale to licensees of telecom services, licensed under
Section 4 of the Indian Telegraph Act, 1885 constitutes a federal recognition
that the erection and maintenance of telecom/cell towers is an activity falling
within the legislative field enumerated in Entry-31 of List-1. 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 1 (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 re-sale.
This assertion overlooks the fact that while the initial certificate of
registration dated 29-03-2008 did state the specified goods as for use in
manufacture or processing of goods for re-sale, apart from use in
telecommunication network, the revised registration certificate issued on
21-03-2011 and with effect from 01-03-2008 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
21-03-2011 (W.P.Nos.31462 and 31482 of 2011).
Telecommunication
towers are held by a Division Bench of this Court in BSNL to be immovable
property. We are not informed at the Bar
that the judgment in BSNL has either been
stayed or appealed against or the ratio of the said decision stands
eclipsed. This judgment has also analysed
that the service providers (passive infrastructure service providers) provide
other assets like shelter, air-conditioning equipment, diesel generator,
electrical wiring, power plant, etc., for their network operations and
concluded that sharing of infrastructure is incidental and only as a means of
rendition of telecommunication service; that the effective control and
possession of such equipment continues with the passive service provider; is
not parted to the other service providers who are merely permitted use of this
equipment; and levying tax on the proceeds received by the passive
infrastructure provider from sharing of their infrastructure with other service
providers, treating it as a sale under Explanation – IV to sub-section – 28 of
Section 2 of the APVAT Act, 2005, is without jurisdiction and illegal.
The
legislative context of TRAI needs be considered. TRAI is an independent regulatory authority
established under Section – 3 of the Telecom Regulatory Authority of India Act,
1997. Chapter – III sets out the powers
and functions of TRAI. Section – 11
therein delineating the functions of the Authority, enumerates the functional
contours of TRAI including :
(i)
measures to facilitate competition
and promote efficiency in the operation of telecommunication services so as to
facilitate growth in such services [Sub-section (1) clause (a)(iv)]; and
(ii)
measures for the development of
telecommunication technology and any other matter relatable to
telecommunication industry in general [Sub-section (1) clause (a)(vii)].
It also
requires to be noticed that the functions conferred on TRAI under Chapter – III
are enacted to be operative notwithstanding anything contained in the Indian
Telegraph Act, 1885 [vide Section 11(1)].
Section 8(1) read with Section
8(3)(b) of the CST Act enjoins levy of the specified and concessional rate of
tax in respect of goods of the class or classes specified in the certificate of
Registration of the registered dealer purchasing the goods as being intended
for use 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 12-04-2011 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 telecommunications infrastructure
(of goods procured through inter-State transactions) are not comprehended
within the expression “telecommunications network” in Section 8(3) of the CST
Act.
The petitioners in W.P.No.31462
brought to the notice of the appellate authority a letter dated 30-06-2011,
bearing CCT’s Ref. CAU/B1(2)/110/2009, addressed to the Principal Secretary,
Revenue by the Commissioner of Commercial Taxes regarding a similarly situated
dealer – M/s. Aster Infrastructure Pvt. Ltd.
The CCT informed the Government that the vigilance and enforcement department
opined that M/s. Aster Infrastructure had misused the ‘C’ Form in violation of
Section 8(3)(b) of the CST Act, attracting levy of penalty. However, after levy of penalty and appeal
thereagainst by the dealer and remand by the appellate authority to the
assessing authority, the assessing authority passed a reasoned order, dropping
the levy of penalty. The CCT opined that
the activity of the dealer is to render telecommunications infrastructure
services and the goods purchased from outside the State are inevitably for the
infrastructure and maintenance of the telecommunications network and the
network is not complete without the towers and the goods so purchased from
outside the State. The CCT further
clarified that it is not material whether the goods purchased are not meant for
re-sale; that the dealer is also registered as infrastructure provider -1 with
the Ministry of Communications and Information Technology, DOT, and is licensed
to establish and maintain assets such as dark fibres, towers, etc., for the
purpose of granting on lease/rent/sale to Telecom service providers. The CCT concluded that in view of the
amendment to Section 8(3)(b) of the CST Act by Act 20 of 2002 (whereby
“Telecommunications network” was inserted in the said provision), the dealer is
eligible to purchase goods from outside the State by issuing ‘C’ Forms meant to
be used in telecommunication network and since the dealer in question has so
purchased the goods and used them in the telecommunication network, the dealer
could issue ‘C’ Forms and no levy of penalty is warranted in the case.
The appellate authority, in
rejecting the appeals (in W.P.Nos.31462 and 31482 of 2011) adverted to reliance
by the petitioners/appellants on the letter of the CCT to the Secretary
(Revenue) of the State but side-stepped the normative 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
and
in J.K. Cotton Spg.
& Wvg. Mills Co. Ltd, 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
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.
For the reasons above
and on the aforesaid analyses, the orders impugned, imposing on the petitioners
penalty under the provisions of CST Act, are quashed. The orders dated 05-07-2010 and 14-10-2010
passed by the assessing authority – The Commercial Tax Officer, Begumpet Circle
(for the years 2008-09 & 2009-10, respectively); the common order dated
07-10-2011 passed by the appellate Deputy Commissioner, Panjagutta, confirming
the primary orders imposing penalty (impugned in W.P.Nos.31462 & 31482 of
2011); and the order of penalty dated 29-09-2012 passed by the CTO, Srinagar
Colony Circle (impugned in W.P.No.8205 of 2012), are set aside.
The writ
petitions are allowed as above, but in the circumstances without costs.
_______________________
JUSTICE GODA RAGHURAM
_______________________
JUSTICE N. RAVI SHANKAR
Date
: June 12, 2012.
Ndr/*
LR
copy to be marked : YES
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