VAT / Service Tax - SIM cards, recharge coupon vouchers, mobile telephone rentals on post paid connections, value added services such as ring tones, music downloads and wall papers - not taxable under VAT: AP High Court
By TIOL News Service
HYDERABAD, NOV 23, 2011: DECLARATION of the law by the Supreme Court, in Bharat Sanchar Nigam Ltd v. Union of India - 2006-TIOL-15-SC-CT-LB, notwithstanding, the High Court was to adjudicate on the jurisdiction of the revisional/appellate/assessing authorities to levy tax under Section 4(1) and (8) of the A.P. VAT Act, 2005 on SIM cards - pre-paid and post-paid; recharge coupons; value added services; telephone instruments, mobile handsets, modems and caller ID instruments; mobile telephone rentals; sharing of infrastructure; non-refundable deposits; refundable deposits etc.
The petitioner, a company incorporated under the Companies Act, 1956, provides telecommunication services to various subscribers all over the country. They are registered dealers on the rolls of the Commercial Tax Officer, Begumpet. They are registered with the Assistant Commissioner, Begumpet Circle, for payment of service tax. The 1 st respondent, by his order dated 07.12.2007, held that sale of, or transfer of the right to use, the aforementioned goods were chargeable to tax either under Section 4(1) or Section 4(8) of the Act.
The High Court held on the various items as:
SIM CARDS : In view of the law laid down by the Supreme Court, in Idea Mobile Communication Judgment - 2011-TIOL-71-SC-ST, that the value of the SIM card forms part of the activation charges, service tax can alone be levied for such services, and not sales tax, the revisional/appellate/ assessing authorities have exceeded their jurisdiction in levying tax on pre-paid and post-paid SIM cards.
RECHARGE COUPONS/VOUCHERS : Even according to the Revenue, recharge coupons stand on the same footing as SIM cards. As the Supreme Court, in IDEA Mobile Judgment has held that SIM cards are not "goods " liable to tax under sales tax enactments, it must necessarily follow that recharge coupons cannot also be brought to tax under the Act. Once it is held that recharge coupons are not liable to tax under the Act, it matters little that the supply of recharge coupon is routed by the service provider through several distributors before it reaches the subscriber.
Entry 47 of Schedule (iv) to the Act, as amended retrospectively with effect from 18.11.2005, includes "coupons " and "cheque books ". If, for example, a cheque leaf which costs Rs.2/- to print is used to draw Rs.1.00 lakh from the bank, it would defy reason if the "cheque " is treated as "goods ", its sale value as Rs.1.00 lakh, and is brought to tax as "sale " under the Act. Likewise the recharge coupons which may have costed the service provider less than Re.1 to have it printed, cannot be brought to tax for the value mentioned therein which may range from Rs.10/- to several thousand rupees. What Entry 47 of Schedule IV represents is sale of the recharge voucher, to the service provider, and not the transaction between the service provider and the subscriber even if, in the process, the recharge coupons are routed through various distributors and retailers. Supply of "Recharge coupons " by the service provider to the subscriber falls within the ambit of "telecommunication services ". The impugned revisional/appellate /assessment orders, seeking to levy tax under the Act on recharge coupons, are without jurisdiction and illegal.
MOBILE TELEPHONE RENTALS : SIM cards are not "goods " on which tax can be levied under the Act. As rentals are charged each month on post-paid SIM cards, and as "monthly rentals " constitute the consideration received by the service provider for rendering "telecommunication services ", such monthly rentals cannot be subjected to tax under the Act.
VALUE ADDED SERVICES : Among the tests to determine whether a property is " goods ", for the purposes of sales tax, is whether the concerned item is capable of being delivered. If the goods are not deliverable, the question of the right to use those goods would not arise. Providing access or telephone connection does not put the subscriber in the possession of "electromagnetic waves . " In a sale of goods, the user would be of the thing or goods delivered. The delivery may not be simultaneous with the transfer of the right to use. But the goods must be in existence and deliverable when the right is sought to be transferred. "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 a 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 subscriber. Electromagnetic waves are neither abstractable nor capable of delivery. An electromagnetic wave (or radio frequency) does not fulfil the parameters. "Value added services " are not recorded in a physical medium before they are marketed. They are merely messages carried by means of Electro-magnetic waves. Both "Software " which is not recorded on a physical medium before it is marketed, and "Electro-magnetic waves " through which audio and visual messages/signals are transmitted, are not "goods " liable to tax under the Act.
SHARING OF INFRASTRUCTURE : 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.
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 ".
TELEPHONE INSTRUMENTS, MODEMS AND MOBILE HANDSETS : 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 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 that telephone instruments, mobile hand sets and modems are either sold or supplied by the service provider to the subscriber, the revisional/appellate/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.
CALLER ID INSTRUMENT : The Calling Line Identification Presentation (CLIP) facility was introduced w.e.f. 1.1.99. The device or instrument, for availing CLIP facility, is the Caller I.D. instrument. The Caller ID instrument, procured by the subscriber and connected to the landline telephone instrument, identifies the telephone number of the caller. Caller I.D. equipment is either procured from the petitioners, or from other Vendors, at the customer's option, and are utilized by him.
The Caller ID instrument also falls within the ambit of "goods " both under Article 366(12) of the Constitution of India and under Section 2(16) of the Act.
NON-REFUNDABLE DEPOSIT : The questions which fall for consideration is what is the purpose for which this non-refundable deposit has been taken by the service provider; what the service provider has supplied to their distributors/franchisees; and whether or not this deposit is a disguised form of consideration for the "sale " or the "transfer of the right to use goods ". Since the impugned revisional/ appellate/assessment orders are being set aside on other grounds, question is left open to the revisional/appellate/assessing authorities concerned to examine these questions afresh.
REFUNDABLE DEPOSITS : If, as contended on behalf of the service providers, these "refundable deposits " are taken as security for payment due from subscribers who have availed STD and ISD facilities, such deposits can neither be said to be a "sale " nor are there any "goods " involved in such transactions. Consequently these refundable deposits cannot be brought to tax on the premise that there is a transfer of the right to use "goods ".
The High Court has remanded all the matters to the respective adjudicating appellate authorities to decide all the cases on the basis of the above observations.
CA. Mukesh Saran
M.Com.,FCA, ISA-ICAI
By TIOL News Service
HYDERABAD, NOV 23, 2011: DECLARATION of the law by the Supreme Court, in Bharat Sanchar Nigam Ltd v. Union of India - 2006-TIOL-15-SC-CT-LB, notwithstanding, the High Court was to adjudicate on the jurisdiction of the revisional/appellate/assessing authorities to levy tax under Section 4(1) and (8) of the A.P. VAT Act, 2005 on SIM cards - pre-paid and post-paid; recharge coupons; value added services; telephone instruments, mobile handsets, modems and caller ID instruments; mobile telephone rentals; sharing of infrastructure; non-refundable deposits; refundable deposits etc.
The petitioner, a company incorporated under the Companies Act, 1956, provides telecommunication services to various subscribers all over the country. They are registered dealers on the rolls of the Commercial Tax Officer, Begumpet. They are registered with the Assistant Commissioner, Begumpet Circle, for payment of service tax. The 1 st respondent, by his order dated 07.12.2007, held that sale of, or transfer of the right to use, the aforementioned goods were chargeable to tax either under Section 4(1) or Section 4(8) of the Act.
The High Court held on the various items as:
SIM CARDS : In view of the law laid down by the Supreme Court, in Idea Mobile Communication Judgment - 2011-TIOL-71-SC-ST, that the value of the SIM card forms part of the activation charges, service tax can alone be levied for such services, and not sales tax, the revisional/appellate/ assessing authorities have exceeded their jurisdiction in levying tax on pre-paid and post-paid SIM cards.
RECHARGE COUPONS/VOUCHERS : Even according to the Revenue, recharge coupons stand on the same footing as SIM cards. As the Supreme Court, in IDEA Mobile Judgment has held that SIM cards are not "goods " liable to tax under sales tax enactments, it must necessarily follow that recharge coupons cannot also be brought to tax under the Act. Once it is held that recharge coupons are not liable to tax under the Act, it matters little that the supply of recharge coupon is routed by the service provider through several distributors before it reaches the subscriber.
Entry 47 of Schedule (iv) to the Act, as amended retrospectively with effect from 18.11.2005, includes "coupons " and "cheque books ". If, for example, a cheque leaf which costs Rs.2/- to print is used to draw Rs.1.00 lakh from the bank, it would defy reason if the "cheque " is treated as "goods ", its sale value as Rs.1.00 lakh, and is brought to tax as "sale " under the Act. Likewise the recharge coupons which may have costed the service provider less than Re.1 to have it printed, cannot be brought to tax for the value mentioned therein which may range from Rs.10/- to several thousand rupees. What Entry 47 of Schedule IV represents is sale of the recharge voucher, to the service provider, and not the transaction between the service provider and the subscriber even if, in the process, the recharge coupons are routed through various distributors and retailers. Supply of "Recharge coupons " by the service provider to the subscriber falls within the ambit of "telecommunication services ". The impugned revisional/appellate /assessment orders, seeking to levy tax under the Act on recharge coupons, are without jurisdiction and illegal.
MOBILE TELEPHONE RENTALS : SIM cards are not "goods " on which tax can be levied under the Act. As rentals are charged each month on post-paid SIM cards, and as "monthly rentals " constitute the consideration received by the service provider for rendering "telecommunication services ", such monthly rentals cannot be subjected to tax under the Act.
VALUE ADDED SERVICES : Among the tests to determine whether a property is " goods ", for the purposes of sales tax, is whether the concerned item is capable of being delivered. If the goods are not deliverable, the question of the right to use those goods would not arise. Providing access or telephone connection does not put the subscriber in the possession of "electromagnetic waves . " In a sale of goods, the user would be of the thing or goods delivered. The delivery may not be simultaneous with the transfer of the right to use. But the goods must be in existence and deliverable when the right is sought to be transferred. "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 a 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 subscriber. Electromagnetic waves are neither abstractable nor capable of delivery. An electromagnetic wave (or radio frequency) does not fulfil the parameters. "Value added services " are not recorded in a physical medium before they are marketed. They are merely messages carried by means of Electro-magnetic waves. Both "Software " which is not recorded on a physical medium before it is marketed, and "Electro-magnetic waves " through which audio and visual messages/signals are transmitted, are not "goods " liable to tax under the Act.
SHARING OF INFRASTRUCTURE : 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.
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 ".
TELEPHONE INSTRUMENTS, MODEMS AND MOBILE HANDSETS : 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 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 that telephone instruments, mobile hand sets and modems are either sold or supplied by the service provider to the subscriber, the revisional/appellate/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.
CALLER ID INSTRUMENT : The Calling Line Identification Presentation (CLIP) facility was introduced w.e.f. 1.1.99. The device or instrument, for availing CLIP facility, is the Caller I.D. instrument. The Caller ID instrument, procured by the subscriber and connected to the landline telephone instrument, identifies the telephone number of the caller. Caller I.D. equipment is either procured from the petitioners, or from other Vendors, at the customer's option, and are utilized by him.
The Caller ID instrument also falls within the ambit of "goods " both under Article 366(12) of the Constitution of India and under Section 2(16) of the Act.
NON-REFUNDABLE DEPOSIT : The questions which fall for consideration is what is the purpose for which this non-refundable deposit has been taken by the service provider; what the service provider has supplied to their distributors/franchisees; and whether or not this deposit is a disguised form of consideration for the "sale " or the "transfer of the right to use goods ". Since the impugned revisional/ appellate/assessment orders are being set aside on other grounds, question is left open to the revisional/appellate/assessing authorities concerned to examine these questions afresh.
REFUNDABLE DEPOSITS : If, as contended on behalf of the service providers, these "refundable deposits " are taken as security for payment due from subscribers who have availed STD and ISD facilities, such deposits can neither be said to be a "sale " nor are there any "goods " involved in such transactions. Consequently these refundable deposits cannot be brought to tax on the premise that there is a transfer of the right to use "goods ".
The High Court has remanded all the matters to the respective adjudicating appellate authorities to decide all the cases on the basis of the above observations.
CA. Mukesh Saran
M.Com.,FCA, ISA-ICAI
No comments:
Post a Comment