Andhra Pradesh High Court - Amravati
Sai Ganesh Agency, Guntur District vs Govt Of Ap.,, Revenue Ct, Dept., ... on 1 March, 2024
*HON'BLE SRI JUSTICE RAVI NATH TILHARI
AND
*HON'BLE SRI JUSTICE HARINATH NUNEPALLY
+WRIT PETITION No.2333 OF 2008
%01.03.2024
# Sai Ganesh Agency,s
Rep. by M. Sudheer Kumar,
7-2-56, Bhimavaristreet,
Bapatla, Guntur District.
......Petitioner
And:
$1. Government of Andhra
Pradesh, rep by its
Principal Secretary,
Revenue (Commercial Tax)
Department,
secretariat, Hyderabad
and others.
....Respondents.
!Counsel for the petitioner : Sri P. Badrinath,
learned counsel,
representing
Sri S. Niranjan Reddy,
learned counsel
for the petitioner.
^Counsel for the respondents : Learned Assistant
Government Pleader
for Commercial Tax for the
respondents.
<Gist:
>Head Note:
? Cases referred:
1. 2011 (188) ECR 0394 (AP)
2. (2006) 3 SCC 1
2
HIGH COURT OF ANDHRA PRADESH
WRIT PETITION No.2333 of 2008
Sai Ganesh Agency,
Rep. by M. Sudheer Kumar,
7-2-56 Bhimavaristreet,
Bapatla, Guntur District.
......Petitioner
And:
1. Government of Andhra
Pradesh, rep by its
Principal Secretary,
Revenue (Commercial Tax)
Department,
secretariat, Hyderabad
and others.
....Respondents.
DATE OF JUDGMENT PRONOUNCED: 01.03.2024.
SUBMITTED FOR APPROVAL:
THE HON'BLE SRI JUSTICE RAVI NATH TILHARI
AND
THE HON'BLE SRI JUSTICE HARINATH NUNEPALLY
1. Whether Reporters of Local newspapers may Yes/No
be allowed to see the Judgments?
2. Whether the copies of judgment may be marked
to Law Reporters/Journals? Yes/No
3. Whether Your Lordships wish to see the fair
Copy of the Judgment?
Yes/No
________________________
RAVI NATH TILHARI, J
________________________
HARINATH NUNEPALLY, J
3
THE HON'BLE SRI JUSTICE RAVI NATH TILHARI
AND
THE HON'BLE SRI JUSTICE HARINATH NUNEPALLY
WRIT PETITION No.2333 OF 2008
JUDGMENT:- (per Hon'ble Sri Justice Ravi Nath Tilhari) Heard Sri P. Badrinath, learned counsel, representing Sri S. Niranjan Reddy, learned counsel for the petitioner and learned Assistant Government Pleader for Commercial Tax for the respondents and perused the material on record.
2. By means of this writ petition under Article 226 of the Constitution of India, the petitioner is challenging the power and authority of the respondents to levy the Value Added Tax under the A. P. Value Added Tax Act, 2005 (in short, the Act 2005) on the transactions effected by the petitioner, who is a distributor of Airtel Prepaid SIM cards and Magic Recharge Coupons to various subscribers of Airtel services, for the tax period with effect from 2005-06 to 2007-08.
3. The petitioner is a distributor of Airtel prepaid SIM cards and Magic Recharge Coupons to various subscribers of Airtel services. M/s. Bharti Tele-Ventures Limited (formerly known as Bharti Cellular Limited), is licensed by the Government of India to provide Cellular Mobile Services in the country under the brand and name of "Airtel". The petitioner‟s case is that the Company provides its services both prepaid and 4 postpaid. The prepaid cards are called Airtel Magic cards. These kits are distributed to the consumers of the company through the distributors like the petitioner. For the services rendered by the petitioner, the Company pays commission. The petitioner‟s case is that in providing such service there is no element of „Sale of Goods‟. However, the Assessing Officers of Visakhapatnam and Hyderabad passed assessment orders.
4. The petitioner‟s further case is that the Asst. Commissioner, CT-II, Enforcement Wing. Hyderabad, issued notices to the Company to show cause as to why sales tax under sec. 5E shall not be collected for the sale of the said prepaid cards, start kits, SIM cards and recharge coupons, through the distributors who are commission agents, for the year 2000-01 and 2001-02. Challenging the same, the Company filed W.P.Nos.17300 and 17301 of 2002. On the same lines, the CTO issued show cause notices for the same years. Challenging these show cause notices, the Company filed W.P.Nos.23094 and 23096 of 2002.
5. Four writ petitions filed by the Company were transferred to the Hon‟ble Supreme Court to be heard along with similar matters filed by various other Cellular Mobile Service Operators in the Country.
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6. While the issue was pending before the Hon'ble Supreme Court, without any just and reasonable cause, the respective assessing officers of Visakhapatnam and Hyderabad passed assessment orders in the cases of some of the distributors alleging that they have purchased the SIM cards and recharge coupons from the company hence they are exhigible to Tax on Turnover under Sec.5-A of the APGST Act. Challenging the same W.P.Nos.2473/2003, 24794/2003, 3519/2004, 4309/2004 and 4310/2004 were filed in this Court in which this Court passed stay orders.
7. The Hon'ble Supreme Court decided the matter vide orders dated 02.03.2006 reported in [(2006) 3 SCC 1 (BSNL vs. UOI). Inspite thereof the 3rd respondent issued a fresh notice to the petitioner as the dealer of the Airtel SIM cards purportedly under Section 4 (3) of the A.P. VAT Act 2005 directing to show cause as to why the turnover of the sales of SIM cards should not be included for the purpose of computing the tax payable by the petitioner.
8. The petitioner submitted the objections vide reply dated 12.12.2007 and placed reliance upon the judgment of the Hon'ble Supreme Court of India to emphasize that the petitioner was not dealing with the sale of any goods but was only involved with providing service in respect of which service tax was being 6 levied and was being paid by the appropriate entity. Thereafter the 3rd respondent has issued impugned notices dated 17.12.2007.
9. Learned counsel for the petitioner submits that the issue as involved in this writ petition is squarely covered by the judgment of this Court in the case of the State of Andhra Pradesh v. M/s. Bharat Sanchar Nigam Limited, Hyderabad1.
10. Learned Government Pleader for Commercial Tax does not dispute and also submits that the issue involved is covered by the judgment of the Division Bench in Bharat Sanchar Nigam Limited (supra). He submits that the matter deserves to be remitted for fresh consideration by the tax Authority in the light of the said judgment.
11. The aforesaid judgment was rendered by a Co-ordinate Bench taking into consideration the judgment of the Hon‟ble Apex Court in the case of Bharat Sanchar Nigam Limited and another v. Union of India and others2.
12. In Bharat Sanchar Nigam Limited (supra), the principal question to be decided was as under in Para 1 of the judgment:-
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2011 (188) ECR 0394 (AP) 2 (2006) 3 SCC 1 7 "The principal question to be decided in these matters is the nature of the transaction by which mobile phone connections are enjoyed. Is it a sale or is it a service or is it both? If it is a sale then the States are legislatively competent to levy sales tax on the transaction under Entry 54 List II of the Seventh Schedule to the Constitution. If it is a service then the Central Government alone can levy service tax under Entry 97, List I (or Entry 92-C of List I after 2003). And if the nature of the transaction partakes of the character of both sale and service, then the moot question would be whether both legislative authorities could levy their separate taxes together or only one of them."
13. In Bharat Sanchar Nigam Limited (supra), the Hon‟ble Apex Court held that what a SIM card represents is ultimately a question of fact. In determining the issue, however the Assessing Authorities will have to keep in mind the following principles: If the SIM Card is not sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sale, it would be open to the Sales Tax Authorities to levy sales tax thereon. It was emphasized that if the sale of a SIM card is merely incidental to the service being provided and only facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax.
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14. It is apt to reproduce paras 87 and 92 of Bharat Sanchar Nigam Limited (supra) as under:-
"87. It is not possible for this Court to opine finally on the issue. What a SIM card represents is ultimately a question of fact, as has been correctly submitted by the States. In determining the issue, however the assessing authorities will have to keep in mind the following principles: If the SIM Card is not sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sale, it would be open to the Sales Tax Authorities to levy sales tax thereon. There is insufficient material on the basis of which we can reach a decision. However we emphasise that if the sale of a SIM card is merely incidental to the service being provided and only facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax. In our opinion the High Court ought not to have finally determined the issue. In any event, the High Court erred in including the cost of the service in the value of the SIM card by relying on the "aspects" doctrine. That doctrine merely deals with legislative competence. As has been succinctly stated in Federation of Hotel & Restaurant Association of India vs. Union of India [(1989) 3 SCC 634] -
" „.... subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power‟.
There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects.
92. For the reasons aforesaid, we answer the questions formulated by us earlier in the following manner:
A. Goods do not include electromagnetic waves or radio frequencies for the purpose of Article 366(29-A)(d). The goods in telecommunication are limited to the handsets supplied by the service provider. As far as the SIM cards are concerned, 9 the issue is left for determination by the Assessing Authorities.
B. There may be a transfer of right to use goods as defined in answer to the previous question by giving a telephone connection.
C. The nature of the transaction involved in providing the telephone connection may be a composite contract of service and sale. It is possible for the State to tax the sale element provided there is a discernible sale and only to the extent relatable to such sale.
D. The issue is left unanswered.
E. The „aspect theory‟ would not apply to enable the value of the services to be included in the sale of goods or the price of goods in the value of the service."
15. The Co-ordinate Bench in State of Andhra Pradesh (supra) also considered the Apex Court judgment in IDEA Mobile communication Ltd. Vs. C. C. Es & C., Cochin [JT 2011 (8) Sc 640] and observed as under in Para 15:-
"15. It is wholly unnecessary for us to dwell any further on this issue in view of the judgment of the Supreme Court in IDEA Mobile Communication Ltd. v. C.C.E & C., Cochin judgment in Civil Appeal No.6319 of 2011 dated 4th August, 2011. The question which arose for consideration in "IDEA Mobile judgment in Civil Appeal No. 6319 of 2011 dated 4th August, 2011" was whether the value of SIM cards, sold by the service provider to their mobile subscribers, should be included as "taxable service" under Section 65(105) (zzzx) of the Finance Act, 1994, (which provides for levy of service tax on telecommunication service), or whether it is taxable as "sale of goods" under the Sales Tax Act The Supreme Court held that the charges paid by subscribers, for procuring a SIM card, were generally processing charges for activating the cellular phone which would, necessarily, be included in the value of the SIM card, the amount received by the cellular telephone company from its subscribers, towards the SIM card, forms part of the taxable value for the levy of service tax; SIM cards are never sold as goods independent of the services provided, they are considered part and parcel of the services 10 provided; the dominant intention of the transaction is to provide services, and not to sell the material, i.e. SIM Cards which, on its own but without the service, would hardly have any value; the value of the SIM card forms part of the activation charges as no activation is possible without a valid functioning of the SIM card; the value of the "taxable service" is calculated on the gross total amount received by the operator from the subscribers; and no element of sale is involved in the transaction."
16. It was held by the Co-ordinate Bench of this Court, in State of Andhra Pradesh (supra) in Para 65 of the report, inter alia that, the SIM cards, recharge coupon vouchers, mobile telephone rentals on post-paid connections, value added services such as ring tones, music down loads, wall papers, etc. and proceeds received on sharing of infrastructure cannot be subjected to tax either under Section 4(1) or Section 4(8) of the V.A.T. Act. It was further held that in case these goods are sold or supplied to the subscribers by the service providers such "sale" or the "transfer of the right to use these goods" would be liable to tax either under Section 4(1) or Section 4(8) of the Act. It was further held that however, if, these goods are procured by the subscribers from suppliers, other than the service providers or their distributors/franchisees, the monthly charges, which the subscriber is called upon to pay by the service provider, would fall within "telecommunication service" and cannot be made liable to tax under the Act.
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17. Para 65 of State of Andhra Pradesh (supra) is reproduced as under:-
"We summarise our conclusions as under:-
1. SIM cards recharge coupon vouchers, mobile telephone rentals on post- paid connections, value added services such as ring tones, music down loads, wall papers, etc. and proceeds received on sharing of infrastructure cannot be subjected to tax either under Section 4(1) or Section 4(8) of the Act.
2. Telephone instruments, mobile handsets, modems and Caller ID instruments are "goods" both under Article 366(12) of the Constitution of India and Section 2(16) of the Act.
3. In case these goods are sold or supplied to the subscribers by the service providers such "sale" or the "transfer of the right to use these goods" would be liable to tax either under Section 4(1) or Section 4(8) of the Act.
4. However, if, these goods are procured by the subscribers from suppliers, other than the service providers or their distributors/franchisees, the monthly charges, which the subscriber is called upon to pay by the service provider, would fall within "telecommunication service" and cannot be made liable to tax under the Act.
5. If non-refundable deposits are collected, by the service providers from their distributors, as security deposit for supply of SIM cards, recharge voucher coupons and the like, such deposits would not fall within the ambit of "goods" and cannot be brought to tax under the provisions of the Act.
6. If, on the other hand, the non-refundable deposit is received against supply of telephone instruments, batteries, accumulators, etc. and it is established that the said deposit is a disguised form of consideration either for the sale or for the transfer of right to use such goods, then these deposits would form part of the sale consideration and be subject to tax under the provisions of the Act.
7. Likewise, if refundable deposits are collected from post-paid subscribers as security for payment of dues towards STD or ISTD facilities provided by the service provider, then such deposits, not being "goods", cannot be brought to tax under the Act.
8. If, however, the refundable deposits are for supply of telephone instrument, hand set etc. which are 12 "goods" and it is established that the deposits are a disguised form of sale consideration, then these refundable deposits may also form part of the sale consideration under Section 2(29)(b) of the Act, and would be chargeable to tax under Section 4 thereof."
18. Considering the aforesaid position in law, the impugned orders do not stand the tests laid down. There is no consideration in the impugned orders if the goods in question were sold or supplied to the subscribers by the service provider as „sale‟ or „the transfer of the right to use those goods or otherwise‟.
19. Consequently, this Writ Petition is allowed. The impugned proceedings dated 17.12.2007 for imposition of the tax under the Andhra Pradesh Value Added Tax Act, 2005 are quashed with the direction to the respondent No.3 to pass fresh order in accordance with law after giving opportunity of hearing to the parties concerned, within a period of six (06) months from the date a copy of this judgment is placed before respondent No.3 in terms of the aforesaid judgments.
20. No order as to costs.
13As a sequel thereto, miscellaneous petitions, if any pending, shall also stand closed.
__________________________ RAVI NATH TILHARI, J _____________________________ HARINATH NUNEPALLY, J Date: 01.03.2024 Note:-
Issue C. C. by 22.03.2024 B/o:- SCS 14 111 THE HON'BLE SRI JUSTICE RAVI NATH TILHARI AND THE HON'BLE SRI JUSTICE HARINATH NUNEPALLY WRIT PETITION No.2333 OF 2008 (per Hon'ble Sri Justice Ravi Nath Tilhari) Date: 01.03.2024 Scs