2009 Supreme(Kar) 38

V. GOPALAGOWDA AND ARALI NAGARAJ, JJ
Bharati Airtel Limited Represented by its Head Legal and Regulatory - Appellant
Versus
State of Karnataka Principal Secretary to Finance Department – Respondent
Writ Appeal No. 629 of 2007
Decided on : 16-01-2009

Headnote:CONSTITUTION OF INDIA - Article 246: [V.Gopala Gowda & Arali Nagaraj,JJ] Entry 54 in List II in 7th Schedule-Entry 92-A in List-I of 7th Schedule-Finance Act, 1994 - Sale of light energy - Power of the State Government to levy ’Service Tax’ under the provisions of the Finance Act, 1994 - Held, Article 246 of the Constitution of India provides that the Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the 7th Schedule to the Constitution of India which list is referred to as ’Union List’ and the Legislature of any State shall have power to make laws with respect to any of the matters enumerated in List II in 7th Schedule to the Constitution, which list is referred to as ’State List’. The said Article 246 further provides that the Parliament and also the Legislature of any State, both shall have power to make laws with reference to any of the matters enumerated in List III in the 7th Schedule which list is referred to as ’Concurrent List’. It is further provided under the said Article that the parliament has power to make laws with respect to any matter for any part of the country not included in a State depite such matter being enumerated in the ’State List ’. Further, Entry 54 in List II (State List) in the 7th Schedule of the Constitution provide for levying ’tax on the sale or purchase of goods other than news papers’, subject to Entry 92-A in List I. Further, Entry 92-A of List I (i.e., Union List) pertains to levy of tax on sale or purchase of goods other than news papers where such sale or purchase takes place in the course of inter state trade or commerce. Thus, from a plain reading of the provisions of Article 246 of the Constitution of India and Entry 54 in List II in 7th Schedule and also Entry 92-A in List-I in the said schedule, it is clear that as provided under Entry 54 in List II, the State Government is competent to levy tax on the sale or purchase of goods other than news papers provided such sale or purchase does not take place in the course of inter State trade or commerce. The transactions assessed in these proceedings are the transactions between the assessee Company and its customers i.e., the ’lease-line holders’ and not the transactions of the customers inter se and, since the appellant Company and all its customers herein have their places of business within the State of Karnataka, all the transactions reported by the assessee company have to be treated as "local sales" only and therefore, the question of treating any part of the transactions as "inter State sales" or "export sales" at the hands of the assessee Company does not arise. Therefore, the Government of Karnataka is competent to levy sales tax on the appellant-Company on the sale of ’artificially created light energy’ used in the course of transmission of data/information of the subscribers of the appellant-Company through its OFC network. On facts held, The amount which the appellant Company has been collecting from its subscribers towards sale of artificially created light energy and the amount which it collects towards service are inseparable. Since elements of service and sale in the instant transaction cannot be separated from each other, as rightly held by the Assessing Authority in the impugned order of re-assessment, the entire proceeds received by the appellant Company from its subscribers as ’Service rentals’ shall have to be brought under tax under the provisions of KVAT Act treating the entire transaction of the appellant Company in providing the broad band connectivity to its subscribers as sale of artificially created light energy. Hence, that the appellant-Assessee Company is liable to be assessed to Sales Tax under the provisions of the KVAT Act, as rightly done by the 3rd respondent Assessing Authority in the impugned order of re-assessment, on its activity of providing broad band connectivity to its subscribers despite the assessee being assessed to service tax under the provisions of the Finance Act, 1994

       CONSTITUTION OF INDIA - Article 366 (12) & Sale of Goods Act 1930, Section 3 & Karnataka Value Added Tax Act, 2003, Section 2(15): [V.Gopala Gowda & Arali Nagaraj, JJ] Meaning of the term "goods" - Activity of providing broad band connectivity by the appellant Company to its subscribers, whether amounts to "Sale of Light Energy’ taxable under Section 3 of the KAVT Act ? Held, ’Light Energy’ is "Artificially Created" by the Assessee Company with its net work. Artificially created electrical light energy’ which is used for transmission of data of the subscribers of the Appellant/Assessee Company through its OFC Network is "Good’ within the meaning of Article 366(12) of the Constitution of India, Section 2(15) of the KVAT Act 2003 and also Section 2(7) of the Sale of Goods Act, 1930. Further, the ’electro magnetic waves’ used in the operation of mobile phones and the ’Artificially created light energy’ though it is ’electro magnetic waves of high frequency’, both are distinct from each other having different characteristics and being used for different purposes. It is further clear that the artificially created light energy in the instance case is capable of being possessed, transmitted, delivered and used, and, to some extent, stored. On careful analysis of the facts constituting the appellant company’s activity of providing ’broadband connectivity’ to its subscribers under ’Service Level Agreement ’entered into by it with them, it is found that the appellant Company has given its subscribers the right to use its OFC Network and also to use and consume the ’light energy’ created by it artificially for the purpose of carrying their data/information and it has been collecting from them an ascertained sum of money towards the same.

       INDIAN SALE OF GOODS ACT, 1930 - Section 3 & Karnataka Value Added Tax Act, 2003, Section 2(15): [V.Gopala Gowda & Arali Nagaraj, JJ] Meaning of the term "goods" - Activity of providing broad band connectivity by the appellant Company to its subscribers, whether amounts to "Sale of Light Energy’ taxable under Section 3 of the KAVT Act ? Held, ’Light Energy’ is "Artificially Created" by the Assessee Company with its net work. Artificially created electrical light energy’ which is used for transmission of data of the subscribers of the Appellant/Assessee Company through its OFC Network is "Good’ within the meaning of Article 366(12) of the Constitution of India, Section 2(15) of the KVAT Act 2003 and also Section 2(7) of the Sale of Goods Act, 1930. Further, the ’electro magnetic waves’ used in the operation of mobile phones and the ’Artificially created light energy’ though it is ’electro magnetic waves of high frequency’, both are distinct from each other having different characteristics and being used for different purposes. It is further clear that the artificially created light energy in the instance case is capable of being possessed, transmitted, delivered and used, and, to some extent, stored. On careful analysis of the facts constituting the appellant company’s activity of providing ’broadband connectivity’ to its subscribers under ’Service Level Agreement ’entered into by it with them, it is found that the appellant Company has given its subscribers the right to use its OFC Network and also to use and consume the ’light energy ’created by it artificially for the purpose of carrying their data/information and it has been collecting from them an ascertained sum of money towards the same.

       KARNATAKA VALUE ADDED TAX ACT, 2003 - Section 2 (15): [V.Gopala Gowda & Arali Nagaraj, JJ] Meaning of the term "goods" - Activity of providing broad band connectivity by the appellant Company to its subscribers, whether amounts to "Sale of Light Energy’ taxable under Section 3 of the KAVT Act ? Held, ’Light Energy’ is "Artificially Created" by the Assessee Company with its net work. Artificially created electrical light energy’ which is used for transmission of data of the subscribers of the Appellant/Assessee Company through its OFC Network is "Good’ within the meaning of Article 366(12) of the Constitution of India, Section 2(15) of the KVAT Act 2003 and also Section 2(7) of the Sale of Goods Act, 1930. Further, the ’electro magnetic waves’ used in the operation of mobile phones and the ’Artificially created light energy’ though it is ’electro magnetic waves of high frequency’, both are distinct from each other having different characteristics and being used for different purposes. It is further clear that the artificially created light energy in the instance case is capable of being possessed, transmitted, delivered and used, and, to some extent, stored. On careful analysis of the facts constituting the appellant company’s activity of providing ’broadband connectivity’ to its subscribers under ’Service Level Agreement ’entered into by it with them, it is found that the appellant Company has given its subscribers the right to use its OFC Network and also to use and consume the ’light energy ’created by it artificially for the purpose of carrying their data/information and it has been collecting from them an ascertained sum of money towards the same.