2011 Supreme(Kar) 151

High Court of Karnataka
N. KUMAR & RAVI MALIMATH
M/s. Bharti Airtel Ltd., Rep by its Head-Legal & Regulatory, S. Nagaraj
Versus
The State of Karnataka Finance Department, Rep by its Secretary to the Government & Others
WA.NOS.530-541 of 2011 & W.A.NO.654 of 2011 C/W W.P.NOS.2015-2065 of 2011 & W.A.NOS.789 of 2011, 790 of 2011, 791 of 2011, 792-803 of 2011, 805-816 of 2011, 817-828 of 2011 & 829-840 of 2011
Decided on: 25-02-2011

Headnote:CONSTITUTION OF INDIA - Article 141: [N.Kumar and Ravi Malimath, JJ] Declaration of law by the Supreme Court - Doctrine of Precedent - Held, The doctrine of precedent helps in promoting certainty and consistency in Judicial decisions and enables an organic development of law besides providing assurance to the individual as to the consequences of transactions forming part of daily affairs. The decision in a Judgment of the Supreme Court cannot be assailed on the ground that certain aspects were not considered or the relevant provisions were not brought to the notice of the Court. The Judgment of the Supreme Court are binding on all authorities under Article 142 of the Constitution and it is not open to any authority to ignore a binding Judgment of the Supreme Court on the ground that the full facts had not been placed before it and/or the Judgment of the Supreme Court in the earlier proceedings had only collaterally or incidentally decided the issues. The general principle of law laid down by the Supreme Court is applicable to every person including those who were not parties to that order. Judicial discipline to abide by declaration of law by the Supreme Court, cannot be forsaken under any pretext by any Authority or Court, be it even the highest Court in a State, oblivious to Article 141 of the Constitution. What is binding in terms of Article 141 of the Constitution is the ratio of the Judgment. The ratio decidendi of a Judgment is the reason assigned in support of the conclusion. The decision of the Supreme Court upon a question of law is considered to be a binding precedent, and this must be ascertained and determined by analyzing all the material facts and issues involved in the case. - Further held, The law declared by the Supreme Court is the law of the land. The Supreme Court has always been a law-maker and its role travels beyond merely dispute-setting. It is a problem-solver in the ’nebulous area’ without ignoring statutory provisions. The Supreme Court only interprets the law and cannot legislate it. On facts, held, Therefore, it is obvious that there is a deliberate attempt on the part of the State and its Officials not to accept the Judgment of the Apex Court, which has attained finality and have over looked the effect of such Judgment as declared in Article 141 of the Constitution of India, which provides that the law declared by the Supreme Court shall be binding on all the Courts within the territory of India. Instead of giving effect to the law declared by the Apex Court, they employed their entire Official machinery to over reach the said Judgment, misinterpreted the said Judgment and tried to levy tax without the Authority of Law. This conduct, at any rate, cannot be countenanced by the Court of law.

       CONSTITUTION OF INDIA - Article 141: [N.Kumar & Ravi Malimath, JJ] Binding nature of the Supreme Court Judgment - Issues involved in the proceedings are covered by a Judgment of the Supreme Court - Attempt made by the Assessing Authority to distinguish the Supreme Court Judgment - Held, The attempt on the part of the Authority under the guise of distinguishing the Supreme Court Judgment, in reality they are showing disobedience and disrespect to the Supreme Court Judgment and the same would not be countenanced and would be viewed seriously. Further held, The way, the State and its Authorities have ignored, disobeyed, bypassed a binding judgment of the Supreme Court and if permitted and remains unchecked, it will lead to a total disintegration of the system in which we are working. It will lead to total lawlessness and uncertainty. However, as this matter will not end here and it will be agitated before the Supreme Court, we leave it to the Supreme Court to take appropriate action against the State and its Officials in order to prevent re-occurrence of such mis-adventures. However, the State has to pay costs to these petitioners for all the turmoil they have undergone. The State shall pay Rs.1,00,000/- to each of the Petitioners Appellants.

       CONSTITUTION OF INDIA - Articles 226 & 227: [N.Kumar & Ravi Malimath, JJ] Decision on Constitutional issues and interpretation of Statutes - Writ Petitions involving questions relating to the competence of the States to Levy Sales Tax on Telecommunication Service - Plea of alternative remedy - Exercise of power under Writ Jurisdiction - Held, The Writ Petitions raise questions relating to the competence of the States to Levy Sales Tax on Telecommunication Service. If the State Legislatures are incompetent to levy the tax, it would not only be an Arbitrary exercise of power by the State authorities in violation of Article 14, but also it would Constitute an unreasonable restriction upon the right of the service providers to carry on trade under Article 19(1)(g) of the Constitution of India. The Constitutional issues have to be decided exclusively by the High Court. These questions cannot be decided by a Statutory Authority and the Appellate Authorities constituted either under the Karnataka Sales Tax Act or the Karnataka Value Added Tax Act. Therefore, this is not a case where the matter could be relegated to an Appellate Authority under a Statute. There cannot be any impediment or difficulty for the High Court in deciding the legal issues on the basis of admitted, undisputed technical facts available on record. Further, The reasons given by the Single Judge to relegate the parties to an alternative remedy are that it needs to be established as to whether or not artificially created light energy carrying the data to the customer’s desired destinations in the network could be held as goods; that it involves phenomenal scientific investigation and research and the Courts are not well equipped to go into the scientific and technological aspects of the matter. Therefore, in his view, it is desirable that the petitioners have to file statutory appeals and the Appellant Authority to embark on a fresh enquiry, perhaps by taking the assistance of the technical persons and technical bodies in the matter. On facts, held, The question for consideration is whether this light energy used as a carrier for transmitting the message from one network to another network has the characteristic of goods as defined under Article 366 (12) of the Constitution of India read with the definition of goods found in the Karnataka Sales Tax as well as the KVAT Acts. This is not the matter to be decided by any technical expert. This is the matter to be decided by the Judges or the Taxing Authorities, who are imposing taxes. - The Learned Single Judge has not applied his mind to these materials, which was very much available on record and which is extensively referred to by the Assessing Authority at length in the impugned order. Therefore, there is no justification to remit the matter to the Appellate Authority on that score.

       CONSTITUTION OF INDIA - Entry 54, List-II, VII Schedule: [N.Kumar & Ravi Malimath, JJ] Light energy which is used as a carrier in Telecommunication service for rendering service - Held, The light energy which is used as a carrier in telecommunication service for rendering service is covered by the Parliamentary Legislation i.e. the Finance Act, 1994 read with Section 65 (109-a). It does not fall within the Entry 54 of List-II of VII Schedule. The contract in question is not a composite contract. It is an indivisible contract and a contract of service simpliciter. There is no element of sale at all to any extent. It is not a contract of sales simpliciter as contended by the State. Further, It is not ’goods’ as defined in Article 366 (12) of the Constitution of India or under Section 2(m) of the Karnataka Sales Tax Act, 1957 or Section 2(15) of the Karnataka Value Added Tax Act, 2003. Consequently, there is no sale of goods as held by the Assessing Authority. Therefore they have no power to levy tax. The judgment of BSNL and other vs Union of India & ors., reported in 2006 (3) SCC 1 squarely applies to the facts of these cases. Hence, the impugned re-assessment orders and Assessment orders passed by the Assessing Authority levying tax on light energy are liable to be set aside.

       KARNATAKA SALES TAX ACT, 1957 - Section 2(m): [N.Kumar & Ravi Malimath, JJ] "Goods" - Whether ACLE (Artificially created light energy) is goods ? - Held, The artificially created light energy is a form of energy, wave used as a data or information carrier by a service provider in telecom service. The essential test to be satisfied before an article is said to be ’goods’ is the test of marketability. In the market, the said goods is to be known as a commodity which is useful to a customer. In other words it should be known to the market as goods. That is, such goods must be bought and sold in the market. Therefore, and article or commodity or a material must be something which can ordinarily come to the market to be bought and sold. It must have a distinctive name, character or use. Thereafter it should satisfy the test of abstraction, transmission, transfer, delivery, storage and possession, etc., Further, In the case of ACLE, it is not something which is manufactured or generated by the service provider. It is derived from electricity. For abstraction the light energy must be available in abundance and if the service provider is making use of a portion of it, he abstracts a portion of it. However, by a technology called LED and LD, the service provider converts electricity into light energy. Therefore, the ACLE is not in existence in abundance in the form of ACLE. IT comes into existence when electrical energy is converted into light energy. Therefore, there is no abstraction of light energy. It is a case of conversion and not abstraction. Therefore, the said test is not fulfilled. The Assessing is capable of abstraction. In case of the ACLE, the subscriber never comes in contact with the light energy. When he sends a message or data for transmission, that message reaches a network maintained by the service provider. It is the service provider who for the purpose of transmitting the message or data generates light energy by converting electrical energy into light energy and uses the light energy as a carrier for the purpose of transmitting the message or data. Therefore, neither the subscriber nor the recipient of the message or the data, consumes any portion of the ACLE. Therefore, ACLE is a tool in the hands of the service provider to render service. Therefore the finding recorded by the Assessing Authority that the subscriber or the recipient consumes this light energy in the process of transmission is patently erroneous. In the case of ACLE, the subscriber sends his voice or data and the recipient receives only the voice or data and not any portion of ACLE. Neither the subscriber nor the recipient of the message or data ever comes in contact with the light energy. On facts, held, Therefore, none of the tests prescribed to constitute "goods" exist in the case of light energy. Light energy is neither abstracted nor consumed. It is not delivered, stored or possessed. It is not marketable. The Assessing Authority though has very selectively taken the information and made it appear that the case is not covered by BSNL and has propagated a new theory which has no basis. In facts, the very word Artificially Created Light Energy is his own creation. In that view of the matter, it is held that this Artificially Created Light Energy is not goods as defined under Article 366(12) of the Constitution or under the Karnataka Value Added Tax Act or under the Value Added Tax.

        Assuming for the argument sake that ACLE is ’goods; it does not five any right to the State to levy the sales tax. It is only when the goods are sold or any re-purchase takes place, the taxing event happens and the tax could be levied. In the instant case, the agreement entered into between the subscriber and the service providers are placed on record. In the entire agreement there is no whisper about this Artificially Created Light Energy is offered for sale by the service provider to the subscriber. So, the subscriber never approaches the service provider for purchase of this light energy. On the contrary in the entire agreement what is agreed upon is providing the service. Therefore, the terms of the agreement between the parties give no indication of sale or purchase of this light energy. On the contrary in exclusively provides that the agreement entered into between the parties is for service. In this context it is necessary to notice the legal requirements of sale of goods. - Further held, To sum up, the expression "sale of goods" in Entry 48 is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to transmit voice or a data and the agreement he enters into with the service provider if for transmission of voice or data. He is not concerned with the technology adopted by the service provider to transmit the said voice or data. In the instant case, ACLE is used for transmitting the said voice/data as is clear from the technical information as well as the reasoning of the Assessing Authority. ACLE is only a carrier. The subscriber has not entered into an agreement to purchase ACLE or any portion thereof. The consideration paid by him is for the service rendered and transmitting the voice/data to its destination. He does not come in contact with this carrier at all. Therefore none of the conditions prescribed to constitute the sale of goods exists in the instant case. Therefore, there is no sale of goods, which empower the State to levy sales Tax/Vat. It is clear the licence granted under the Telegraph Act is for providing telecommunication services and not for supply of any goods or transfer of right to use any goods. It expressly prohibits transfer or assignment. The licence clearly interdicts the licencee and prohibits the licencee from assigning or transferring his rights in any manner whatsoever under the licence to a third party. It is not in the contemplation of both the parties that the contract between them involves transfer of ACLE or right to use any goods. In terms of the licence no transfer of the rights to use the telegraph could be effected by them. What was provided is service by utilization of the telegraph licence for the benefit of the subscribers. - On facts, held, This artificial light energy is created by conversion of electrical energy into light energy within the net work to the extent required for the transmission of data or message. At the other end, the ACLE drops out within the net work. ACLE is not seen by the Subscriber Consumer. It never comes to the market for it to be bought or sold. It is unknown in the market. It is not capable of abstraction, consumption, delivery by subscriber/customer. Therefore, it does not possess the characteristic of "goods" as understood in law and there is no sale of such goods involved in a telecommunication service.