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
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.
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
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:-
2011 (188) ECR 0394 (AP)
(2006) 3 SCC 1
"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.
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,
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
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.
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
"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.
As 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
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
