TMI Blog2009 (1) TMI 793X X X X Extracts X X X X X X X X Extracts X X X X ..... tax on the appellant-company under the provisions of the KVAT Act in respect of its transaction of providing broadband connectivity to its subscribers, for the reason that "service tax" has been levied on it by the Union Government under the provisions of the "Finance Act, 1994" treating the said transaction as "service"? Held that:- As rightly submitted by the learned counsel for the appellant-assessee the question whether the transactions of the appellant-company with its subscribers could only be service for which it is liable to be taxed only under the provisions of the Finance Act, 1994 or it involved the element of sale of goods making it liable to be taxed under the provisions of the KVAT Act and whether the appellant-company could be taxed under both the said provisions, could not be decided by the appellate authority under the KVAT Act. Therefore, we are of the considered view, that the appellantassessee-company could maintain its said writ petition and as such the learned single judge is not justified in dismissing the same only on the ground that the appellant-assessee did not avail of alternative statutory remedy available to it under the said Act. Hence point No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nged the legality and correctness of the said order of reassessment. Stated in brief the case of the appellant-assessee company as averred in its W.P. No. 1537 of 2007 (Bharti Airtel Ltd. v. State of Karnataka [2007] 7 VST 505 (Karn)) is as under: (a) The appellant-company is incorporated under the Indian Companies Act, 1956. It has been granted licence by the Government of India, Ministry of Telecommunications, under section 4 of the Indian Telegraph Act, 1885 for providing broadband services to its subscribers. It has also been registered with the fifth respondent, namely, the Commissioner of Service Tax, Bangalore under the Finance Act, 1994 and it has been regularly paying service tax in respect of the said service. (b) The appellant-company has established telecom infrastructure for providing broadband connectivity by laying down about 35,000 kms. optic fibre cables across the country five feet deep in the ground. These optic fibre cables have enormous data carrying capacity at very high speed at which the light travels without any interference. The appellant provides service of telecom connectivity to its subscribers from one point of presence (POP) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by the said order of reassessment, the appellant filed W.P. No. 11728 of 2006 before this court and the said writ petition came to be allowed by order dated October 19, 2006 and the said order of reassessment was quashed and the matter was remanded to the assessing authority for fresh disposal. (g) After the remand, the third respondent-assessing authority again issued 12 notices dated October 28, 2006 (annexure B) for the twelve months from April 2005 to March 2006 proposing to treat the transaction of providing broadband services as sale of light energy . The appellant submitted detailed reply to the said notices on December 30, 2006 (annexure C). After hearing the appellant, the third respondent-assessing authority passed the impugned order of reassessment (annexure A) and thereby confirmed the entire demand proposed in the said notices and imposed penalties and also levied interest on the tax said to be payable and due by the appellant. (h) Though the appellant had alternative remedy by way of appeal under the provisions of the KVAT Act, the same could not be efficacious one inasmuch as for availing of the said remedy of appeal, the appellant was to make deposit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order dated January 12, 2007 making reassessment of the tax payable by the appellant-assessee-company on the ground that the broadband connectivity provided by the appellant to its subscribers amounts to sale of light energy taxable under section 3 of the Karnataka Value Added Tax Act, 2003? (3) Whether the Government of Karnataka has authority under the Constitution of India to levy tax on the appellant-company under the provisions of the KVAT Act in respect of its transaction of providing broadband connectivity to its subscribers, for the reason that service tax has been levied on it by the Union Government under the provisions of the Finance Act, 1994 treating the said transaction as service ? We now proceed to record our findings and reasons on the above points by considering the arguments advanced by the learned Senior Counsel and other counsel for the respective parties. Point No. 1. Sri V. Sridharan, the learned counsel for the appellantassessee strongly contended that the learned single judge committed serious error in dismissing the writ petition on the ground that the appellant did not avail of the statutory remedy of appeal provided under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant-assessee, there was threat of using coercive machinery against the appellant-assessee for recovery of heavy amount of tax and therefore, the honourable Supreme Court held that the alternative statutory remedy available to the appellant therein was not adequate one and hence the writ petition of the appellant-assessee was maintainable. At paragraph 9 of its judgment (page 120 of STC) the honourable Supreme Court has observed as under: ...There it was held that the principle that a court will not issue a prerogative writ when an adequate alternative remedy was available could not apply where a party came to the court with an allegation that his fundamental right had been infringed and sought relief under article 226. Moreover, the remedy provided by the Act is of an onerous and burdensome character. Before the appellant can avail of it he has to deposit the whole amount of the tax. Such a provision can hardly be described as an adequate alternative remedy. Further, in second of the abovesaid decisions relied upon by the learned counsel for the appellant-assessee, i.e., the decision in J.M. Baxi Co., Gujarat v. Commissioner of Customs, New Kandla reported in [2001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... negative and in favour of the appellant-assessee. Point Nos. 2 and 3: Having held that the writ petition filed by the appellant-assessee challenging the legality and correctness of the impugned order of reassessment and the consequent notices demanding payment of tax issued by the third respondent-assessing authority against the appellant-company is maintainable, we now proceed to examine the merits of the case of the appellant-assessee. Since both these point Nos. 1 and 2 as formulated above, involve the discussion as to the same set of facts, we propose to deal with both of them at a stretch. Sri V. Sridharan, the learned counsel for the appellant-assessee, while referring to the grounds urged in the memorandum of writ appeal and also the writ petition strongly contended as under: (i) The very fact that the appellant-company has been issued licence under section 4 of the Indian Telegraph Act to install, operate and maintain the National Long Distance ( NLD for short) service network for providing services to its subscribers goes to show that the activities of the appellant-company are only service rendered to its subscribers, but not sale of any goods. He further sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he voice information and therefore, there could be no element of sale of any goods much less sale of light energy by the appellant to its subscribers so as to attract the provisions of the KVAT Act. (v) Entry in List I of the Seventh Schedule provides for tax on services . The appellant-company has been rendering service to its subscribers in transmitting the data through Optic Fibre Cable ( OFC , for short) laid by it across the country about five feet deep in the ground and therefore, it had been assessed under the Finance Act, 1994 by the Government of India through the fifth respondent, viz., the Commissioner of Service Tax, Bangalore, and accordingly, it has been paying service tax in respect of the said service and hence the Government of Karnataka has no authority whatsoever to levy tax on the appellant-company under the KVAT Act in respect of the same activity treating the said service as sale of light energy . The assessing authority has erroneously observed in the impugned order of reassessment that there is no express provision under the service tax law stipulating that VAT shall not be levied on any transaction on which service tax is levied nor does the KVAT Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and as such there has been sale of the said light energy by the appellant-company to its subscribers. He further contended that the OFC by itself is of no use unless the artificially created light energy is made to pass through it and it is only that light energy which carries the data of the subscribers from one point to another; it satisfies all the properties of goods and the generation, sale and consumption of the light energy takes place simultaneously and therefore, it is virtually the sale of light energy by the appellant-company to its subscribers. He further contended that billing is done by the appellant-assessee on the basis of quantity of data that is transmitted which is directly proportional to the quantity of artificially created light energy used and consumed for the purpose of transmitting the data. He also contended that in the case of Bharat Sanchar Nigam Ltd. v. Union of India reported in [2006] 3 VST 95; [2006] 145 STC 91; [2006] 3 SCC 1, the honourable Supreme Court did not consider the nature of artificially created light energy and therefore, the principle enunciated in the said case cannot be applied to the facts of the present case. He further su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices v. State of Andhra Pradesh [2004] 137 STC 620 (SC); [2005] 1 SCC 308. 2.. Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 3 SCC 1. 3.. State of Andhra Pradesh v. National Thermal Power Corporation Ltd. [2002] 127 STC 280 (SC); [2002] 5 SCC 203. 4.. Vikas Sales Corporation v. Commissioner of Commercial Taxes [1996] 102 STC 106 (SC); [1996] 4 SCC 433. 5.. Hindustan Shipyard Ltd. v. State of Andhra Pradesh [2000] 119 STC 533 (SC); [2000] 6 SCC 579. 6.. Federation of Hotel Restaurant Association of India v. Union of India [1989] 74 STC 102 (SC); [1989] 3 SCC 634. For recording our findings and reasons on these two points we have to consider and answer the following questions, namely: 1.. Whether the light energy required for transmitting the data of the subscribers of the appellant-assessee-company from one point to another through the optic fibre cable network laid by the appellantcompany is artificially created by it? 2.. Whether such artificially created light energy is capable of being held as goods ? 3.. Whether there is sale of such artificially created light energy by the appellant-asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... data from the optical source into an electrical signal and the computer will be able to process the data. (iii) The multiplexer has the light source which would be a Light Emitting Device (LED)/Laser Device (LD). The data which is in electrical signals modulates the light. The multiplexer converts these signals into a corresponding optical signal (a form of an electromagnetic wave). This stage onwards the data travels in the form of light through the optic fibre cable. (iv) When the data reaches the other end, it falls on a photodetector that senses the modulations in the light and reproduces the original data and sends the electrical signals to the computer. The photodetector surface absorbs the light and hence the light does not travel any further. (v) In the entire activity of transmission of data from place to place, what is delivered by the broadband users is data in electrical wave form and what is given back to the said users is data in electrical wave form only. The light that is emitted by the LD in the transmitter is only for the purpose of transmission of either data or voice information. From the above, it could be seen that, it is not in dispute that O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion No. (1) formulated by us above namely, whether the light energy required for transmitting the data of the subscribers of the appellant-assessee-company from one point to another through optic cable network laid by the appellantcompany is artificially created by it? in the affirmative holding that the said energy is created by the appellant-assessee-company. The second question is: Whether such artificially created light energy is capable of being held as goods ? On this question, Sri Sridharan, learned counsel for the appellant-company, strongly contended that artificially created light energy (ACLE) cannot be termed as goods as defined under article 366(12) of the Constitution of India, under section 2(15) of the KVAT Act, 2003 or under section 2(7) of the Sale of Goods Act, 1930 as it does not possess any of the properties of goods . He further contended that the artificially created light energy which is the electro-magnetic wave of high frequency is not capable of being possessed, stored, delivered and marketed, and therefore, it cannot be held to be goods . In support of this contention, he has relied upon the decision of the honourable Supreme Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are agreed to be severed before sale or under the contract of sale . From the above definitions, it is clear that the term goods includes all kinds of moveable property , all materials, commodities and articles . Such goods may be either tangible or intangible. In the case of Associated Cement Companies Ltd. v. Commissioner of Customs reported in [2001] 124 STC 59; [2001] 4 SCC 593, the Supreme Court has held (at para No. 27 therein) that any media whether in the form of books or computer disks or cassettes which contain information, technology or ideas would necessarily be regarded as goods as defined under section 2(22)(e) of the Customs Act, 1962. It is so held by the Supreme Court, while interpreting the definition of goods as given under section 2(22)(e) with reference to section 12 of the said Act which provides for payment of customs duty on the goods imported into India. Further, in the case of State of Andhra Pradesh v. National Thermal Power Corporation Ltd. [2002] 127 STC 280; [2002] 5 SCC 203, the Supreme Court, following its earlier decision in Commissioner of Sales Tax v. Madhya Pradesh Electricity Board, Jabalpur [1970] 25 STC 188; [1969] 2 SCR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media, i.e., the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of 'goods' within the meaning of the term as defined in the said Act. The term 'all materials, articles and commodities' includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed, etc. The software programmes have all these attributes. (emphasis Here italicised. supplied) In the case of Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 VST 95; [2006] 145 STC 91; [2006] 3 SCC 1, the Supreme Court, while interpreting the definition of goods as given under article 366(12) of the Constitution of India and under the provisions of the U.P. Trade Tax Act and also after considering its earlier view in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that the said light energy cannot be possessed, stored and delivered and therefore, it cannot be termed as goods within the definition of article 366(12) of the Constitution of India and also under section 2(15) of the KVAT Act. From the above observations of the Supreme Court in the case of Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 VST 95; [2006] 145 STC 91; [2006] 3 SCC 1, it is clear that the term goods does not include electro magnetic waves or radio frequencies for the reasons that they are neither abstracted nor are they consumed, in the sense that they are not extinguished by their user; and that they are not delivered, stored or possessed nor are they marketable. Therefore, the converse of it would be, if the electro magnetic waves of any kind can be abstracted consumed and used, and they are capable of being delivered, possessed and stored, they can be termed as goods . In the said case of Bharat Sanchar Nigam Ltd. case [2006] 3 VST 95; [2006] 145 STC 91; [2006] 3 SCC 1 before the Supreme Court the electro magnetic waves were made to travel in free space from one point to another and as such they could not be abstracted, consumed and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in space (wireless mode) whereas OFC broadband uses 'artificially created light energy' transmitted through an optic fibre line only; these energies are quite different in both physics and chemistry and operate on different platforms; (b) the owner of OFC broadband network creates this light energy for the sole purpose of transmitting the data/information; this light energy is created by LED (Light Emitting Diode) or LD (Laser Device), which is mixed/modulated with the data or information; when this light energy is transmitted through OFC broadband, the data/information is delivered at the desired other end; (c) in mobile telephone network the voice of user is carried by electro-magnetic waves (called carrier) which travel in space and at the receiver end the carrier is separated and the voice is delivered to the receiving user. Similarly, in the case of OFC broadband network the light generated (through LED or LD) is used as carrier , it carries data/information and travels through OFCs cables to the receiver's end. At the receiver's end the light carrier is separated and the data/ information is delivered to the receiving user; and (d) the subscri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne owner and what is given back by him is only the data. (iv) One can make light at will, but it cannot be possessed or stored, it can be transferred and delivered. As to the question whether the light energy is capable of being abstracted,? the said Dr. Raji Philip has stated in his said letter that he does not know what abstraction means. He has answered the question whether the light energy is capable of being abstracted, possessed, transferred and delivered as under: (a) Once a photon is created in a typical network it is transmitted to optical fibre towards the service provider but transmits its information (in certain cases after converting the signal from optical to electronic form) towards its destination through system of routers. This system of routers may be electronic (a conversion of data in the OFC to electronic form, followed by a routing of this data from a collection of explicitly chosen electronic network routers) or optical routers (in an all optical network). (b) The created photon is almost never stored. The storage of photons is difficult though not impossible. An illusion of storage may be created by making the photons re-circulate in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... access to the telephone exchange with or without telephone are goods within the meaning of the said provision. In the case of State of Andhra Pradesh v. National Thermal Power Corporation Ltd. reported in [2002] 127 STC 280 (SC); [2002] 5 SCC 203, following its earlier decision in Commissioner of Sales Tax v. Madhya Pradesh Electricity Board, Jabalpur reported in [1970] 25 STC 188; [1969] 2 SCR 939, the Supreme Court held that the definition of goods as given in article 366(12) of the Constitution of India is very wide and it includes all kinds of movable property and therefore, electricity which is capable of abstraction, consumption and use is 'goods'. In the said decision, the Supreme Court has referred to its another decision in the case of Indian Aluminum Co. v. State of Kerala reported in [1996] 7 SCC 637 and it quoted with approval its observations in the said case which read as under: ...Continuity of supply and consumption starts from the moment the electrical energy passes through the meters and sale simultaneously takes place as soon as meter reading is recorded. All the three steps or phases (i.e., sale, supply and consumption) take place without a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also following the relevant observations of the Supreme Court in all its earlier decisions discussed by us supra and which have been considered by the Supreme Court in Bharat Sanchar Nigam Ltd.'s case [2006] 3 VST 95; [2006] 145 STC 91; [2006] 3 SCC 1, we are of the considered view that the artificially created electrical light energy which is used for transmission of data of the subscribers of the appellant-assesseecompany through its OFC network is goods 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. Hence we answer the second question formulated by us above, namely whether artificially created light energy is capable of being held as goods in the affirmative holding it as goods . Having answered question Nos. 1 and 2 in the affirmative holding that the appellant-company artificially created the light energy which is used in transmitting the data of its subscribers through its OFC network and the said energy is goods , we now proceed to consider third and fourth questions formulated by us supra, namely: whether there is sale of 'artificially cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y with its subscribers and therefore, no tax could be levied on the appellant-company under the provisions of the KVAT Act. Sri V. Sridharan, the learned counsel for the appellant, by giving an illustration of transportation of goods by the transporter, strongly contended that artificially created light energy is used by the appellantcompany in transmitting the data/information of its subscribers in the same way in which the transporter uses petrol/diesel as fuel in the goods vehicle and therefore it cannot be held that the appellant sells ACLE to its subscribers. He submitted further that in the transportation of goods entrusted to the transporter by his customers the transporter carries the goods from one place to another in a carrier such as lorry and petrol/ diesel is used in the said lorry as fuel for creating energy to make the lorry to move but the fuel consumed in the said activity cannot be said to have been sold by the transporter to his customers, and in the same way, the data will be given to the appellant-company by its subscribers for its transmission from one place to another and the appellant-company transmits it through OFC network maintained by it and for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FC network, the carrier in this case, namely ACLE , gets extinguished on its reaching the end point inasmuch as it is fully absorbed by the photodetector there and thereby data is separated from it, but the lorry which carries the goods from one place to another does not get extinguished. He further submitted that unlike the transport vehicle, used by the transporter for transporting the goods, which can be reused by the transporter for carrying other goods, the ACLE which carries a specific data cannot be reused for transmitting other data belonging to the same subscriber nor can it be used for transmitting the data belonging to any other subscriber and therefore, what is being charged by the appellantcompany is towards the price of the ACLE but not towards the service rendered by it by providing its infrastructure of OFC network to its subscribers for transmitting their data as claimed by it. Sri Raghavan, the learned Senior Counsel also contended that whatever amounts that are collected by the appellant-company from its subscribers as lease rentals are virtually the price of the ACLE and the infrastructure of OFC network established by the appellant-company for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of transportation of goods through a lorry, after the lorry (carrier) reaches the destination, the goods will be unloaded from the lorry and delivered to the consignee and the lorry will again be used for transportation of other goods either belonging to the same customer or belonging to other customers. In other words, in the case of transportation of goods, the carrier, i.e., the lorry, does not get extinguished by its user but in the case of transmission of data the carrier viz., artificially created light energy gets extinguished by its user, namely, the subscriber of the appellant-company. Thus the ACLE is fully consumed but the lorry is not consumed. It is further clear that in the case of transportation of goods , what is consumed is petrol/diesel which used as source of energy (fuel) for making the lorry (carrier) to run for the purpose of carrying the goods, but not the carrier (lorry) itself. But, in the case of transmission of data, the carrier, viz., ACLE itself is fully consumed. This being so, carrying of data by ACLE through OFC network cannot be equated with the carrying of goods by transporter by using a vehicle like lorry and the appellant-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxed under the KVAT Act. In the case of State of Uttar Pradesh v. Union of India reported in [2003] 130 STC 1 (SC); [2003] 3 SCC 239, there was composite contract for sale and service. The appellant-State in the said case contended that in supplying instruments, accompaniments and the telephone connection to its subscriber the DoT (Department of Telecommunication) which had the exclusive privilege, was transferring the right to use those goods; but the respondent-DoT contended that it was providing service which did not involve transfer of a right to use any goods and that under the Finance Act, 1994 Parliament had imposed a service tax and therefore the State could not levy any tax under the U. P. Trade Tax Act. Allowing the said appeal of the State, the honourable Supreme Court held in the said case at para No. 24 of its judgment (para 29 in STC) as under: 24(1). The question whether a given activity is one of sale or service is a vexed question. The terminology employed to describe an activity as sale or service is not conclusive in itself. By calling sale as service or vice versa, the substance of the transaction will not get altered. The question has to be determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Explanations are not extracted here. On a plain reading of the above definition of sale it is clear that in order to describe a transaction as sale , there shall be in it, (i) transfer of property in goods (other than by way of a mortgage, hypothecation, charge or pledge); (ii) by one person to another; (iii) in the course of trade or business; (iv) for cash or deferred payment or other valuable consideration. It is further clear from the said definition that as provided under clause (d) therein, a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration is also sale . 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, we have 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said activity of the appellant-company certainly involves the element of sale of artificially created light energy . Having come to the conclusion that the appellant-company's activity of providing broadband connectivity to its subscribers for transmitting their data/information involves the element of sale of artificially created light energy , we have now to examine whether this sale (of artificially created light energy) could be brought to tax by the Government of Karnataka under the provisions of the KVAT Act as is done by the third respondentassessing authority in this case. 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 Seventh 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 the Seventh 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 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-company during his arguments in this appeal challenging these observations of the learned assessing authority. Therefore, we are of the considered opinion that the Government of Karnataka is competent to levy sales tax on the appellantcompany on the sale of artificially created light energy used in the course of transmission of data/information of the subscribers of the appellantcompany through its OFC network. Having come to the conclusion that the Government of Karnataka State has authority to levy tax under the provisions of the KVAT Act on the sale of ACLE by the appellant-company in the course of providing broadband connectivity to its subscribers, we have now to examine whether such tax could not be levied on the appellant-company in view of the fact that the Central Government has assessed the appellant-company to service tax under the provisions of the Finance Act, 1994. It is the case of the appellant-assessee that the dominant object of the transaction between itself and its subscribers as per the service level agreement being service , even if there is element of sale therein, it is only incidental to the said dominant object and therefore no tax could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of a deemed sale. Of these three, the first and third involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been constitutionally permitted in sub-clauses (b) and (f) of clause (29A) of article 366, there is no other service which has been permitted to be so split. For example, the sub-clauses of article 366(29A) do not cover hospital services. Therefore, if during the treatment of a patient in a hospital, he or she is given a pill, can the sales tax authorities tax the transaction as a sale? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. On a careful reading of the above observations of the Supreme Court at para No. 44 (para 45 in STC), in Bharat Sanchar Nigam Ltd.'s case [2006] 3 VST 95; [2006] 145 STC 91; [2006] 3 SCC 1, it is clear that only three spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the substance of the contract See Atiyah: The Sale of Goods (1995 reprint), page 27. We will, for the want of a better phrase, call this the dominant nature test. From the above observations, it is clear that in respect of composite contract other than those mentioned in article 366(29A), like the one in the instant case, dominant nature test to be applied. The copy of invoice dated August 31, 2005 which is found at page No. 457 of the paper book produced by the appellant-company herein reveals that under the said invoice a sum of Rs. 85,162 is collected by the appellant-company from its customer having customer ID No. 4682 as recurring charges (bandwidth and services) and no amount is collected under the said invoice under any other head shown therein, namely, one time charges; other charges; debit notes; credit notes; and a sum of Rs. 8,516 towards taxes and another sum of Rs. 170 towards cess are collected. Thus, it is clear that the said recurring charges of Rs. 85,162 are not exclusively towards service charges, but they are inclusive of charges towards bandwidth and also charges towards services. Further, the term of service level agreement does not reveal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the classification, above referred, we are of the view that they will not apply to the present case. Here the service of telephone connection cannot be artificially split into various categories supply of instruments and accompaniment on the one hand and supply of telegraphic line/connection on the other, to name the former as 'sale' and the latter as 'service'. The analogy of composite contract will apply where 'sale' and 'service' are two different independent objects. Further, at para No. 24 of its judgment (para 29 in STC) in the same case State of Uttar Pradesh v. Union of India [2003] 130 STC 1; [2003] 3 SCC 239, the Supreme Court has quoted the observations of its Constitutional Bench made at para No. 12 See page at 218 of [1980] 45 STC. of its earlier decision in the case of Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1980] 45 STC 212 (SC); [1980] 2 SCC 167 and it reads as under: 12 See page at 218 of [1980] 45 STC. Indeed, we have no hesitation in saying that where food is supplied in an eating house or restaurant, and it is established upon the facts that the substance of the transaction, evidenced by its do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the third respondentassessing authority in the impugned order of reassessment, on its activity of providing broadband connectivity to its subscribers despite the assessee being assessed to service tax under the provisions of the Finance Act, 1994. For the reasons aforesaid, we are of the considered opinion that the question Nos. 3 and 4 formulated by us supra shall have to be answered in the affirmative holding that there is sale of artificially created light energy by the appellant-company to its subscribers in its activity of transmitting their data through the OFCs network so as to attract the provisions of the KVAT Act, 2003 and that the Government of Karnataka has authority to levy VAT on the entire proceeds collected by it as lease rentals from its subscribers despite the appellant-assessee company being assessed to servicetax by the Central Government under the Finance Act, 1994. Therefore, we answer both the point Nos. 2 and 3 formulated by us in this appeal in the affirmative holding that the third respondentassessing authority is justified in passing the impugned order dated January 12, 2007 making the reassessment of the tax payable by the appellant- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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