TMI Blog2010 (9) TMI 990X X X X Extracts X X X X X X X X Extracts X X X X ..... which is engaged in the business of telecommunications (i.e., data transfers) at Bangalore, under the name and style of M/s. Bharat Sanchar Nigam Limited. The main business activity of the assessee is data transfers (telecommunications). In the impugned order it is stated that telecommunication is all about data transfers only, in the telecom network. Various types of data routinely transferred in telecommunications can be broadly classified into three categories audio data, video data and textual data. Whatever the type of data be, data of all kinds are basically lifeless and, therefore, lack spontaneous movement of its own. To cause transfer/movement of such data from one place to another, some specific carrier (energy) is indispensably required. Without such carrier, the data cannot even be imagined to move an inch forward, let alone at the speed of light. According to the assessing officer, such data carrier energy is the artificially created light energy (ACLE) which is acting as the sole driving force behind every type of data transfer in telecommunications. ACLE is possessable in the same sense as the electrical energy, as the customers can use it any time they want during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2006] 282 ITR 273 (SC); [2006] 3 SCC 1. Therefore, he held, notwithstanding the aforesaid judgment of the apex court, the law declared by the Supreme Court is not applicable to the facts of this case and, therefore, the assessee is liable to pay sales tax and for some years value added tax. It is that order which is challenged by the assessee before the learned single judge. The learned single judge has passed an interim order of stay subject to the condition assessee depositing Rs. 550 crores and he has listed the matter for final hearing on September 14, 2010. Assailing the said order it is contended that, when the impugned order passed by the assessing officer is contrary to the law declared by the apex court and when the stand of the assessee was accepted in the original proceedings, the learned single judge was not justified in passing an interim order and directing the assessee to pay Rs. 550 crores. The order does not disclose any reasons for such conditional order and, therefore, it is submitted the condition imposing depositing of Rs. 550 crores is liable to be set aside. Per contra, the learned counsel appearing for the State submitted that, though the order does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid issues do not indicate that the apex court was considering only the case of mobile telephones. In dealing with those questions, the apex court made the following observations (pages 122-130 in 3 VST): 57. The State-respondents in their submissions had initially differed as to what constituted 'goods' in telecommunication. Ultimately, the consensus among the respondents appeared to be that the 'goods' element in telecommunication were the electromagnetic waves by which data generated by the subscriber was transmitted to the desired destination. The inspiration for the argument has been derived from the provisions of the Indian Telegraph Act, 1885 which defines telegraph as meaning: '3. (1AA) telegraph means any appliance, instrument, material or apparatus used or capable of use for transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature by wire, visual or other electro-magnetic emissions, radio waves or Hertzian waves, galvanic, electric or magnetic means; Explanation. Radio waves or Hertzian waves means electro-magnetic waves of frequencies lower than 3,000 giga-cycles per second propagate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not extinguished by their user. They are not delivered, stored or possessed. Nor are they marketable. They are merely the medium of communication. What is transmitted is not an electromagnetic wave but the signal through such means. The signals are generated by the subscribers themselves. In telecommunication what is transmitted is the message by means of the telegraph. No part of the telegraph itself is transferable or deliverable to the subscribers. 63. The second reason is more basic. A subscriber to a telephone service could not reasonably be taken to have intended to purchase or obtain any right to use electromagnetic waves or radio frequencies when a telephone connection is given. Nor does the subscriber intend to use any portion of the wiring, the cable, the satellite, the telephone exchange, etc. At the most the concept of the sale in a subscriber's mind would be limited to the handset that may have been purchased for the purposes of getting a telephone connection. As far as the subscriber is concerned, no right to the use of any other goods, incorporeal or corporeal, is given to him or her with the telephone connection. 64. We cannot anticipate what may be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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. From the aforesaid judgment it is clear the apex court has held that, in telecommunication what is transmitted is the message by means of the telegraph. No part of the telegraph itself is transferable or deliverable to the subscribers. As far as the subscriber is concerned, no right to the use of any other goods, incorporeal or corporeal, is given to him or her with the telephone connection. An electromagnetic wave or radio frequency does not fulfil the parameters applied by the Supreme Court in Tata Consultancy See [2001] 122 STC 198 (SC).for determining whether they are goods, right to use of which would be a sale for the purpose of article 366(29A)(d). Therefore, they held that the electromagnetic waves are not goods within the meaning of the word either in article 366(12) or in the State legislations. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endently considered the facts of the case and that is how the assessment order is passed. The question whether it is sale of goods or not is yet to be decided at the highest level. On the face of it, the judgment of the apex court applies to the facts of this case. Unless the law declared by the apex court is held not to be applicable to this case or varied or modified, any demand of tax by the State contrary to the law of the land prima facie cannot be sustained. It is settled law, for every levy of tax there should be a statutory authority. That is precisely what is to be decided in an appropriate proceeding. The very fact that the assessing authority chose to accept the case of the assessee and did not raise a demand and such a demand is raised by way of re-assessment order on the ground that though apex court has declared the law to which the State is a party and after an attempt to get the order reviewed did not materialise, when this order is passed, certainly the said order is to be carefully scrutinised before the assessee is made to pay tax. The assessee's contention is they are service providers. They are not in the business of sale of goods. As service providers t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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