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2015 (8) TMI 1289 - MADHYA PRADESH HIGH COURT

2015 (8) TMI 1289 - MADHYA PRADESH HIGH COURT - [2015] 86 VST 258 (MP) - Levy of VAT or service tax - activity is in nature of sale or service - activity of providing passive infrastructure and related operations and maintenance services to various telecommunication operators in India - Held that:- When the petitioner has not transferred the possession of the passive infrastructure to the sharing telecom operators in the manner understood in law, the limited access provided to them can only be r .....

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an only prevent an act from being unlawful which, but for the licence, would be unlawful. A licence can never convey by itself any interest in the property - The entire MSA has to be read as a whole without laying any undue emphasis upon a particular word or clause therein. What is permitted under the MSA is a licence to the telecom operators to have access to passive infrastructure and a permission to keep equipments of the sharing telecom operator in a prefabricated shelter with provision to h .....

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Kaushal, JJ. N. Venkataraman, Senior Counsel with Sumit Nema for the petitioner. Deepak Rawal, Assistant Solicitor General, Pushyamitra Bhargava, Deputy Advocate General and Prasanna Prasad for the respondents ORDER All these five writ petitions are filed by M/s. Bharti Infratel Limited, seeking the issuance of writ of certiorari, quashing the revisional order of the Additional Commissioner, Commercial Tax, Indore Region-I, Indore passed on 13.03.2013 (Annexure P/1) on the ground that its activ .....

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h is the 4th respondent herein, to refund the taxes paid by the petitioner under the Finance Act, 1994 on the activity of the provisions of Passive Infrastructure and Related Operations and Maintenance Services , or in alternative, to direct the State of Madhya Pradesh (respondents No.4 to 6) to deposit the taxes under the Finance Act, 1994 for appropriation towards the tax liability arising out of the same impugned order. 2. The issue involved in these writ petitions are similar and identical, .....

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ervices to various telecommunication operators in India on a shared basis. 4. The nature of service provided by the petitioner was envisaged by the Government of India initiative Mobile Operators' Shared Towers (MOST). The Department of Telecommunications (DoT) in a bid to create a high quality, low cost, rapid, wide coverage mobile telecommunication network in India sought to propose through the Project MOST , a system of sharing of Passive Infrastructure by the various telecom service prov .....

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L, Uninor, Idea Cellular Limited etc. Under the agreements, the telecom service providers are charged by the petitioner for the Site Access Availability i.e., for the access granted to them to the passive infrastructure, owned and possessed by the petitioner and for the related operation and maintenance services offered by the petitioner for the effective and efficient use of the passive infrastructure. These charges are in the nature of service charges and are not in the nature of consideration .....

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are used to ensure 24 x 7 power supply and to convert 240 Volts AC current into -48 DC current required for smooth running of BTS and other equipments. The air conditioners are used to keep the temperature below 35 degrees Celsius inside the shelter room for smooth running of BTS. The petitioner is also responsible for safety of the operators equipments at its site. For all these services (site access, power supply, power conversion, air conditioning and safe keeping), the petitioner receives a .....

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ll equipments such as BTS equipment, associated antennae and active infra network equipments and other requisite equipments required to provide telecommunication services by them to their customers. The right, title and interest in all such equipments installed on the site by the Sharing Operations would remain with such operators only. 9. The petitioner commenced operations in April, 2007 and started establishing passive infrastructure at different sites for offering the infrastructure on shari .....

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ation and control of the services relating to passive infrastructure equipment, including maintenance, service, supervision, repairs etc. The petitioner should ensure uninterrupted power and periodic servicing / overhauling of DG sets and should also ensure minimum level of diesel in fuel tank of DG sets is maintained. The agreement between the petitioner and the Cellular Telecom Operator is on non-exclusive basis and the petitioner retains the right to provide access to the site including any i .....

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liability at the applicable rates on the consideration received for the purpose of providing the infrastructure support service. The petitioner has been regularly filing its returns in Form ST-3 as specified under Section 70 of the Finance Act, 1994 before the Service Tax Authorities and the same has been regularly assessed by the authorities from time to time. The petitioner filed returns and relevant documents for the period from 01.04.2009 to 31.03.2010. The dispute for assessment by the aut .....

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Passive Infrastructure Sharing Agreements with various telecom operators during revision of the determination order. The petitioner, in reply to the said letter, filed detailed arguments as to why the proceedings to reopen the assessment could be done and also that no tax should be levied on Passive Infrastructure Sharing Agreements under the VAT Act, 2002. 13. Respondent No.3 by the impugned order dated 18.03.2013 (Annexure P/1) relying on the decision of the Single Bench of the Karnataka High .....

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petitioner / company assailing the impugned action contended that the petitioner / company is the owner of Passive Infrastructure. It consists of a tower on a piece of land or roof top of a building, prefabricated shelters, DG sets, battery bank, power plant, power interface unit, air conditioners with some electrical works accessories like antennas, duplexers, combiners, transceivers, alarm extensions buses, control system etc. The same is operated and maintained by the petitioner under the agr .....

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cture at all times of the contract with the service provider and, therefore, the transaction is purely a service transaction which attracts service tax, as per Finance Act, 1994. 15. As is clear from the terms of the contract as well as the intention of the parties as could be gathered from the terms of the contract, there is no intention to transfer the right to use the passive infrastructure to the shared operators. Therefore, neither the activity carried on by the petitioner nor the transacti .....

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d be imposed on the same aspect. The agreement between the petitioner and the service providers is for providing access. The right to use, if it is to be construed as a deemed sale, then, it requires transfer of possession of goods along with the effective control of the goods which is not there in the instant case. The terms of the agreement makes it abundantly clear that 24 x 7 x 365 days, the petitioner has to operate and maintain the infrastructure to render the requisite service to the shar .....

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operate and maintain the infrastructure at 99.98% for efficiency, as otherwise they would not be entitled to consideration at all. Therefore, he submits that having regard to the nature and the terms of the contract, the activity carried on by the petitioner, the purpose for which, the shared operators have access to passive infrastructure, it is a contract of pure services and no element of sale is involved. Therefore, the learned authority without proper application of mind, has erroneously h .....

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infrastructure. The terms of the agreement makes it very clear that this infrastructure is installed at the site preferred by the shared operators and it is installed in the manner the shared operators requires it and after installation, he is provided site access upon which the shared operators install their machinery which is known as "active infrastructure in the very same site and in fact, on the tower in the very same site. Keys of the site are handed over to the shared operators. The .....

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Court in the 2 0 th Century Finance Corporation Limited v. State of Maharashtra reported in 2000 (6) SCC 12. Therefore, he submits that the tax is imposed on this aspect of transfer. The very purpose of the 46th amendment to the Constitution is to tax these types of transactions which directly do not fall within the definition of sale of goods but nonetheless the effect of such transaction is the transfer of right to use the goods. It is in order to avoid evasion of payment of tax by entering in .....

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al of all the writ petitions. 17. The Additional Commissioner on examination of the Master Service Agreement (MSA) entered into between the petitioner and M/s. Bharti Airtel Limited held that the entire amount of contract received from the sharing telecom operators for providing access to the passive infrastructure would amount to contract for transfer of the right to use goods, as defined in Section 2 (u) (vi) of the MP VAT Act, 2002 and was exigible to tax under the said Act. 18. In order to a .....

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equires: - Active Infrastructure includes base terminal station equipment, associated antennae, back-haul connectivity to the Sharing Operator's network and other requisite equipment and associated civil and electrical works required to provide telecommunications services by the Sharing Operator at a telecommunications site other than Passive Infrastructure. Passive Infrastructure means at any site, any infrastructure located at such site which is permitted by Law to be shared by the Parties .....

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andard Site Access Terms set out in Schedule 6 (Standard Site Access Terms). Sharing Operator Licence means any mobile telecommunications licence granted by the DoT to the Sharing Operator for the Permitted use. 20. Clause 2.1 of the MSA provides for provision of passive infrastructure by the petitioner, which reads, as under: - 2.1 Provision of Passive Infrastructure 2.1.1 Infratel shall provide Site Access Availability to the Sharing Operator in accordance with the terms and conditions of this .....

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1 of Schedule 1 (Site Access Availability). Any additional requirements shall be specified by the Sharing Operator in the Service Order. 2.1.4 In the event that the Service Orders received by Infratel in respect of any Site (s) mean that the available Passive Infrastructure at such Site (s) are over-subscribed, an applicant whose Service Order was received by Infratel prior to another Service Order shall be given priority by Infratel while allocating such Passive Infrastructure to the relevant .....

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6 Upon the execution of a Service Contract in respect of a Site, the Sharing Operator shall have the right to install the Sharing Operator Equipment or any portion thereof at such Site. The Sharing Operator shall have access to each such Site for all installation activities and Infratel shall provide to the Sharing Operator the necessary means of access for the purpose of ingress and egress from each such Site in accordance with the terms of the Service Contract. Provided, however, that only aut .....

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2.1.5, the right of site access availability is non-extensive and petitioner would retain the right to provide site access availability to other telecom operators and the sharing operator would retain the right to seek passive infrastructure services from other passive infrastructure providers. Clause 3 provides for operation and maintenance of the equipment of the sharing operator. Under clause 3.1.2, the equipment installed by the sharing operator shall be operated and maintained by the sharin .....

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sure that the operation and maintenance services which are provided by it to the sharing telecom operators are in accordance with good industry practice and only be suitably qualified, skilled and experienced personnel. The information relating to processes and proceedings to monitor the performance shall be shared with the sharing operators on a monthly basis. Certain consequences follow if operation and maintenance service levels fall short of the required standards which are not relevant for .....

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f such services to any party or for such other purposes as petitioner may in its discretion decided to support from time to time. Clause 4.2 delineates the rights of petitioner to ask for relocation of the equipment of the sharing telecom operator; such relocation may occur due to acquisition of a site or action by a Government authority or any order of a Court of law etc. Under clause 5.2 it shall be the responsibility of petitioner to ensure that any other operators on the side do not cause an .....

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ts employees and agents and sub-contractors comply with the terms and conditions of the contract, to comply with all applicable laws and desist from doing anything which might cause or otherwise result in a breach by petitioner, maintain its equipment in a good and safe state of repair and condition, to desist from installing equipment or machinery of a type or frequency which would cause harmful interference or physical obstruction to any equipment belonging to petitioner or of any other sharin .....

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receipt thereof. Clause 6.3 provides for consequences of late payment which are not relevant for our purpose. 25. Clause 10 confers upon petitioner the right to advertise on the passive infrastructure. It says that petitioner shall have the exclusive right to lease, licence or grant space on each site or passive infrastructure on the site to any their party for the purposes of placing hoardings, banners and other advertisements and the sharing telecom operator shall not have any right of object .....

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ss service credit for acquisition and deployment etc. Schedule 2 provides for operation and maintenance service . Only 3 clauses need to be noticed. Clause 1.8 obliges petitioner to ensure proper access to the sites for all authorized personnel of sharing telecom operator for the purposes set out in Clause 3.1.2 which we have already noticed. Clause 1.9.3 sets out the rates at which the petitioner has to pay the operation and maintenance service credits to the sharing operator for its failure to .....

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ter but less than 99.90% 7.5% 99.50% or greater but less than 99.70% 10.0% 99.00% or greater but less than 99.50% 25.0% Less than 99.00% 30.0% The Operation and Maintenance Service Credits payable by petitioner in accordance with the table above shall be applicable in respect of those Sites in the relevant Circle which are below the Operation and Maintained Service Level Specified in paragraph 1.9.2 above. Clause 1.10 obliges petitioner to submit a report of the reasons for any unplanned downtim .....

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es for charges . 28. Sub-clause (d) of clause (29A) of Article 366 of the Constitution of India reads as follows: - 366.Definitions. - In this Constitution, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say - xxxxx xxxxx xxxxx (29-A) tax on the sale or purchase of goods includes - xxxxx xxxxx xxxxx (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) fo .....

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, stocks, shares, securities or Government stamps and includes all materials, articles and commodities, whether or not to be used in the construction, fitting out, improvement or repair of movable or immovable property, and also includes all growing crops, grass, trees, plants and things attached to, or forming part of the land which are agreed to be served before the sale or under the contract of sale. (u) 'Sale' with all its grammatical variations and cognate expressions means any tran .....

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ed association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (v) a supply, by way of or as part of any service or in any other manner whatsoever, of goods being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration; (vi) a transfer of the right to use any goods including leasing thereof for any purpose (whether or not .....

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cumstances, the provisions of Passive Infrastructure Services by the petitioner to share operator's would tantamount to 'transfer of right to use goods' as per Section 2 (u) (vi) of the Madhya Pradesh Value Added Tax Act, 2002, and therefore, become liable to value added tax under the MP VAT Act? 31. The constitutional bench of the Apex Court in the case of 2 0 th Century Finance Corporation Ltd. & another v. State of Maharashtra reported in 2000 (6) SCC 12, wherein while determi .....

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. One of the principles providing situs of sale was en-grafted in Explanation to clause (1) (a) of Article 286, as it existed prior to the Constitution (Sixth Amendment) Act, which provided that the situs of sale would be where the goods are delivered for consumption. The second view is, situs of sale would be the place where the contract is concluded. The third view is, that the place where the goods are sold or delivered would be the situs of sale. The fourth view is, that where the essential .....

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nt on the transfer of the right to use any goods. Article 366 (29-A) (d) empowers the State legislature to enact law imposing sales tax on the transfer of the right to use goods. The various sub-clauses of clause (29A) of Article 366 permit the imposition of tax thus: subclause (a) on transfer of property in goods; subclause (b) on transfer of property in goods; subclause (c) on delivery of goods; sub-clause (d) on transfer of the right to use goods; sub-clause (e) on supply of goods; and sub-cl .....

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the transfer of the right to use any goods will be a deemed sale in the case of subclause (d). Clause (29A) cannot, in our view, be read as implying that the tax under sub-clause (d) is to be imposed not on the transfer of the right to use goods but on the delivery of the goods for use. Nor, in our view, can a transfer of the right to use goods in subclause (d) of clause (29A) be equated with the third sort of bailment referred to in Bailment by Palmer, 1979 edition, page 88. The third sort refe .....

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ivered for use. What is required is that the goods should be in existence so that they may be used. And further contract in respect thereof is also required to be executed. Given that, the locus of the deemed sale is the place where the right to use the goods is transferred. Where the goods are when the right to use them is transferred is of no relevance to the locus of the deemed sale. Also of no relevance to the deemed sale is where the goods are delivered for use pursuant to the transfer of t .....

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ise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located and .....

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titute a basis for levy of tax on the transfer of right to use any goods. We are, therefore, of the view that where the goods are in existence, the taxable event on the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is executed. Thus, where goods to be transferred are available and a written contract is executed between the parties, it is at th .....

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elivery; b. There must be a consensus ad idem as to the identity of the goods; c. The transferee should have a legal right to use the goods consequently all legal consequences of such use including any permissions or licenses required therefor should be available to the transferee; d. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor this is the necessary concomitant of the plain language of the statute viz. a "transfer of the righ .....

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on behalf of the respondents (VAT department) is that the question whether there was any transfer of the right to use the goods can be decided only on the basis of the facts of the case. It was in this context submitted that the Karnataka High Court had posed to itself an erroneous question for decision, the question making an erroneous assumption that the petitioner was carrying on an activity which was a service provided by it and since the question itself was framed on an erroneous assumption .....

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arnataka High Court in the judgment sited (supra). The right to use the goods - in this case, the right to use the passive infrastructure - can be said to have been transferred by the petitioner to the sharing telecom operators only if the possession of the said infrastructure had been transferred to them. They would have the right to use the passive infrastructure if they were in lawful possession of it. There has to be, in that case, an act demonstrating the intention to part with the possessi .....

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is necessary for the proper functioning of the active infrastructure. The MSA also defines site access availability as meaning the availability of access to the sharing operator to the passive infrastructure at the site. Clause 2 of the MSA which has been quoted above provides for site access and Clause 1.7 limits the site access availability to the sharing operator on use - only basis so far as it is necessary for installation, operation and maintenance etc. of the active infrastructure; the cl .....

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MSA or otherwise shall create any title, right, tenancy, or any similar right in favour of the sharing operator. 36. There are other provisions in the MSA which control the right of the sharing operator to gain access to the site and the passive infrastructure . For instance, Clause 3.1.2 states that the access shall be limited to the purpose of carrying out operation and maintenance activities and that too only to the authorised representatives or properly authorise subcontractors of the shari .....

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titioner to ensure that the passive infrastructure functions to its full efficiency and potential, which in turn means that it has to be in possession of the passive infrastructure and cannot part with the same in favour of the sharing telecom operators. With several such restrictions and curtailment of the access made available to the sharing telecom operators to the passive infrastructure and with severe penalties prescribed for failure on the part of the petitioner to ensure uninterrupted and .....

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rmed as a permissive use of the passive infrastructure for very limited purposes with very limited and strictly regulated access. It is therefore difficult to see how the arrangement could be understood as a transfer of the right to use the passive infrastructure. 37. When the petitioner has not transferred the possession of the passive infrastructure to the sharing telecom operators in the manner understood in law, the limited access provided to them can only be regarded as a permissive use or .....

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has retained the right to lease, licence etc. the passive infrastructure to any advertising agency; b) The entire infrastructure is in the physical control and possession of Indus at all times and there is no parting of the same nor any transfer of the right to use the equipment or apparatus; c) The permission granted to the telecom operator to have access to the passive infrastructure for limited purposes is loosely termed by the taxing authorities as a right to use the passive infrastructure .....

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