TMI Blog2019 (1) TMI 766X X X X Extracts X X X X X X X X Extracts X X X X ..... r - It also appears that the petitioner Company grants the right to the telecom operator to enter the concerned site for installing necessary equipments, machineries owned by it at such site as may be required by it as well as also grants the right to operate and maintain the same. It also appears that the petitioner Company grants the right to the telecom operator to enter the concerned site for installing necessary equipments, machineries owned by it at such site as may be required by it as well as also grants the right to operate and maintain the same. The telecom operator can be said to have effective control over the manner, time and nature of use of passive infrastructure by virtue of its “right to use goods” acquired through such contract. Even the telecom operator has right to select the particular height, direction or other equipments. The petitioner Company does not have any freedom to allot the same height, direction on the same tower. Thus, once a particular placed is allotted by way of passive infrastructure, to any telecom operator, the said telecom operator can be said to be in exclusive domain and/or possession and/or use of such passive infrastructure by virt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication and the case on behalf of the petitioners so pleaded in the petition in nut shell are as under: [2.1] That the Passive Infrastructure Assets of Bharti Infratel Limited (hereinafter referred to as BIL ) were transferred to Bharti Infratel Ventures Limited (hereinafter referred to as BIVL ) by virtue of scheme of arrangement as approved by the High Court of Delhi vide its order dated 29.03.2011. That the demerger scheme was effective from 01.01.2009. Further, the Passive Infrastructure Assets of Vodafone Essar Gujarat Limited (hereinafter referred to as VEGL ), now known as Vodafone West Limited (hereinafter referred to as VWL ) were transferred to Vodafone Essar Infrastructure Limited (hereinafter referred to as VEIL ) now known as Vodafone Infrastructure Limited (hereinafter referred to as VIL ), by virtue of the scheme of arrangement as approved by the High Court of Gujarat vide its order passed in August, 2012. The demerger scheme was effected from 01.04.2009. The Passive Infrastructure Assets of Idea Cellular Limited (hereinafter referred to as ICL ) were transferred to Idea Cellular Tower Infrastructure Limited (hereinafter referred to as ICTIL ) by virtue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unication infrastructure, instead of being owned and used by a single telecom operator, can be effectively used by two to four telecom operators simultaneously. It is submitted that therefore, the said concept gave birth to a new type of service in the field of telecommunication services i.e. passive infrastructure services. It is submitted that therefore with the aforesaid object telecom operators as per the outsourcing these services to such service providers including the petitioner. [2.4] It is the case on behalf of the petitioners that the transaction in question i.e. the revenue under the MSA is governed completely by Finance Act, 1994 and is liable to service tax. That the petitioner has been remitted service tax on the entire transaction to the respondent No.2 Union of India. Therefore, according to the petitioner the transaction in question thus has already suffered service tax in the hands of the the respondent No.2 Union of India. It is the case on behalf of the petitioners that notwithstanding that Union Taxes are being levied and paid on the transaction in question, VAT authorities are seeking to impose VAT under the GVAT Act on the very same consideration, resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, it has been alleged that by the respondent No.3 that the gross receipts of the petitioner from providing the Passive Infrastructure Services in Gujarat is subject to VAT under the GVAT Act, whereas the petitioner has deposited service tax on the entire receipts. [2.7] It is submitted that the impugned show cause notice being absolutely illegal, arbitrary and not sustainable under the law, the petitioner has no other alternative remedy other than filing the present petition and therefore, the petitioners have preferred the present Special Civil Application. [3.0] Shri Venkatraman, learned Counsel has appeared on behalf of the petitioners and Shri Kamal Trivedi, learned Advocate General has appeared on behalf of the respondent State authorities. [4.0] Shri Venkatraman, learned Counsel appearing on behalf of the petitioners has vehemently submitted that as such the issue involved in the present petition is squarely covered in favour of the petitioners by the following decisions of three High Courts in the petitioners own case. (1) Division Bench of Karnataka High Court in Indus Towers Ltd. vs. Deputy Commissioner of Commercial Taxes, Bangalore [2012 (285) E.L. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... II. Active infrastructure (owned by telecom opertors and kept / installed at a telecom site owned by the petitioner) Base Transmission Station (BTS) kept inside the shelter Microwave Radios installed on the tower at a particular height Antennas installed on the tower at a particular height B. The petitioner s Service offering As part of its standard business offering, the petitioner offers following package to telecom operators as a bundled service: (a) Operation and Maintenance services are performed by Indus as per schedule 2 of the MSA Agreement. As per Schedule 2 of MSA Agreement, Indus is responsible for the following activities: (i) As per clause 2.11 and 2.12, Indus is responsible for ensuring up time of more than 99.95% and if uptime falls below then Indus is liable for penalty. (ii) As per Clauses of schedule 1 2 of MSA Agreement, core activities including operational and maintenance services are: Space on the tower to install Microwave antennas and other equipment, to receive and transmit signals. Space inside the shelter for safe keeping and operation of the equipments owned by telecom operators in a dust free, water proof and hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the State for cash or deferred payment or other valuable consideration and includes, (d) 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. 4. That as per section 2(13) of the GVAT Act, goods means all kinds of movable property (other than newspapers, actionable claims, electricity, stocks and shares and securities) and includes live stocks, all materials, articles and commodities, and every kind of property (whether as goods or in some other form) involved in the execution of works contract, all intangible commodities and growing crops, grass, standing timber or things attached to or forming part of the land, which are agreed to be served before sale or under the contract of sale. 5. That it can be seen from the definitions that sale includes the transfer of right to use goods for a valuable consideration; whereas goods have been defined as every kind of moveable property. That on a conjoint reading of both the definitions, it can be understood that for any transaction to be considered as sale under Section 2(23)(d) of the GVAT Act, all the following conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... censes required should therefore be available to the transferee; (g) For the period during which the transferee has such legal right, it has to be to the exclusion to the transferor this is the necessary concomitant of the plain language of the statute, viz. a transfer of the right to use , and not merely a license to use the goods; and (h) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others. 11. That the activity of provision of Passive Infrastructure by the petitioner to the Sharing Operator fails most of the parameters inasmuch as : (a) The Passive Infrastructure always remains in the possession and control of the petitioner and is only used for the provision of the service to telecom shared operators. As per Clause 2.1.6 2.1.7 of the Agreement, the control, management and possession of the Passive Infrastructure site would always remain with the petitioner. Also, as per Clause 3.1.1 and 5.2.4 of the Agreement, the responsibility of operation and maintenance of the Passive Infrastructure is of the petitioner. Therefore, it can be gleaned that the effective co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the telecom operators install their active telecommunication equipment at the site, which is peculiar to the operators network. The petitioner only provides services such as the battery backup, power plant, security etc. and exclusively maintains such system to meet the obligations under the contract. The Sharing Operators have no right in any manner or interest over the battery backup, power plant, tower and petitioner s other equipment and holds the applicable licenses for its use and operation. Therefore, there are no goods in respect of which right to use is transferred to a third party. 14. That it is apparent from MSA that the petitioner retains the right to grant the right to use Passive Infrastructure to various telecom operators. Several telecom operators share the petitioner s Passive Infrastructure. Such transaction is non exclusive and, therefore, it cannot be treated as a transfer of right to use goods for the purpose of levying VAT. 15. That the only right of the telecom operators under the MSA is to receive Passive Infrastructure Services by the petitioner. The MSA merely permits access of the Passive Infrastructure to the telecom operators to the exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or of jurisdiction in issuing notice under VAT on a transaction that is subject to Service tax. In the present case the transaction being purely of service, could not be brought under the ambit of Article 366(29A) (d) of the Constitution of India. In other words, since under the Union List, the activity undertaken by the petitioner is taxable as a service, no transaction of the petitioner in rendering such services can result in a sale/deemed sale of goods under Article 366(29A) of the Constitution of India. Accordingly, under the Constitution of India, the State of Gujarat does not have any jurisdiction or authority to impose tax on the transaction that qualifies as a service. 21. That the Parliament derives power to levy Service Tax from Entry 92C of List I of the Seventh Schedule to the Constitution of India and consequently the States are barred from demanding any VAT on such activities as are covered by the said Entry. 22. That Article 246 of the Constitution of India has clearly divided the powers of legislation by the Union Government and the State Governments. In respect of matters enumerated in List I of the Seventh Schedule, it is only the Parliament that has exclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions inter se between the parties cease to exist. They do not have any nexus with the taxable event i.e. transactions of sale of goods at a money consideration paid or payable as defined under the Sales Act. Even in this view of the matter, the deeming fiction cannot be extended to levy tax on a transaction which is not sale. That the deeming fiction of a provision of any law (in the present case, Section 52 of the GVAT Act) cannot be extended to such a degree whereby a non existent entity can be issued a notice/instruction after its successful amalgamation with another entity. Therefore, incorporation of such a provision which revives the existence of a corporate which has lost its personality is beyond the Legislative competence of the State Legislature. This legislative action of the State is also direct encroachment to an area (i.e. Companies Law) which is the exclusive domain of the piece of the Union. Accordingly, this colourable piece of legislation is liable to be read down. 27. That in the present case, pursuant to the Order dated 18.04.2013 passed by the Hon ble Delhi High Court: The Merging Entities ceased to exist with effect from 01.04.2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records the transactions in his register from a date subsequent to the Court order. However, such a recording on a subsequent date neither vitiates the operation of the High Court order nor can it revive the existence of the merged companies till such date of recording in the register. 33. That the matter relating to winding up is a matter falling exclusively in Entries 43 and 44 of List I and under Entries 43 and 44, the Companies Act has been enacted by the Parliament providing for winding of companies along with their incorporation and regulation. No law affecting winding up can be enacted by a State legislature. If any provision affects the winding of company, then such a provision would fall within the exclusive domain of the Parliament and if any law is enacted by the State Legislature in any way, touching the winding up of any company, then such a law would be beyond the competence of the State legislature. Even in this view of the matter, the scope of Section 52 cannot be extended to undo an act that falls within the exclusive domain of the Parliament. 34. That in light of above, a state legislature cannot deem artificial existence of the Merged Entities for any purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities. Shri Trivedi, learned Advocate General appearing on behalf of the respondent State Authorities has submitted that as the present petition is against the show cause notice only, the same may not be entertained at this stage. [5.1] Shri Trivedi, learned Advocate General has submitted that for determining as to whether the transaction in question arrived at between the petitioner and the sharing operators, is transferring any right in favour of sharing operators or not, it is necessary to analyze the contract in its entirety and reasonably inasmuch as the intention of parties to the contract is the real test for arriving to a conclusion as to whether they intended to create a lease or to mere grant license in favour of other party. It is submitted that on perusal of various clauses of the contract between the petitioner and the sharing operators to be clearly discernible that undoubtedly it is not a simple case, wherein merely a license of ingress and egress and/or access to passive infrastructure is being granted / issued by the petitioner Company in favour of the sharing operators. It is submitted but on the contrary, it is indeed creating bundle of rights in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able by the sharing operators to the petitioner company in addition to the charges relating to that site. The aforesaid clauses of the indenture in question clearly show that a bundle of rights have been conferred upon the sharing operators by the petitioner company. In support of his above submissions, Shri Trivedi, learned Advocate General has heavily relied upon the decision of the Hon ble Supreme Court in the case of Pradeep Oil Corporation vs. Municipal Corporation of Delhi Anr. reported in (2011) 5 SCC 270 wherein in similar set of clauses, the Hon ble Supreme Court has categorically held that mere description of the grant in question is not decisive. It is submitted that after considering clauses in detail the Hon ble Supreme Court has held that the indenture in question was a lease, which created bundle of rights in favour of appellant therein and thus, the appellant, though designated as a licensee in indenture, was held liable to pay property tax on the property therein. [5.2] It is further submitted by Shri Trivedi, learned Advocate General appearing on behalf of the respondent State Authorities that so far as the reliance placed by the petitioner company on C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Union of India reported in (2006) 3 SCC 1 i.e. when there are goods available for delivery, there is consensus ad idem as to identity of the goods, transferee has legal right to use the goods which right is to the exclusion of the transferor and lastly, the owner cannot again transfer the same right to the other entities. It is submitted that in other words, it can be said that the contract in question provides effective control as well as exclusive possession in favour of the sharing operators and therefore, the same would fall within the purview of the provisions of Section 2(23)(d) of the GVAT Act. [5.5] Now, so far as the submission on behalf of the petitioner that as the petitioner is also paying the service tax on the same consideration, there cannot be any tax levied under the GVAT Act and there shall be double taxation on the same transaction is concerned, it is submitted by Shri Trivedi, learned Advocate General appearing on behalf of the respondent State Authorities that both the eventuality are different and under different statutory provisions. It is submitted that once it is established that the transaction is not mere right to use but is a transfer of right to u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quipments to provide the telecommunication services. It is submitted that the said infrastructure be provided to the telecom operators on use only basis for installation, operation and maintenance etc. of the active infrastructure of the telecom operator. It is submitted that thus the petitioner Company grants the right to the telecom operator to enter the concerned site for installing the necessary equipments qua machineries owned by it at such site as may be required by it as well as also grants the right to operate and maintain the same. It is further submitted by Shri Trivedi, learned Advocate General appearing on behalf of the respondent State Authorities that as per the said agreement MSA, firstly the telecom operators are to provide forecast of their requirement for passive infrastructure to the petitioner Company. That pursuant to the said forecast, within a period of three weeks, the petitioner Company would identify the location depending upon the latitude and longitude of possible sites and provide three options to that telecom operator with its comments, suggestions and / or its plans for meeting the telecom operator s passive infrastructure requirement. It is submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent State Authorities that as per the said agreement, the charges payable by that sharing operator in respect of each site provided by the petitioner Company shall be determined in accordance with schedule 3 to the MSA. It is further submitted that on perusal of the said schedule 3, it is discernible that the charges payable by any sharing operator depends upon the number of operators sharing a site as well as the number of radio antenna on the tower, number of MW antenna on the tower, height of antenna on the tower, weight of the tower etc. It is submitted that thus it appears that the rent collected by the petitioner Company from the telecom operator completely depends upon the requirements of individual telecom operator and would change accordingly. [5.10] It is submitted that therefore, the telecom operator has the freedom as well as choice of selecting the manner and time and nature of use and enjoyment of the passive infrastructure starting from time of entering into the contract. It is submitted that telecom operator has also the freedom to increase the power of access by increasing the number of antenna, height and weight on the tower, power consumption etc. over and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceases to operate. Thus, the concerned respective telecom operator appear to have exclusive right to use the allotted access, even if the petitioner Company ceases to operate. [5.13] It is submitted that therefore the transaction in question can be said to be sale within the ambit of section 2(23)(d) of the GVAT Act. It is submitted that once the same can be said to be sale within the ambit of section 2(23)(d) of the GVAT Act, the same is liable to the taxed under the GVAT Act and therefore, the eventuality to pay the tax would arise. It is submitted that therefore merely because the petitioner may be paying the service tax on the services rendered by them, which may be under the other provisions of the Statute, it cannot be said to be double taxation as contended on behalf of the petitioner. [5.14] It is further submitted by Shri Trivedi, learned Advocate General appearing on behalf of the respondent State Authorities that even on merits also the demand sought to be recovered from the petitioner Company for the transaction undertaken between the merging entities and the petitioner Company is permissible under the provisions of section 52 of the GVAT Act. It is submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Passive Infrastructure to the sharing operators, the same is liable for payment of VAT, because it is a transfer of right to use. It is submitted that therefore the transaction in question can be said to be deemed sale under Article 366(29A)(d) of the Constitution of India. Now, so far as the submission on behalf of the petitioner that in view of earlier determination order passed under Section 80 of the GVAT Act, which was in favour of the petitioner, thereafter it would not be open for the Department again to issue showcause notice is concerned, it is submitted by Shri Trivedi, learned Advocate General appearing on behalf of the respondent State Authorities that when the earlier determination order was issued, the same was based on the MSA between infrastructure provider and the sharing operator. It is submitted that thereafter there are amendments in the MSA as effected from July 2012 and therefore, there are changed circumstances and therefore, it is always open for the Department to issue show cause notice. Making above submissions and heavily relying upon the decision of the Hon ble Supreme Court in the case of BSNL (Supra), it is requested to dismiss the present pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns the right to provide Site Access Availability to other telecommunications operators and the Sharing Operator retains the right to seek passive infrastructure services from other passive infrastructure providers. (f) 3.1 The Sharing Operator may, by written notice to Indus, designate any Site utilised by the Sharing Operator as a Strategic Site if it reasonably believes that such Site is a hub or nodal Site: (a) of strategic importance to its network evolution plan or network expansion; and (b) any outage at such Site will result in outages at other States utilised by the Sharing Operator. (g) 3.1.2 The Sharing Operator shall be responsible for the operation and maintenance of all Sharing Operator Equipment. In order to conduct such operation and maintenance activities, the Sharing Operator shall have the right to replace, repair, add or otherwise modify the Sharing Operator Equipment or any portion thereof and the frequencies over which such Sharing Operator Equipment operates. The Sharing Operator shall be provided access to the Sites in accordance with paragraph 2.9 of Schedule 2 (Operation and Maintenance Services), unless otherwise specified in the relevant Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contract do not comply with sub clause (i), (ii) or (iii) of Clause 4.2.1 above. If the Sharing Operator refuses Relocation, the Service Contract in respect of the existing Site shall be deemed to terminate upon the expiration of the 45 day notice period specified in Clause 4.2.1 above and the Sharing Operator shall, in each case, remove all Sharing Operator Equipment at the Site within 15 days of such termination, or such other time period as the Parties, acting reasonably, may agree. If the Sharing Operator fails to remove the Sharing Operator Equipment within such time period, Indus shall not be responsible in any manner whatsoever for the Sharing Operator Equipment at such Site. 4.2.3 If the Sharing Operator refuses Relocation where the alternative Site is not to its reasonable technical satisfaction or where the terms of the new Service Contract do not comply with sub clause (i), (ii) or (iii) of Clause 4.2.1 above, on termination of the original Service Contract no Exit Amount shall be payable by the Sharing Operator. (k) 5.2 Indus Warranties and Covenants Indus covenants, warrants and represents that it 5.2.1 shall not create any encumbrances on any Site that rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of its right or obligation under the said contract to any person without the prior written consent of other party, such consent not to be unreasonably withheld or delayed. 21.1.2 Either party shall be entitled to assign or novate any or all of its rights and obligations under this Agreement to any of its Group Companies without the other Party s consent and the Parties will enter into such documents as are reasonably necessary for this purpose. (o) 2.5 For purposes of calculating the Uptime in relation to a Site, any planned Indus Downtime for repairs and maintenance and any Sharing Operator Downtime shall be excluded. Where Indus proposes to conduct any repairs and maintenance at a Site that may cause Indus Downtime, Indus shall submit a written request to the Sharing Operator in respect of such planned Indus Downtime. The Sharing Operator shall respond in writing to such request within two (2) Business Days granting or refusing permission to Indus. The Sharing Operator may withhold permission where it believes that it is commercially reasonable for Indus to conduct the proposed repairs and maintenance without any Indus Downtime. Where the Sharing Operator does not resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Usually, equipments that constitute the active infrastructure are not manufactured by the Sharing Operators, but they are manufactured by other Original Equipment Manufacturer. (iv) The active infrastructure includes base terminal station equipment, associated antennae, backhaul connectivity to the sharing operator s work and other requisite equipment and associated civil and electrical works required to provide telecommunication services by the sharing operator at a telecommunication site other than passive infrastructure. (v) The maintenance of such equipments, thus requires frequent interventions from the representatives of OEMs. (vi) Thus, the access to the specific height at the tower is granted not only to the Sharing Operators, but also to such other sub contractors on behalf of the Sharing Operators. (vii) It may thus be noted that the right to access to a specific height on a tower is restricted to the discretion of the Sharing Operators, to the exclusion of all other individuals. Hence, it may be safely surmised that the right is in effect a transfer of right to use with specific height on the tower. (viii) The aforesaid relationship between the Infrast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he right to the telecom operator to enter the concerned site for installing necessary equipments, machineries owned by it at such site as may be required by it as well as also grants the right to operate and maintain the same. Considering various clauses of the MSA as amended from time to time reproduced herein above, it can be said that the telecom operator can be said to have effective control over the manner, time and nature of use of passive infrastructure by virtue of its right to use goods acquired through such contract. Even the telecom operator has right to select the particular height, direction or other equipments. The petitioner Company does not have any freedom to allot the same height, direction on the same tower. Thus, once a particular placed is allotted by way of passive infrastructure, to any telecom operator, the said telecom operator can be said to be in exclusive domain and/or possession and/or use of such passive infrastructure by virtue of its right to use acquired through the contract subject to the conditions of MSA as amended from time to time once it is allotted to the petitioner Company does not appear to have the effective control over the manner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doctrine the Hon ble Supreme Court has specifically observed and held that the 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 . It is further observed that 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 distract from the distinctiveness of the aspects . Therefore, the submission on behalf of the petitioners that the liability to pay the tax under the GVAT Act would be double taxation on the same consideration / transaction, cannot be accepted. Therefore, in the facts and circumstances of the case, the decision of the Hon ble Supreme Court in the case of BSNL (Supra) relied upon by the learned Counsel appearing on behalf of the petitioners as regards the taxation on the same transaction under two different headings shall not be applicable to the facts of the case on hand. [6.7] Now, so far as the submission on behalf of the petitioners that in view of earlier determination order under Section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax liability during the aforesaid period the liability to pay the tax would be continued. On bare perusal of section 52, the intention of the legislature can be culled out i.e. to avoid pilferage of tax. Section 52 of the GVAT Act shall be considered and restricted to an for the purpose of GVAT Act only and for no any other purpose. Therefore, considering section 52 of the GVAT Act, the decision of the Delhi High Court relied upon by the learned Counsel appearing on behalf of the petitioners that the merging entities ceases to exist after their amalgamation with Indus Towers Ltd. petitioner herein with effect from 01.04.2009 will not come in the way of the Department in assessing the tax during the interregnum period and the transactions of sale and purchase by the respective merging entities, taken place during the period from 01.04.2009 till the order of the High Court sanctioning the Scheme of Arrangement etc. On the similar reasons other decisions relied upon by the learned Counsel appearing on behalf of the petitioners in support of his case that once the merging entities ceases to exist, for all purposes after their amalgamation with the petitioner with effect from 01.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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