Sales tax and right-to-use analysis: telecom rentals treated as service charges, not transfer of goods, under State tax law.

Article 285 does not bar State sales tax merely because the Union receives the amounts; the decisive test is whether the levy falls on a taxable transaction rather than on Union property. On that basis, the Union was not entitled to constitutional exemption from the sales tax demand. Telephone rentals under the measured rate system were also held not to be consideration for a transfer of the right to use goods under Section 5-E, because the charge was for the telephone facility and connected service arrangements, not for a transfer of the instrument as goods. The assessment and demand were therefore quashed.

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Issues: (i) Whether Article 285 of the Constitution of India exempted the Union from levy of sales tax on the amounts collected by the Telecommunications Department. (ii) Whether telephone rentals collected under the measured rate system amounted to consideration for transfer of the right to use goods within Section 5-E of the Andhra Pradesh General Sales Tax Act, 1957.

Issue (i): Whether Article 285 of the Constitution of India exempted the Union from levy of sales tax on the amounts collected by the Telecommunications Department.

Analysis: Article 285 grants exemption to Union property from State taxation, but the decisive enquiry is the nature of the taxing event. Sales tax is imposed on the act of sale or transfer and not directly on property. On that principle, the constitutional immunity relating to Union property does not bar a State levy where the charge is on a taxable transaction rather than on the property itself.

Conclusion: The petitioners were not entitled to exemption under Article 285 against the sales tax demand.

Issue (ii): Whether telephone rentals collected under the measured rate system amounted to consideration for transfer of the right to use goods within Section 5-E of the Andhra Pradesh General Sales Tax Act, 1957.

Analysis: Section 5-E applies only where there is a transfer of the right to use goods for consideration. The relevant telegraph and telephone rules showed that the subscriber was paying for the telephone facility and the connected system, including the line and maintenance arrangements, rather than for a transfer of the telephone instrument as goods. The charge was inseparable from the service and facility provided, and the instrument by itself had no independent commercial transfer as goods in the transaction in question.

Conclusion: Telephone rentals collected in the manner disclosed did not attract tax under Section 5-E because there was no transfer of the right to use goods.

Final Conclusion: The assessment and demand proceedings were unsustainable and were quashed, and the writ petitions succeeded.

Ratio Decidendi: Sales tax is attracted only when the taxable event is a sale or a true transfer of the right to use goods; where the charge is for a composite service and facility rather than for the transfer of goods, State sales tax cannot be imposed, and Union property immunity is not the governing test.

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