Telephone connection charges are not a sale of goods when no deliverable goods or right to use goods passes.

Levy of sales tax on telephone connection, transmission and activation charges was examined against the rule in Bharat Sanchar Nigam Ltd., which treated the absence of deliverable goods and transfer of the right to use goods as fatal to a sales tax charge. Because access or activation charges did not place the subscriber in possession of goods, they could not be characterised as a sale of goods. On that basis, the challenge to the taxing action and the impugned statutory provision could not be sustained, and the assessment order was quashed.

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Issues: Whether the levy of sales tax on the transmission and activation of telephone services could be sustained, and whether section 2(h)(iv) of the Punjab General Sales Tax Act was liable to be struck down in the light of the constitutional provisions governing Union property and the meaning of sale.

Analysis: The appeal turned on the binding effect of the Supreme Court decision in Bharat Sanchar Nigam Ltd., which held that where no deliverable goods come into existence, there is no transfer of user amounting to a sale of goods. The provision for access or telephone connection did not place the subscriber in possession of any goods so as to attract sales tax, and the earlier view treating such charges as sale stood displaced. In that legal setting, the challenge to the taxing action and to the impugned statutory provision could not be sustained.

Conclusion: The levy could not be upheld, and the impugned assessment order was liable to be quashed.

Final Conclusion: The appeal succeeded, the writ petition dismissal was set aside, and the tax demand under the impugned order was annulled.

Ratio Decidendi: Telephone connection and activation charges, in the absence of deliverable goods and transfer of right to use goods, do not constitute a sale of goods liable to sales tax.

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