2020 (6) TMI 57 - HC - VAT / Sales Tax

Business Model Not 'Deemed Sale,' VAT & Penalties Invalidated Due to Procedural Lapses in Notice Issuance.

M/s. Ascend Telecom Infrastructure Pvt. Ltd., (Formerly known as M/s. Aster Infrastructure Private Limited) Versus The Assistant Commissioner (CT), Commissioner of Commercial Taxes, The Government of Tamil Nadu, Service Tax Group – I, Union of India

M/s. Ascend Telecom Infrastructure Pvt. Ltd., (Formerly known as M/s. Aster Infrastructure Private Limited) Versus The Assistant Commissioner (CT), ... Issues Involved:1. Legality of the impugned orders dated 29.07.2016.2. Whether the petitioner’s business model constitutes a 'deemed sale' under Section 2(33)(iv) of the TNVAT Act, 2006 and Article 366(29A)(d) of the Constitution of India.3. Applicability of VAT on the petitioner’s transactions.4. Compliance with principles of natural justice in the issuance of notices and orders.5. Validity of the penalties imposed.Detailed Analysis:1. Legality of the Impugned Orders Dated 29.07.2016:The petitioner challenged the orders dated 29.07.2016, which were passed by the 1st respondent for the Assessment Years 2008-2009 and 2009-2010. The orders were issued after the Appellate Deputy Commissioner remanded the cases back for reassessment. The petitioner argued that the notices dated 14.03.2016 lacked reasons, violating the principles of natural justice, and that tax and penalties were increased without proper notice.2. Whether the Petitioner’s Business Model Constitutes a 'Deemed Sale':The petitioner provides Passive Infrastructure services for Mobile Telecommunication Operators (MTOs), which include temporary shelters, towers, and power supply systems. The petitioner argued that these services do not constitute a 'deemed sale' as defined under Section 2(33)(iv) of the TNVAT Act, 2006 and Article 366(29A)(d) of the Constitution. The court examined whether the petitioner transferred the right to use the infrastructure exclusively to the MTOs. It was found that the infrastructure was shared among multiple MTOs and thus did not meet the criteria of exclusive transfer required for a 'deemed sale.'3. Applicability of VAT on the Petitioner’s Transactions:The court referred to several precedents, including the Supreme Court's decision in BSNL vs. Union of India, which clarified that for a transaction to be taxed as a sale, there must be a transfer of the right to use goods exclusively. The court concluded that the petitioner’s model, which allowed shared usage of infrastructure, did not constitute a transfer of the right to use goods exclusively. Therefore, VAT was not applicable to the petitioner’s transactions.4. Compliance with Principles of Natural Justice:The petitioner contended that the notices issued lacked reasons and the orders were passed without proper notice, violating the principles of natural justice. The court agreed, noting that the impugned orders were issued without adequate reasoning and without giving the petitioner a fair opportunity to present their case.5. Validity of the Penalties Imposed:The penalties imposed for the Assessment Years 2008-2009 and 2009-2010 were also challenged. The court found that since the primary tax demand itself was not sustainable, the penalties based on that demand were also invalid.Conclusion:The court allowed the writ petitions, quashing the impugned orders dated 29.07.2016. It concluded that the petitioner’s business model did not constitute a 'deemed sale' under the relevant legal provisions, and thus, no VAT was payable. The court also found procedural lapses in the issuance of notices and orders, violating principles of natural justice. Consequently, the penalties imposed were also invalidated. The writ petitions were allowed without costs, and connected miscellaneous petitions were closed.