2020 (6) TMI 84 - HC - VAT and Sales Tax

Court rules passive infrastructure services not subject to VAT under TNVAT Act. Service tax suffices. Invalid tax demands.

M/s. Indus Towers Limited Versus Union of India, State of Tamil Nadu, The Commissioner of Commercial Taxes, The Assistant Commissioner (CT), The Commissioner of Service Tax

The court held that the petitioner's provision of passive infrastructure services to Mobile Telecommunication Operators did not amount to a 'transfer of ... Levy of VAT - Renting of space - Transfer of Right to use - transfer of “right to use” of the space to the mobile service providers as these companies were having access of the equipment, infrastructure and space for their use - whether within the scope of VAT or not - Section 48-A of the TNVAT Act, 2006 - HELD THAT:- The petitioner is a provider of “Passive Infrastructure Service” for the Mobile Telecommunication Operators (MTO). The petitioner acquired such facilities from existing Mobile Telecommunication Operators (MTO). The petitioner was incorporated with view to reduce the cost of telecom service provided by Mobile Telecommunication Operators (MTO). Thus, same shelter and tower could be used by two or more Mobile Telecommunication Operators (MTO) to receive and transmit signals. The petitioner has not only offered facility to mount the mobile operator’s RF antenna at a particular height and direction on the top of the tower and offered required level of temperature (i.e) below 35 degree Celsius as to protect the equipments - Apart from that the petitioner has also offered Uninterrupted Power Supply (UPS) for converting electricity AC current from 220, Volts AC current into (-) 48 DC which is essentially required to run the mobile operators transmission equipments without disruption. This activity is performed by Power Management System of the petitioner. Reliance can be placed in the case of 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 [2020 (6) TMI 57 - MADRAS HIGH COURT] where it was held that The business model is not based on exclusivity. It is on a shared usage basis of the facility viz., passive infrastructure consisting of temporary shelter, Mast, AC, Genset etc. Therefore, there is no “deemed sale” within the meaning of Article 366(29-A)(d) of the Constitution of India and Secion 2(33)(iv) of the Act so as to attract a charge under Section 4 of the TNVAT Act, 2006. - the reasoning given in the case is fairly applicable to the facts of the present Writ Petitions. Petition allowed. Issues Involved:1. Whether the petitioner’s provision of passive infrastructure services to Mobile Telecommunication Operators (MTOs) constitutes a 'transfer of right to use' under Section 4 of the TNVAT Act, 2006.2. Whether the petitioner is liable to pay VAT on the lease rental receipts under the TNVAT Act, 2006.3. Whether the impugned orders demanding tax and imposing penalties are valid.Issue-wise Detailed Analysis:1. Transfer of Right to Use:The core issue revolves around whether the petitioner’s provision of passive infrastructure services, including towers and ancillary equipment, to MTOs constitutes a 'transfer of right to use' under Section 4 of the TNVAT Act, 2006. The petitioner argued that it provides a service rather than transferring the right to use goods, citing that the infrastructure is shared among multiple operators and not exclusively transferred to any single operator. The court noted that the business model involved shared usage of the infrastructure, which does not meet the criteria for an exclusive transfer of the right to use as defined under Article 366(29A)(d) of the Constitution of India and Section 2(33)(iv) of the TNVAT Act, 2006. It was determined that since there was no exclusive transfer of control over the infrastructure to the MTOs, the transactions did not constitute a 'deemed sale' and thus did not attract VAT under the said Act.2. Liability to Pay VAT:The petitioner contended that it was already paying service tax under the Finance Act, 1994, for the services provided and thus should not be liable for VAT on the same transactions. The court examined the nature of the services provided, including the provision of uninterrupted power supply, air-conditioning, and space for mounting equipment, and concluded that these activities were integral to the service provided and did not constitute a transfer of right to use goods. The court referenced several precedents, including the BSNL case and the Indus Towers Ltd. cases, which supported the view that shared infrastructure services do not fall under the ambit of 'transfer of right to use' for VAT purposes. Consequently, the court held that the petitioner was not liable to pay VAT on the lease rental receipts.3. Validity of Impugned Orders:The court scrutinized the impugned orders, which had reassessed the petitioner’s taxable turnover and demanded VAT at 12.5%, along with imposing substantial penalties. The orders were based on the assumption that the petitioner had transferred the right to use its infrastructure to the MTOs. However, the court found that this assumption was flawed due to the lack of exclusive transfer of control. The court also noted that the petitioner’s activities were more aligned with providing a service rather than leasing goods. As a result, the court quashed the impugned orders, deeming them invalid, and allowed the writ petitions, thereby nullifying the tax demands and penalties imposed on the petitioner.Conclusion:The court concluded that the petitioner’s provision of passive infrastructure services did not constitute a 'transfer of right to use' under the TNVAT Act, 2006. It was determined that the petitioner was not liable to pay VAT on the lease rental receipts. The impugned orders demanding tax and imposing penalties were quashed, and the writ petitions were allowed.