Telecommunication transmission medium is not goods; optical fibre data transmission treated as an indivisible service, not a deemed sale.
Artificially created light energy used in telecommunication was held not to be "goods" because a transmission medium in telecom is only a carrier of signals and not movable property capable of sale. The Court also held that data transmission through optical fibre cable was an indivisible telecommunication service, not a composite sale, and therefore did not amount to a deemed sale under the Rajasthan Value Added Tax Act, 2003. As service tax already applied to the activity, VAT could not be imposed on the same transaction. The revision petitions failed and no VAT liability survived on the impugned telecommunication service.
Issues: (i) Whether artificially created light energy used in telecommunication is "goods" and therefore taxable under the Rajasthan Value Added Tax Act, 2003; (ii) Whether the sale of data transmission through optical fibre cable using artificially created light energy amounts to a deemed sale under the Rajasthan Value Added Tax Act, 2003.
Issue (i): Whether artificially created light energy used in telecommunication is "goods" and therefore taxable under the Rajasthan Value Added Tax Act, 2003.
Analysis: The question was examined in the light of the settled position that in telecommunication the carrier mechanism is only a medium of transmission and does not itself become deliverable property in the hands of the subscriber. Reliance was placed on the earlier authority which held that electromagnetic waves and similar transmission media are not goods within the constitutional meaning and do not amount to movable property capable of sale. The Court also noted that the same line of reasoning had already been adopted by the Karnataka High Court in relation to artificially created light energy and that there was no basis to treat such energy differently from the transmission medium considered in the earlier Supreme Court decision.
Conclusion: Artificially created light energy is not goods and is not taxable as such under the Rajasthan Value Added Tax Act, 2003.
Issue (ii): Whether the sale of data transmission through optical fibre cable using artificially created light energy amounts to a deemed sale under the Rajasthan Value Added Tax Act, 2003.
Analysis: The Court held that the transaction was one of telecommunication service and not a composite sale of goods. It accepted that the activity was already subjected to service tax and applied the settled principle that service tax and VAT operate in mutually exclusive fields. The contract for providing data transmission was treated as an indivisible contract of service, with no separate element of sale capable of attracting the deeming fiction for sale under the VAT law.
Conclusion: The transaction of data transmission through optical fibre cable using artificially created light energy is not a deemed sale and cannot be subjected to VAT under the Rajasthan Value Added Tax Act, 2003.
Final Conclusion: The revision petitions failed, and the questions of law were answered against the revenue and in favour of the assessee, with the result that no VAT liability survived on the impugned telecommunication activity.
Ratio Decidendi: A transmission medium used only to carry telecommunication signals is not "goods" or the subject of a sale where the transaction is an indivisible service contract already falling within the service tax regime.
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