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of <h1>Set Top Boxes constitute goods under section 2(15) Karnataka VAT Act, service tax and VAT not mutually exclusive</h1> <h3>M/s. Atria Convergence Technologies Ltd., Tata Play Limited., (Formerly Known As Tata Sky Ltd), M/s. Kaizen Digital Cable Services (P) Ltd., Den Networks Limited., Versus Deputy Commissioner Of Commercial Tax (Audit) Bengaluru., The Joint Commissioner Of Commercial Taxes (Appeals) -2, Bengaluru., Assistant Commissioner Of Commercial Taxes (Audit), Bangalore, Joint Commissioner Of Commercial Taxes (Appeals), Bengaluru, The State Of Karnataka, Commercial Tax Officer (Audit) Bengaluru.</h3> M/s. Atria Convergence Technologies Ltd., Tata Play Limited., (Formerly Known As Tata Sky Ltd), M/s. Kaizen Digital Cable Services (P) Ltd., Den Networks ... ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in the judgment were:(i) Whether Set Top Boxes (STBs) are goods within the meaning of section 2(15) of the Karnataka Value Added Tax Act, 2003.(ii) Whether STBs are capable of being exclusively used by the subscriber.(iii) Whether the right to use the STBs is transferred to the subscribers.(iv) Whether such a transfer is for valuable consideration.(v) Whether service tax and VAT are mutually exclusive in the context of the transaction.(vi) Whether the notification dated 15.03.2021 issued under the Karnataka Goods and Services Tax Act, 2017, could have retrospective effect.ISSUE-WISE DETAILED ANALYSISWhether STBs are goods within the meaning of section 2(15) of the Act:The legal framework considered includes the definition of 'goods' under section 2(15) of the Act, which encompasses all kinds of movable property barring specific exclusions. The court interpreted this definition to be broad, including STBs as they do not fall under the exclusions mentioned. The court referenced expert opinions and government notifications, which supported the classification of STBs as goods. The court concluded that STBs are goods as they are movable property and do not fall into any exclusion categories.Whether STBs are capable of being exclusively used by the subscriber:The relevant legal framework includes section 2(29) of the Act, defining 'sale' to include the transfer of the right to use goods for consideration. The court examined whether STBs could be exclusively used by subscribers and found that STBs are installed at subscribers' premises, allowing them to choose channels and use the device as intended. The court concluded that STBs are capable of exclusive use by subscribers, as they have control over their operation and functionality.Whether the right to use the STBs is transferred to the subscribers:The court considered the contractual terms and statutory obligations under the 2012 Regulations, which require Multi Service Operators to provide STBs to subscribers. The court found that the right to use STBs is indeed transferred to subscribers, as they have control over the device and can use it to access channels of their choice.Whether such a transfer is for valuable consideration:The court examined whether the transfer of the right to use STBs was for consideration, as required by section 2(29)(d) of the Act and Article 366(29A)(d) of the Constitution. It found that the consideration for the right to use STBs is included in the activation charges and/or monthly subscription fees. The court concluded that the transfer of the right to use STBs is indeed for valuable consideration.Whether service tax and VAT are mutually exclusive:The court considered the argument that service tax and VAT are mutually exclusive, referencing the Imagic Creative Private Limited case. It found that different aspects of a single transaction can be taxed under different statutes, allowing for the levy of VAT on the sale element of a transaction involving both service and sale components. The court concluded that the payment of service tax does not preclude the levy of VAT on the sale aspect of the transaction.Whether the notification dated 15.03.2021 could have retrospective effect:The court examined the notification issued under section 174(2) of the KGST Act, 2017, and its retrospective application. It found that the notification was in the nature of a delegated legislation and that section 174(2) should be read with section 164(3), which allows for rules to have retrospective effect. The court concluded that the notification could have retrospective effect, as it was necessary to avoid a legal vacuum during the transition period between the repeal of the 2003 Act and the enactment of the 2017 Act.SIGNIFICANT HOLDINGSThe court held that STBs are goods within the meaning of section 2(15) of the Act, capable of exclusive use by subscribers, and that the right to use them is transferred for valuable consideration. It also held that service tax and VAT are not mutually exclusive and that the notification dated 15.03.2021 could have retrospective effect. The court dismissed the petitions, finding no merit in the arguments presented by the Assessees.
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