2025 (12) TMI 1546 - HC - VAT / Sales Tax

VAT on telecom receipts from SIM cards, recharge coupons and value-added services rejected; assessments quashed, appeal allowed.

The dominant issue was whether tax could be levied under the KVAT Act on receipts from SIM cards, recharge coupons, fixed monthly charges and value added ... Assessment barred by time limitation - period of six years for completion of assessment - Doctrine / principle of merger - HELD THAT:- The notice under Section 25(1) of the KVAT Act in the instant case was issued within a period of six years, on 16.01.2019, and inasmuch the notice pertained to the assessment year 2013-14, it could not be said to be belated going by the amended provisions of the KVAT Act. It is significant that the State has not preferred any writ appeal against the said judgment dated 28.06.2024 of the learned Single Judge which concludes the issue involves in the assessment order in the instant case on merits as far as the appellant herein is concerned, albeit for other assessment years - the writ appeal, to the extent it impugns the judgment of the learned Single Judge for not considering the contentions of the appellant on the merits of the assessment order, was in fact filed belatedly. However, the circumstances under which the challenge to the impugned judgment arose needs to be noticed. The impugned judgment of the learned Single Judge had allowed the writ petition preferred by the appellant by finding solely on the aspect of limitation. Since, the appellant was not aggrieved by the said judgment that allowed the writ petition, it did not have to file a writ appeal at that stage. The learned Single Judge in the judgment in WP(C). No. 482 of 2021 and connected cases in M/S. VODAFONE CELLULAR LIMITED [2024 (6) TMI 1533 - KERALA HIGH COURT], had considered the contention of the learned Senior Government Pleader that downloaded music cannot be equated with telecommunication services and therefore would fall outside the scope of service tax, and had rejected the same while holding inter alia that downloaded music would not fall within the definition of “goods” on which tax under the KVAT Act could be levied. As for the contention of the State that the principles of merger would prevent the appellant herein from mounting a belated challenge against the impugned judgment of the learned Single Judge, the principles of merger would have no application in a situation such as the present. As already noticed, the earlier Division Bench, while disposing the appeal preferred by the State, had only reserved a liberty in the assessee to pursue his alternative remedy under the statute - When the issue on merits is now covered by a binding precedent of the Supreme Court, and the attempt of the State to distinguish the said precedent did not meet with any success before a learned Single Judge of this Court against whose judgment no appeal was preferred by the State, it would be meaningless to relegate the appellant-assessee before the statutory authorities in a challenge to the merits of the assessment order involving the same issue. The writ appeal is thus allowed by quashing Ext.P6 assessment order to the extent it demands tax under the KVAT Act on amounts received by the appellant towards SIM cards, rechargeable coupons, fixed monthly charges and value added services (towards SMS, ringtones, download music etc.) as they are not goods on which any tax under the KVAT Act can be levied. Issues: (i) Whether the assessment order demanding tax under the KVAT Act on amounts received towards SIM cards, rechargeable coupons, fixed monthly charges and value added services (SMS, ringtones, downloaded music etc.) is sustainable; (ii) Whether the principle of merger or earlier appellate proceedings preclude the appellant from pursuing a belated challenge to the single judge's failure to decide the merits of the assessment.Issue (i): Whether amounts received for SIM cards, rechargeable coupons, fixed monthly charges and value added services are 'goods' liable to tax under the Kerala Value Added Tax Act, 2003.Analysis: The issue was examined in the light of the binding precedents which hold that such items and services do not fall within the definition of 'goods' for the purposes of the KVAT Act. The prior single bench judgment adopting the Andhra Pradesh High Court view as affirmed by the Supreme Court on the same question is operative and unreversed, and the reasoning applies to the assessment demand in question.Conclusion: The assessment order demanding tax under the KVAT Act on amounts received for SIM cards, rechargeable coupons, fixed monthly charges and value added services is quashed; such amounts are not goods taxable under the KVAT Act in favour of the assessee.Issue (ii): Whether the doctrine of merger or the State's prior appeal bars the appellant from challenging belatedly the single judge's omission to decide the merits.Analysis: The earlier Division Bench allowed the State's appeal on limitation while reserving liberty to the assessee to pursue statutory remedies. Where a binding decision on the merits exists and the State has not prosecuted an appeal against that decision, relegation to statutory authorities would be meaningless. The principle of merger does not operate to preclude a belated challenge in these circumstances.Conclusion: The principle of merger does not bar the appellant from challenging the merits; the writ appeal is maintainable and is allowed in favour of the assessee.Final Conclusion: The writ appeal is allowed and the assessment order is quashed insofar as it demands tax under the KVAT Act on amounts received towards SIM cards, rechargeable coupons, fixed monthly charges and value added services; the overall effect is relief to the assessee on the taxed items.Ratio Decidendi: Where binding precedent establishes that particular telecommunication items and related value added services are not 'goods' under the KVAT Act, an assessment demanding tax on those items cannot be sustained and may be quashed even if earlier proceedings addressed only limitation, and merger will not bar relief where the State has not appealed the merits decision.