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. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the assessee's writ appeal challenging the Single Judge judgment for not deciding the merits of the assessment, though filed belatedly, was maintainable given that the assessee became 'aggrieved' only after the State succeeded in appeal on limitation. (ii) Whether the doctrine/principle of merger barred the Court from entertaining the assessee's writ appeal when the Single Judge judgment had earlier been appealed by the State and liberty was granted to pursue a statutory appeal. (iii) Whether, in view of an unchallenged binding decision on the same merits issue, the assessment could be quashed to the extent it levied 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.) on the footing that these were 'goods'. 2. ISSUE-WISE DETAILED ANALYSIS (i) Maintainability despite belated filing (when the assessee became 'aggrieved') Interpretation and reasoning: The Court held that the writ petition had originally been allowed by the Single Judge solely on limitation, and therefore the assessee was not aggrieved at that stage and had no occasion to appeal merely because an alternative merits challenge was not addressed. The need to appeal arose only after the State's appeal succeeded and the writ petition was dismissed on limitation, at which point the assessee became an aggrieved person entitled to challenge the Single Judge judgment to the extent it omitted decision on merits. Conclusion: The belated nature of the writ appeal was not treated as fatal because the cause to appeal arose only after reversal on limitation; the appeal was entertained. (ii) Applicability of the principle of merger Legal framework (as discussed): The State invoked the principle of merger to contend that once the Single Judge judgment had been carried in appeal and disposed of with liberty to pursue statutory remedy, a further writ appeal against the same Single Judge judgment should not lie. Interpretation and reasoning: The Court rejected merger in the present factual setting because the earlier appellate decision (in the State's appeal) did not adjudicate the merits of the assessment; it merely reversed the finding on limitation and granted liberty to pursue a statutory appeal. The Court treated this as insufficient to bar examination of the merits through the present writ appeal, particularly where relegation to statutory remedies would be futile in light of a binding merits determination already holding the field. Conclusion: The principle of merger was held inapplicable and did not prevent the Court from deciding the present writ appeal. (iii) Whether the impugned assessment could sustain levy under the KVAT Act on SIM cards, coupons, fixed monthly charges and value added services as 'goods' Interpretation and reasoning: The Court relied on the fact that a later Single Judge decision of the same Court had conclusively decided the merits issue against the State, holding that SIM cards, rechargeable coupons, fixed monthly charges and value added services (including SMS, ringtones, downloaded music etc.) could not be termed 'goods' for KVAT purposes. The Court treated that merits determination as having attained finality because it was not appealed by the State, and therefore as binding in effect for the present controversy. The Court further reasoned that, given such finality, any liberty earlier granted to pursue a statutory appeal was rendered meaningless because statutory authorities could not ignore the binding ruling. The Court also noted that the State's attempt to distinguish the relevant precedent had already been rejected in the unappealed decision, and therefore sending the assessee to statutory forums would serve no purpose. Conclusion: The assessment was quashed to the extent it demanded 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.), on the ground that these were not 'goods' on which KVAT could be levied.