TaxTMI 
TaxTMI 
2013 (5) TMI 539
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....ercial Tax Officer, Begumpet Circle, Hyderabad), for assessment years 2009-10 and 2008-09, respectively. These writ petitions are by M/s. Indus Towers Ltd. W. P. No. 8205 of 2012 by M/s. TVS Interconnected Systems Ltd., assails the order of the first respondent (the Assistant Commercial Tax Officer, Srinagar Colony Circle, Hyderabad), dated February 29, 2012 imposing penalty for assessment years 2006-07 to 2009-10. There is no appellate order in this writ petition. The impugned orders impose penalty under the Central Sales Tax Act, 1956 ("the CST Act"). The relevant facts are not in dispute and as the writ petitions present a challenge to orders of penalty, on identical grounds we have taken up the writ petitions for hearing together and having heard the respective parties, proceed to the common judgment. The relevant chronology of facts and events in W. P. No. 31462 of 2011 are set out, as illustrative of the relevant facts and circumstances in the three writ petitions:- (A) The Appellate Deputy Commissioner on October 7, 20,1 rejected the appeal and confirmed levy of penalty imposed by the assessing authority by the order dated October 14, 2010. The pe....
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.... the provisions of section 8(1) and 8(3)(b) of the CST Act read with rule 13 of the Central Sales Tax (Registration and Turnover) Rules 1957, it is entitled to purchase equipment for its business, in the course of inter-State trade at the concessional rate of tax of two per cent from the selling dealer, provided the dealer is registered under the CST Act and issues form C declaration to the selling dealer. The dealer pleads that the goods purchased by it against issue of form C declarations were for use as raw material, processing material, equipment/tools, stores, accessories, fuel or lubricants in the manufacture or processing of goods for sale or in the telecommunications network. (G) The dealer applied for registration under the CST Act in form A on March 4, 2008. In Col. 7 of the application described its business as a wholly telecommunication network service provider and in Col. 16 (which requires for details of goods ordinarily purchased by the dealer in the inter-State trade) mentioned that the goods falling therein were as per the list attached. This list set out 30 items stating that these are the list of goods to be purchased for resale/use in telec....
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....e of C form as under for the year 2009-10. . ." (K) The dealer filed objections to the show-cause notice on July 15, 2010 clearly asserting that the goods purchased against form C declarations had been used by it in telecommunication network ; that the registration certificate ought to be read along with the application for registration ; and none of the ingredients requisite for invoking provisions of section 10(d) was present. (L) By the order dated October 14, 2010 the first respondent confirmed the proposal in the show-cause notice and levied penalty under section 10(d) of the CST Act. The reasons set out for the levy of penalty are (in brief):- (i) The dealer though engaged in the business of leasing passive infrastructure such as telephone towers to telecom operators throughout India contends that the amounts received are to be treated as income from services; (ii) The CST registration certificate issued to the dealer records that it is not entitled to purchase the goods listed therein for resale which involves fabrication and structures made....
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.... liable for penalty in lieu of prosecution under section 10A ; and (ix) Accordingly penalty is assessed at Rs. 79,22,15,458. (M) Aggrieved, the dealer preferred an appeal to the Appellate Deputy Commissioner. The appeal was rejected on October 7, 2010. The core reason recorded by the appellate authority for rejecting the appeal is revealing. After observing that the crucial point (in issue) is whether the purchases made by the appellant (the dealer) can be considered as "for use in the telecommunications network", the appellate authority states:- There is no dispute with regard to the fact that the appellant is not a telecom service provider, but is only engaged in construction of towers equipped with generators and other equipment that are provided to actual telecom service providers/operators though they have wrongly represented themselves as telecommunication network service provider in form A while filing the application for registration under the CST Act. In order to be a telecom service provider, a person or a dealer has to possess a licence issued by the Departme....
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....e of such goods inside the appropriate State under the sales tax law of that State, whichever is lower:- Provided that the Central Government may, by notification in the Official Gazette, reduce the rate of tax under this sub-section. ... 8. (3) The goods referred to in sub-section (1):- (a) ... (b) . . .are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or (in the tele-communications network or) in mining or in the generation or distribution of electricity or any other form of power; ... (d) are containers or other materials used for the packing of any goods or classes of goods specified in the certificate of registration referred to in clause (b) or for the packing of ....
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....(3) applies the provisions of sub-section (1) to containers or other materials used for the packing of any goods or classes of goods specified in. the certificate of registration referred to in clause (b). (f) Sub-section (4) enacts that the provisions of sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars, in the prescribed form obtained from the prescribed authority. The appropriate form is form C. The concessional rate of tax of two per cent is thus available either for resale, for use by the purchasing dealer in the manufacturing or processing of goods for sale or for use in the telecommunications network. There is no condition attached to the last limb of clause (b) of section 8(3) that the purchasing dealer must either re-sell the goods as such or must use them in the manufacture or processing of goods for sale. There is no obligation to sell or re-sell and mere use in the telecommunications....
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....B was issued to the petitioner and with effect from March 1, 2008 until cancelled. This certificate of registration reiterates that the petitioner is registered as a dealer ; that the business is wholly: Telecommunication network service provider ; that the classes of goods specified for the purpose of section 8(1) are : and the sales of these goods to the dealer in the course of inter-State trade shall be taxable at the rate specified in section 8(1) subject to the provisions of section 8(4). (a) to (c) . . . (d) For use in telecommunication network : As per list attached. The list of goods to be purchased for resale, against form C as per section 8(3)(b) of the CST Act is appended to this certificate of registration. The relevant policy formulations by the Department of Telecommunications (DOT) and recommendations and policy formulations of the Telecom Regulatory Authority of India (TRAI) are:- (a) On April 8, 2006, the DOT addressed TRAI for its views regarding bringing in appropriate legislation/amendment in the licensing agreements for ensuring effective shar....
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....censed under section 4 of the Indian Telecom Act, 1885 on mutually agreed terms and coonditions. (f) On April 12, 2011, TRAI drew up a report comprising a fresh raft of recommendations on telecommunications infrastructure policy. In para 1.9 of this report TRAI observed that currently infrastructure provision is being made by infrastructure providers who are being registered by the DOT and telecom service providers who are licensees under section 4 of the Indian Telegraph Act, 1885 are divesting themselves of the task of infrastructure provision. In para 1.14 TRAI noted that telecom towers are an integral part of a wireless telecom infrastructure. General analyses:- This court's BSNL judgment [2012] 49 VST 98 (AP):- The jurisdiction of revisional/appellate/assessing authorities under the Andhra Pradesh Value Added Tax Act, 2005, to levy tax under section 4(1) and (8), on sim cards-pre-paid and post-paid ; re-charge coupons ; value added services ; telephone instruments, mobile hand-sets, modems and caller I. D. instruments ; mobile telephone rentals ; sharing of infrastructure ; non-refundable deposits ; refundable deposits, etc.; fell for conside....
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....munication network either of one operator or collectively of various operators through which telephone services are provided by telephone operators to their subscribers. 39. Service providers erect towers on sites (either land or roof tops of buildings), for their network operation. As part of their network, other assets like shelter; air-conditioning equipment, diesel generator, electrical wiring, power plant, etc., are also provided. The structural towers are rooted to the ground with a height of up to 90 metres. Antennas are fixed on the tower to receive and transmit messages. On a reciprocal basis, other service providers are permitted to fix their antennas on the tower, and share the infrastructure, namely, the other equipment, against monthly payment described as 'infrastructure share fee'. Other cellular operators are permitted to bring their own equipment, like BTS, access radio, etc., and station such equipment at the site. Each site has a minimum lock in period of three years. Apart from the antenna fixed on the tower by the beneficiary party, the entire infrastructure is under the control, possession and maintenance of the passive service pr....
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....f the right to use 'immovable property' would not fall within the ambit of section 4(8) of the Act as 'immovable property' is excluded from the definition of 'goods' under section 2(16) of the Act. Section 3(26) of the General Clauses Act,1897 includes, within the definition of the term 'immovable property', things attached to the earth or permanently fastened to anything attached to the earth. Section 3 of the Transfer of Property Act gives the following meaning to the expression 'attached to the earth':- (a) rooted in the earth, as in the case of trees and shrubs; (b) imbedded in the earth, as in the case of walls or buildings; or (c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached. The question whether a chattel is imbedded in the earth so as to become 'immovable property' is to be decided on the principles of annexation to the land. The twin tests are the degree or mode of annexation, and the object of annexation. (Comm....
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....#39;, merely by permitting other cellular operators to use, or in giving them access, to identified assets does not involve any transfer of the right to use such assets, as control and possession of these equipment always remains with the service provider who owns them, and there is no transfer of either control or possession of the. equipment in favour of other cellular operators. The distinction, between mere use of 'goods' and 'transfer of the right to use goods', must be borne in mind. What the co-service providers are permitted is use of the equipment provided at the site of the tower by the passive service provider. Such usage by them is along with the passive service provider, and other service providers also. Effective control and possession of such equipment continues to remain with the passive service provider, and is not parted to the other service providers who are merely permitted to use these equipment. 44. Though there is user of the equipment on a sharing basis there is no transfer of the right to use these goods and, as such, would not constitute 'deemed, sales' either under article 366(29A)(d) of the Constitution of In....
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....ss or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity, manufacture may even if theoretically possible be commercially inexpedient, goods intended for use in the process or activity as specified in rule 13 (of the CST (R and T) Rides, 1957) would qualify for special treatment. The court further held that motor vehicles aforementioned and soap, paints, raincoats and battery cells to the extent spelt out by the High Court are integrally related to the distribution of electricity and their non-use would make such distribution commercially inexpedient. The Orissa Power Generation Corporation ratio:- In Orissa Power Generation Corporation Limited v. Commissioner, Commercial Taxes [2008] 15 VST 587 (Orissa), the Orissa High Court upheld the claim of the dealer (the petitioner) and held that:- (a) survey and drawing instruments used for the purpose of laying the foundation of the power house building and associated structure; (b) building materials related to the construction of the power house building and associated civil structures; (c) H. S. motors, G.....
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.... Court affirmed the view taken by the Rajasthan High Court, wherein the Rajasthan High Court came to hold that the Rajasthan Electricity Board which was engaged in the business of generation and distribution of electricity to the consumers, could purchase by way of inter-State trade, at concessional rate of tax under section 8(1) of the Central Sales Tax Act, 1956, trucks, trolleys, trailers and the like (but not passenger vehicles), as also their accessories and spare parts, tyres, and tubes and that the board was entitled to have its certificate of registration altered to include 'tools and plants, including vehicles and other transportable goods, including other spare parts, tubes and tyres'." In the present lis, the Revenue places reliance on a judgment of this court in Coastal Andhra Power Limited v. State of Andhra Pradesh [2011] 43 VST 522 (AP). A dealer who intended to develop, distribute and sell electricity and towards that end was setting up a Mega Power Project at Krishnapatnam, Nellore District, preferred a revision (to this court) against an order of the Sales Tax Appellate Tribunal confirming the order of the Appellate Deputy Commissioner. The petitione....
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....ent batch of cases, in the factual context of the registration certificate issued and the nature of the petitioner's business, is whether goods purchased by the petitioners/dealers (for the purposes of building, operating and maintaining passive telecom infrastructure and where on the towers erected and maintained but nonetheless continued to be owned by the petitioner-the passive infrastructure provider ; goods which are indisputably integrally associated with the building and maintenance of the cell towers), are goods falling within the ambit of section 8(1) read with the provisions of section 8(3)(b) of the CST Act, and thus exigible only at the concessional rate of tax provided in section 8(1). Are cell phone towers part of the telecommunication network?:- Cell phone technology is a relatively recent species in the evolution of telecommunications technology. Cell phones are wireless phones which receive their signals from towers. A cell is typically a geo-specific area several miles around a tower, within which a signal can be received. Division of a city or an area into small cells enables extensive frequency re-use so that a large number of people can use cell phone....
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....unication infrastructure (the cell towers). It is not the case of the Revenue that the petitioners had purchased these goods against issue of C forms but had not employed them for the purpose of erection or maintenance of the towers, for supporting the active telecommunication infrastructure mounted on these towers by the several cellular telephone operators. Nor is it the case of the Revenue that the goods so purchased during the course of inter-State transactions were resold by the petitioners and the fact of such resale suppressed. The theme song of the Revenue, to support the impugned orders of penalty and reiterated in the counter-affidavit filed by the assessing authority (in W. P. No, 31462 of 2011) is predicated on the fundamentally misconceived assertion that the petitioners are not telecom service providers but are only engaged in the construction of towers equipped with generators and other equipment that are provided to actual telecom service providers/operators and that the petitioners' wrongly represented themselves as telecommunication network service providers. Another contention of the Revenue is that in order to be a telecom service provider a person or ....
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....ers and authority of the Union or is in any event of no consequence. The regulatory power in respect of telecommunications, conferred on the TRAI (an independent Telecom Regulatory Authority) under a legislation enacted in that behalf (The Telecom Regulatory Authority of India Act, 1997-Central Act 24 of 1997) is also traceable to the legislative field under entry 31 of List I. Such being the position, the registration certificate issued by the DOT, enabling establishment and maintenance of assets such as dark fibre, tower, etc., for the purpose of granting on lease/rent/sale to licensees of telecom services, licensed under section 4 of the Indian Telegraph Act, 1885 constitutes a federal recognition that the erection and maintenance of telecom/cell towers is an activity falling within the legislative field enumerated in entry 31 of List I. On this analyses, the Revenue cannot be heard to contend that the petitioners are not comprehended within the generic area "telecommunications network", an expression employed in section 8(3)(b) of the CST Act as well (also a Union legislation, traceable to entry 92 A of List I (Union List)). The Revenue additionally contends that the registr....
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....p; (i) measures to facilitate competition and promote efficiency in the operation of telecommunication services so as to facilitate growth in such services (sub-section (1) clause (a)(iv)); and (ii) measures for the development of telecommunication technology and any other matter relatable to telecommunication industry in general (sub-section (1) clause (a)(vii)). It also requires to be noticed that the functions conferred on TRAI under Chapter III are enacted to be operative notwithstanding anything contained in the Indian Telegraph Act, 1885 (vide section 11(1)). Section 8(1) read with section 8(3)(b) of the CST Act enjoins levy of the specified and concessional rate of tax in respect of goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for use by him in the telecommunications network. The expression "telecommunication network" is not defined. The TRAI, an expert regulatory body constituted under an Act of Parliament to regulate and evolve policy for the systematic development of telecommunications in the country has, as a part of its recommendations on telec....
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....ed to establish and maintain assets such as dark fibres, towers, etc., for the purpose of granting on lease/rent/sale to telecom service providers. The CCT concluded that in view of the amendment to section 8(3)(b) of the CST Act by Act 20 of 2002 (whereby "telecommunications network" was inserted in the said provision), the dealer is eligible to purchase goods from outside the State by issuing C forms meant to be used in telecommunication network and since the dealer in question has so purchased the goods and used them in the telecommunication network, the dealer could issue C forms and no levy of penalty is warranted in the case. The appellate authority, in rejecting the appeals (in W. P. Nos. 31462 and 31482 of 2011) adverted to reliance by the petitioners/appellants on the letter of the CCT to the Secretary (Revenue) of the State but side-stepped the normative issues arising from the policy view taken by the CCT and observed that the CCT's letter is neither a circular, direction nor has a direct bearing on the disputes involved in the appeals. We do not refer to the above aspect to indicate that the letter of the CCT constitutes a circular binding on the assessing or ....