TaxTMI 
TaxTMI 
1998 (9) TMI 610
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....acts are simple. The Government of India, its Department of Telecommunication, has been assumed to be in trade and business by the Trade Tax Department, and the gross revenues of the Telecommunication Department collected from subscribers, using the telephone facility, have been subjected to trade tax by the State of U.P. Prior to the Constitution being enacted, the Sales Tax Department did not tax the Government of India on the revenues collected for providing telephone services. On these facts, there is no issue. About the year 1988, the Department of Trade Tax, the Ministry of Institutional Finance, Uttar Pradesh, came to the conclusion that the Union of India, the Department of Telecommunication, on its gross turnover had not filed a return which it should have. It was presumed that, in this context, the Union of India is a "dealer" in business, and as a dealer liable to pay the trade tax. The District Manager (Telecommunication), of the districts concerned, was held as liable to pay tax with an obligation to file return under section 7 of the Act. But, as no return had been filed by the Union of India, its Department of Telecommunication, the assessing authority took recourse ....
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....and decided to enter judgment. With pleadings exchanged, it would only be appropriate that such issue of conflict between the Federal and the State Government ought to be decided on merits without delay. In similar circumstances, a decision of the Supreme Court required it so 4.. At the outset when the hearing began, the court has asked learned Standing Counsel for the State of U.P. to take instructions for a statement whether, at any time prior to coming of the Constitution, such tax, i.e., sales tax or trade tax as it is called today, was levied on the telephone department assessing turnovers or the revenues or fee collected in providing telephone facilities to subscribers. The answer, upon instructions, was in the negative. This is the first time since the Republic that the sales or trade tax is being imposed by a Provincial 1.. Writ Petitions Nos. 347, 975, 1186 and 1680 of 1993, 601, 738 and 1081 of 1994, 115 and 116 of 1995 and 262, 263 and 264 of 1998. 2. Writ Petition No. 1082 of 1994. 3. Writ Petition No. 802 of 1995: Sub-Divisional Officer, Telegraph, Basti v. State of Uttar Pradesh decided on July 10, 1995. Government, i.e., the State of U.P. on the....
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.... assessment on the Union of India and then fell short of the exercise not realising the tax by execution proceedings. No answer could be given to the court why this exercise of realising the trade tax by attachment and coercive process was not taken to its logical conclusion. The hesitation of putting the Union under distress is the answer to the issues. 7.. The merits of the matter will be considered on two aspects-(1) whether the Government of India could be a trade tax assessee under the Act, and (2) can a Federal Government, like the Government of India, be taxed by a Provincial Government and whether the Constitution of India permits such an exercise? 8.. These are the only two broad issues in the present writ petitions and on this, at least, in so far as the issues are concerned, there are no issues between the Standing Counsel of the Union of India or the State of U.P. The State Counsel says that the State of U.P. can tax the Union. Counsel for the Union says that this cannot happen 9.. On the first aspect, whether the Government of India could be subjected to trade tax under the Act, the contention on behalf of the State of U.P. is that the Government of Ind....
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....of property of any goods. 12.. The submission continues to explain that the section was amended to incorporate the definition clause in clause (29A) of article 366 of the Constitution of India, which provides for "tax on the sale and purchase of the goods" and like synonymous situations. A nexus is being explained to the court between clause (29A) of article 366 of the Constitution of India and the amendment incorporated in section 3-F of the Act. 13.. In so far as reference to article 366 is concerned, the court is dealing with it straightaway. Article 366 is not providing a legislative field, as is commonly understood, and was so submitted in the present case. Article 366 of the Constitution of India is contained in Part XIX of the Constitution of India under the Chapter titled "Miscellaneous". Of certain expressions, as are used in the Constitution, or which need to be clarified as having been used in a statute, like any statute contains a section for definitions, article 366 is that section of the Constitution which assigns meanings to expressions. Of circumstances and situations which may need to be explained the expression, "a tax on the sale and purchase of the ....
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.... 16.. The fallacy which the assessing authority fell into was to take recourse to making an assessment under the assumption that the Government of India was a dealer liable to pay trade tax under the Act. The presumption that a return was to be filed by the Government of India as a "dealer" and on its default, an assessment under sub-section (3) of section 7, the premises itself is misplaced. Is the Government of India a "dealer" within the meaning of the Act? This is the question which the assessing authority was obliged to answer first? This he did not do. But, straightaway proceeded to assess the Government of India, as if it was a "dealer" in business. The assessing authority proceeded to and determined the turnover of the Government of India as a "dealer" on the gross receipts on the fee from telephone subscribers, and subjected these receipts to tax. This was an error. At the expense of repetition, the basic question before the assessing authority was, is the Government of India a "dealer"? 17.. "Dealer" is an expression used under section 7. It is correct that subsection (1) of section 7 stipulates that every dealer who is liable to pay tax under the Act, shall submi....
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....3-F of the Act, have been torn out of their context. But, in the present case, there is neither, a sale nor a purchase, so as to attract the expression "dealer" to co-relate it with "a Government". Closer home, if the argument be that a dealer may do a business of transfer of any right to use any goods to attract section 3-F of the Act, this aspect is contained in sub-clause (viii) of clause (c) of the definition clause to explain the expression "dealer" in its various meanings inasmuch as the expression "dealer" may mean a Government referred to in subclause (iv). It also means every person who carries on business of transfer of the right to use any goods for any purpose for cash, or deferred payment. 20.. The reference to expression "a Government" is excluded as there has been no sale or purchase in the context of the matter. If it is accepted that these matters relate to business of transfer of any right to use goods for cash, deferred payment, then such business is related to every person as is referred to in subclause (viii). Sub-clause (viii) of clause (c) of section 2 of the Act reads as under "(viii) every person who carries on business of transfer of the right to use an....
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.... of section 3-F, as it stands, needs to be noticed "3-F. Tax on the right to use any goods or goods involved in the execution of works contract.-(1) Notwithstanding anything contained in section 3-A or section 3-AAA or section 3-D, but subject to the provisions of sections 14 and 15 of the Central Sales Tax Act, 1956, every dealer shall, for each assessment year, pay a tax on the net turnover of- (a) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; or (b) transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; at such rate not exceeding fifteen per cent as the State Government may, by notification, declare and different rates may be declared for different goods or different classes of dealers." 24.. The justification of the State of U.P. to tax the Union of India as a dealer which has indulged in the transfer of any right to use any goods or has transferred the property in goods, is not the end of the matter. This section is very clear when it says that it attracts the net turnover of right to use any ....
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.... Act, 1994 has been amended by the Finance Act, 1997. A new Chapter was inserted, entitled "Service Tax". Service tax was to be imposed by the modalities indicated under the definition clause section 65. "Taxable service" was explained in sub-section (41) of section 65. By clause (b), a tax was to be paid by a subscriber receiving a telephone connection and service provided by the telegraph authority. Sub-section (42) defines "telegraph authority" and has the meaning assigned to it under the Indian Telegraph Act, 1885. In fact, this controversy ought to have ended, if not earlier, at least, when the Government of India imposed service tax by the Finance Act, 1994. By now, it is clear that the same subject-matter is being taxed by two Governments. By the Union on the subscriber. By the State on the Union as provider to the subscriber. This is not possible. The Constitution of India does not permit it. The issue was taken to such an extent that even arguments under article 285 of the Constitution of India had not been addressed on behalf of the State of U.P. It was the desire of the court, in these circumstances, that the State of U.P. must look into the matter seriously as the symme....
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....mmencement of this Constitution liable or treated as liable, so long as that tax continues to be levied in that State." 30.. Plainly, article 285 sets out that the property of the Union is immune from taxation. The Government of India enjoys immunity from taxation. The only saving clause is that should a tax be levied on the property of the Union, only Parliament will provide for it. The second exception is that until Parliament by law otherwise provides, if it is a tax levied by an authority within the State immediately before the commencement of the Constitution, such tax may be charged so long as that tax continues to be levied in that State. 31.. In so far as the States within the Union are concerned, i.e., the Provincial Governments, the liability to tax the property of a State by the Union, is referred to in article 289. This article reads thus: "289. Exemption of property and income of a State from Union taxation.- (1) The property and income of a State shall be exempt from Union taxation. (2) Nothing in clause (1) shall prevent the Union from imposing, or authorising the imposition of, any tax to such extent, if any, as Parliament may by law provide in....
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.... overlooked was the judgment as was delivered by the Honourable B.P. Jeevan Reddy, J., for himself, and on behalf of honourable Dr. A.S. Anand, honourable Suhas C. Sen, honourable K.S. Paripoornan and honourable B.N. Kirpal, JJ., being the opinion of the Supreme Court carried by majority. Such was the judgment and law by the Constitution. The Standing Counsel submitted that he had instructions from the department to oppose the writ petitions of the Union of India. The Standing Counsel for the State stated more than once that the Advocate-General, U.P. would appear. The Advocate-General, U.P., did not appear and rightly. Who gave these instructions? Prior to this, the court had also brought to the notice of the Standing Counsel of the very origin of the controversy which took place 100 years ago in a decision In re: Mc Culloch v. Maryland [1819] 4 Wheat (US) 315, 429; [1819] 4 L Ed 579, in the United States of America of immunity to the Federal Government from State taxation. The reason was that this case itself was mentioned by the Supreme Court on more than one occasion and the ratio decidendi of this case was a contributing factor before the constituent Assembly in making of the ....
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....onged to the Railways and in view of article 285(1) of the Constitution, such sales were immune from taxation by the State. The appeal of the State of Punjab before the Supreme Court was dismissed 36.. In a similar theme when a local body, that is to say, a municipality, attempted to levy service charge on the railway administration of the Union of India, the Supreme Court, In re: Union of India v. Purna Municipal Council [1991] 4 JT 3, held that notwithstanding that the Indian Railways Act, 1890 may have permitted the taxation yet such a taxation on the Union of India is saved by article 285(1). The Supreme Court said that the applicability of such tax was not ousted by article 285 but the rights of the local authority which may flow from the Indian Railways Act, 1890 stands preserved only if the Central Government condescends in the matter. The Supreme Court also observed that the interplay of the constitutional and legal provision being well cut and defined, it required no marked elaboration to stress the point. The local municipality was restrained from raising demands on the railway administration in regard to service charge. 37.. In another case, taking recourse to the ....
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....is. In this field relating to industrial adjudication, the law rests in identifying an industry as a systematic activity which is not casual or temporary in nature and lasts throughout the year. In so far as trade unionism is concerned between the management and the worker qua the rights of a worker, no difference was made whether the industry was run by a private enterprise, the public sector or the Government. The matter relating to the General Manager (Telecom) v. S. Srinivas Rao AIR 1998 SC 656, itself refers to the famous case of Bangalore Water Supply and Sewerage Board v. A. Rajappa AIR 1978 SC 548. The dominant purpose of employment by management, was being applied, as a test, by the Supreme Court. Thus, between the managers and workers, notwithstanding that an industry may be run and managed by the Government of India or otherwise, sovereign immunity is not permitted to be pleaded in industrial relations if a person is held to be a worker within the meaning of the expression "industry" of disputes under the Industrial Disputes Act, 1947. Thus, the counter-affidavit of the State of U.P. filed during the course of hearing in attempting to tell the court, in effect, that arti....
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....ment and the latter may have deposited the said tax with the Sales Tax Department, the Supreme Court clarified that it could be verified and, after verification, benefit of the credit of tax will be given to the Food Corporation of India. Further in the present case, the Food Corporation as an appellant had conceded that there were sales under the transaction falling under the control order. Thus, the citation in reference to sales under the Food (Control) Order, 1985 admittedly accepted as a sale, was misplaced and does not throw any light to the issue before the court. 42.. The next reliance was on the case of the Union of India v. State of Andhra Pradesh [1996] 103 STC 34 (AP) [FB]. The Customs Department of the Government of India made disposal of confiscated contraband goods as well a unclaimed goods. The Andhra Pradesh High Court had held that the Custom Department of the Government of India was acting as a dealer. The context, in this case, is also misplaced. Confiscated goods or contraband goods, in any case, carry an issue that it may not be the property of the Government of India except that the Government of India is the authority vested with the powers under special ....
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....urt held that there was not even a contract of bailment so that it may be construed as a transfer of goods to denote the passing of title. The court held that delivery of possession of a thing must be distinguished from its custody. The court further held that effective control of the machinery even while the machinery is in use with the contractor, remained with the Central Government agency and that the contractor was not free to make use of this machinery for other works or move it out for use elsewhere. There was no sale and hence tax could not be charged. 45.. Drawing closer to the controversy is also another case on an issue whether the Sales Tax Department could levy sales tax in respect of hire charges collected by the bank for providing safe deposit lockers. The Andhra Pradesh High Court, In re: State Bank of India v. State of Andhra Pradesh [1988] 70 STC 215, examined the expression "tax on the sale and purchase of goods", as is referred to in article 366, clause (29A). The High Court held that the hirer had no right in the property and had only an exclusive right of use during the period of agreement. The Andhra Pradesh High Court held that the hire charge is insepara....
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....e do we trace this right? It is obvious that it is an incident of sovereignty, and is co-existensive with that to which it is an incident. All subjects over which the sovereign power of a State extends, are objects of taxation; but those over which it does not extend, are upon the soundest principles, exempt from taxation. This proposition may almost be pronounced self-evident. The sovereignty of a State extends to everything which exists by its own authority, or is introduced by its permission; but does it extend to those means which are employed by Congress to carry into execution-powers conferred on that body by the people of the United States? We think it demonstrable that it does not. Those powers are not given by the people of a single State. They are given by the people of the United States, to a Government whose laws, made in pursuance of the Constitution, are declared to be supreme. Consequently, the people of a single State cannot confer a sovereignty which will extend over them. If we measure the power of taxation residing in a State, by the extent of sovereignty which the people of a single State possess, and can confer on its Government, we have an intelligible s....
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....sh that confidence which is essential to all Government." 47.. Beyond the contentions, on behalf of the State of U.P., as placed above and also as referred to in the pleadings on record, in its two counter-affidavits, nothing further had been contended except as noticed by the court. The exercise to misplace the Government of India as a dealer trading in goods, or, for that matter, participating in a works contract and, thus, being under an obligation to file a return under the Act, was a misconceived exercise. The assessment orders presupposing an obligation to file returns, are not only in excess of jurisdiction but a misplaced jurisdiction. The assessment orders violate article 285 of the Constitution of India and the obligation of the Union of India by law to provide the network of services by telephone. These assessment orders suffer from manifest errors in violating the Constitution. The Government of India cannot be taxed in the discharge of its sovereign function. In these circumstances, these assessment orders, or, for that matter, any appeal which may have been dismissed as filed by the Union of India are quashed. 48.. The writ petitions are allowed 49.. The cour....