TaxTMI 
TaxTMI 
2015 (8) TMI 1289
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....d provisions of Madhya Pradesh Value Added Tax Act, 2002 (herein after referred to as 'the VAT Act, 2002'). A prayer has also been made seeking directions to the Union of India, Ministry of Finance, New Delhi, which is the 4th respondent herein, to refund the taxes paid by the petitioner under the Finance Act, 1994 on the activity of the provisions of "Passive Infrastructure and Related Operations and Maintenance Services", or in alternative, to direct the State of Madhya Pradesh (respondents No.4 to 6) to deposit the taxes under the Finance Act, 1994 for appropriation towards the tax liability arising out of the same impugned order. 2. The issue involved in these writ petitions are similar and identical, and therefore, these writ petitions are taken up for consideration together and are being disposed of by this common order. For the purpose of convenience, the parties are referred to as they are arrayed to in Writ Petition No.5340/2013. 3. The petitioner - M/s. Bharti Infratel Limited is a company incorporated under the Companies Act, 1956 is a subsidiary company of M/s. Bharti Airtel Limited. The petitioner is engaged in providing passive infrastructure and related....
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....its site. For all these services (site access, power supply, power conversion, air conditioning and safe keeping), the petitioner receives a consolidated service revenue from its customers. 7. The right, title, possession and control in the passive infrastructure located at the telecommunication site including and not limited to the tower, shelter, diesel generator sets. batteries, air conditioners and electrical and civil works including any enhancement carried out by the petitioner vest solely with the petitioner. 8. The sharing operator i.e., the telecom service providers, on execution of a service contract, has the right to install equipments such as BTS equipment, associated antennae and active infra network equipments and other requisite equipments required to provide telecommunication services by them to their customers. The right, title and interest in all such equipments installed on the site by the Sharing Operations would remain with such operators only. 9. The petitioner commenced operations in April, 2007 and started establishing passive infrastructure at different sites for offering the infrastructure on sharing basis. They have entered into Passive Infrastru....
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.....1 to show cause as to why tax should not be imposed on Passive Infrastructure Sharing Agreements with various telecom operators during revision of the determination order. The petitioner, in reply to the said letter, filed detailed arguments as to why the proceedings to reopen the assessment could be done and also that no tax should be levied on Passive Infrastructure Sharing Agreements under the VAT Act, 2002. 13. Respondent No.3 by the impugned order dated 18.03.2013 (Annexure P/1) relying on the decision of the Single Bench of the Karnataka High Court in the case of M/s. Essar Telecom Infrastructure (P) Ltd. v. Union of India reported in (2012) 21 STJ 311 (Karnataka), wherein the learned Writ Court of the Karanataka High Court has held that right to use the goods has been transferred by the petitioner therein to the telecom operators and that very much fall within Article 366 (29A) (d) of the Constitution and determined the total tax liability of Rs. 8,33,15,503/-. 14. Shri N. Venkantraman, learned Senior Counsel appearing for the petitioner / company assailing the impugned action contended that the petitioner / company is the owner of Passive Infrastructure. It consists ....
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....of time, the shared operators either get the possession of the passive infrastructure or control much less effective control over the passive infrastructure. The terms of the agreement makes it very clear that the shared operator has no obligation to operate and maintain the infrastructure. Always, at all point of time. it is the duty of the petitioner to maintain infrastructure, to be eligible for the consideration mentioned in the agreement. They have to operate and maintain the infrastructure at 99.98% for efficiency, as otherwise they would not be entitled to consideration at all. Therefore, he submits that having regard to the nature and the terms of the contract, the activity carried on by the petitioner, the purpose for which, the shared operators have access to passive infrastructure, it is a contract of pure services and no element of sale is involved. Therefore, the learned authority without proper application of mind, has erroneously held that the transaction in question falls within the mischief of Article 366 (29-A)(1) (d) of the Constitution of India. 16. Per contra, Shri Pushyamitra Bhargava, learned Deputy Advocate General for the State of Madhya Pradesh, contend....
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....e petitioner and M/s. Bharti Airtel Limited held that the entire amount of contract received from the sharing telecom operators for providing access to the passive infrastructure would amount to contract for transfer of the right to use goods, as defined in Section 2 (u) (vi) of the MP VAT Act, 2002 and was exigible to tax under the said Act. 18. In order to appreciate the rival contentions, it is necessary to examine the MSA / agreement entered into between the petitioner and M/s. Bharti Airtel Limited. The parties agreed that this agreement can be taken as representative of the agreements entered into by the petitioner with the sharing telecom operators. 19. Relevant clauses of Clause 1.1 of the MSA (Annexure P/2) are, as under: - "1.1 Definitions In this Agreement, the following terms shall have the following meanings unless the context otherwise requires: - "Active Infrastructure" includes base terminal station equipment, associated antennae, back-haul connectivity to the Sharing Operator's network and other requisite equipment and associated civil and electrical works required to provide telecommunications services by the Sharing Operator a....
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....Availability, the Parties shall execute a Service Contract in accordance with the procedure set out in Schedule 1 (Site Access Availability), and the provisions of each Service Contract shall include the standard terms set out in Schedule 6 (Standard Site Access Terms). Each service Contract shall be duly stamped and the applicable stamp duty shall be at the Sharing Operator's expense. 2.1.6 Upon the execution of a Service Contract in respect of a Site, the Sharing Operator shall have the right to install the Sharing Operator Equipment or any portion thereof at such Site. The Sharing Operator shall have access to each such Site for all installation activities and Infratel shall provide to the Sharing Operator the necessary means of access for the purpose of ingress and egress from each such Site in accordance with the terms of the Service Contract. Provided, however, that only authorized employees of the Sharing Operator or its properly authorized sub-contractors shall be allowed such access to the Sites. 2.1.7 The right, title and interest in and to the Passive Infrastructure, including any enhancements carried out by Infratel, shall vest with Infratel and al....
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.... to ask for relocation of the equipment of the sharing telecom operator; such relocation may occur due to acquisition of a site or action by a Government authority or any order of a Court of law etc. Under clause 5.2 it shall be the responsibility of petitioner to ensure that any other operators on the side do not cause any damage or install any equipment which would harmfully interfere or physically obstruct the equipment of any sharing operator existing at the site. The infrastructure of the petitioner (the passive infrastructure) shall be maintained by it in proper state of repair and condition. There are certain other responsibilities and covenants which are not very relevant for our purpose. 23. Clause 5.3 provides for the warranties and the covenants of the sharing operator. It is generally to ensure that its employees and agents and sub-contractors comply with the terms and conditions of the contract, to comply with all applicable laws and desist from doing anything which might cause or otherwise result in a breach by petitioner, maintain its equipment in a good and safe state of repair and condition, to desist from installing equipment or machinery of a type or frequency....
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....haring Operator for failure to achieve the above Uptime Service Levels are set out below. Operation and Maintenance Service Level % of Total Rate payable by petitioner 99.95% or greater 0.0% 99.90% or greater but less than 99.95% 5.0% 99.70% or greater but less than 99.90% 7.5% 99.50% or greater but less than 99.70% 10.0% 99.00% or greater but less than 99.50% 25.0% Less than 99.00% 30.0% The Operation and Maintenance Service Credits payable by petitioner in accordance with the table above shall be applicable in respect of those Sites in the relevant Circle which are below the Operation and Maintained Service Level Specified in paragraph 1.9.2 above." Clause 1.10 obliges petitioner to submit a report of the reasons for any unplanned downtime, to the sharing operator within five business days of the rectification of the downtime. In case of breach of this condition, petitioner is liable to pay service credits in accordance with pre-determined rates which are as follows: Time period of petitioner Downtime % of Total Rate payable by petitioner 24 consecutive hours or more, but less than 36 consecutive hours 50% 36 consecut....
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....y, by way of or as part of any service or in any other manner whatsoever, of goods being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration; (vi) a transfer of the right to use any goods including leasing thereof for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and purchase of those goods by the person to whom such transfer, delivery or supply is made, but does not include a mortgage, hypothecation, charge or pledge." 30. In the light of the above provisions, the question for consideration is: - "Whether in the facts and circumstances, the provisions of Passive Infrastructure Services by the petitioner to share operator's would tantamount to 'transfer of right to use goods' as per Section 2 (u) (vi) of the Madhya Pradesh Value Added Tax Act, 2002, and therefore, become liable to value added ....
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.... delivery and supply, as applicable, used in the various subclauses. Thus, the transfer of goods will be a deemed sale in the cases of sub-clauses (a) and (b), the delivery of goods will be a deemed sale in case of sub-clause (c), the supply of goods and services respectively will be deemed sales in the cases of subclauses (e) and (f) and the transfer of the right to use any goods will be a deemed sale in the case of subclause (d). Clause (29A) cannot, in our view, be read as implying that the tax under sub-clause (d) is to be imposed not on the transfer of the right to use goods but on the delivery of the goods for use. Nor, in our view, can a transfer of the right to use goods in subclause (d) of clause (29A) be equated with the third sort of bailment referred to in Bailment by Palmer, 1979 edition, page 88. The third sort referred to there is when goods are left with the bailee to be used by him for hire, which implies the transfer of the goods to the bailee. In the case of sub-clause (d), the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use the goods. In our view, therefore, on a plain construction of su....
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....tween the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is executed. Thus, where goods to be transferred are available and a written contract is executed between the parties, it is at that point situs of taxable event on the transfer of right to use goods would occur and situs of sale of such a transaction would be the place where the contract is executed." 32. In the case of Bharat Sanchar Nigam Limited & another v. Union of India & others reported in (2006) 3 SCC 1, the Apex Court has held, as under: - "97. To constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes: a. There must be goods available for delivery; b. There must be a consensus ad idem as to the identity of the goods; c. The transferee should have a legal right to use the goods consequently all legal consequences of such use including any permissions or licenses required therefor should be available to the transferee; d. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor thi....
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....al telecom operators and that is why they are referred to as sharing telecom operators in the MSA. The MSA merely permits access to the sharing telecom operators to the passive infrastructure to the extent it is necessary for the proper functioning of the active infrastructure. The MSA also defines "site access availability" as meaning the availability of access to the sharing operator to the passive infrastructure at the site. Clause 2 of the MSA which has been quoted above provides for "site access" and Clause 1.7 limits the site access availability to the sharing operator on use - only basis so far as it is necessary for installation, operation and maintenance etc. of the active infrastructure; the clause further states that the sharing operator does not have, nor shall it ever have, any right, title or interest over the site or the passive infrastructure. The Clause also takes care to declare that the sharing operator shall not be deemed to be the tenant of petitioner and no tenancy rights shall be deemed to exist over the site/passive infrastructure. Clause 2.1.8, presumably by way of abundant caution, states that it is expressly agreed by the sharing operator that nothing con....
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....erators in the manner understood in law, the limited access provided to them can only be regarded as a permissive use or a limited licence to use the same. The possession of the passive infrastructure always remained with the petitioner. The sharing telecom operators did not therefore, have any right to use the passive infrastructure. 38. A careful perusal of the judgment of the Karnataka (supra) shows that the following propositions were laid down: - a) No operation of the infrastructure is transferred to the sharing telecom operator. The latter is only provided access to use the passive infrastructure, but Indus has retained the right to lease, licence etc. the passive infrastructure to any advertising agency; b) The entire infrastructure is in the physical control and possession of Indus at all times and there is no parting of the same nor any transfer of the right to use the equipment or apparatus; c) The permission granted to the telecom operator to have access to the passive infrastructure for limited purposes is loosely termed by the taxing authorities as "a right to use the passive infrastructure"; d) There is no intention on the part ....