AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (11) TMI 1439
X X X X Extracts X X X X
X X X X Extracts X X X X
....on charges cannot be included for levy of sales tax for reason of there being no transfer of property in goods; either by way of sale or lease. 2. Some of the Telecom Companies challenged the levy under the Finance Act, 1994 and some others the levy under the Sales Tax enactment; alternatively subjecting themselves to the other levy. Here, we have an assessee-respondent who had challenged the service tax levy on sale of SIM Cards. They paid sales tax under the KGST Act after collecting the same from their customers. The issue spanned over a number of years and sales tax was collected and paid under the KGST regime as also the KVAT regime. After the judgment of the Hon'ble Supreme Court, the State conceded to the position that there is no sale of goods involved in the sale of SIM cards and, hence, there could be no levy made under the KGST Act and KVAT Act. A batch of writ petitions pending before this Court which challenged the levy under the KVAT Act was placed before a Division Bench. The writ petitions were allowed, directing the Assessing Officer [for brevity "AO"] to exclude the value of SIM Cards and Recharge Coupons from taxable turnover. The Division Bench, however, ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in Kerala. Relying on the 'aspect theory' as propounded in Federation of Hotel and Restaurant Association of India v. Union of India [(1989) 3 SCC 634 = (1989) 74 STC 102 (SC)], it was held that: "... while the State Legislature is competent to impose tax on "sale" by a legislation relatable to entry 54 of List II of Seventh Schedule, the tax on the aspect of "services" rendered not being relatable to any entry in the State List, would be within the legislative competence of Parliament under article 248 read with entry 97 of List I of the Seventh Schedule to the Constitution" (sic - para 36). The conclusion in paragraph 47 was as follows: "47. Conclusions: (a) the transaction of sale of SIM card is without doubt exigible to sales tax under the KGST Act. The activation charges paid are in the nature of deferred payment of consideration for the original sale, or in the nature of value addition, and, therefore, also amount to parts of the sale and become exigible to sales tax under the KGST Act. (b) Both the selling of the SIM card and the process of activation are "services" provided by the mobile cellular telephone companies to the subscriber, and squarely fall w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation of telecom services. SIM cards are supplied to the customers to provide telephone services and the activation charges do not constitute either a consideration, for transfer of right to use or for sale of goods. Commissioner of Central Excise & Customs, Cochin v. Idea Mobile Communication Ltd. [(2009) 22 VST 454 (Ker.)] considered an appeal in which the Commissioner challenged the order of the Customs, Excise and Service Tax Appellate Tribunal cancelling the demand of service tax on the value of SIM Cards sold by the respondent to their mobile subscribers. Though the State was not a party, since the Hon'ble Supreme Court in BSNL(supra) had directed the A.O's to consider the existence of any transfer of property in goods by sale of SIM Cards, the State of Kerala, represented by Commercial Taxes Department was also heard. Therein, the State produced orders of the Assistant Commissioner of Commercial Taxes, Special Circle, Thiruvananthapuram dropping the proceedings to levy sales tax on SIM Cards, conceding to the position canvassed in and upheld by the Supreme Court in BSN L ( supr a), finding no intrinsic sale value (read-of goods) in the sale of SIM Cards. The Division....
X X X X Extracts X X X X
X X X X Extracts X X X X
....later Division Bench in its reference order. It is also submitted that if the decision in Tata Teleservices Ltd. (supra) is upheld by the Full Bench, then necessarily the revisions of the State challenging the order of the Tribunal would have to be allowed to the extent of the cancellation of forfeiture being set aside. 8. The learned Counsel for the respondent Sri.A.Kumar would alertly point out that Section 46A deals specifically with contravention of subsection (2) or (3) of Section 22. Sub-section (3), applies to those who are unregistered and is not applicable to the assessee-respondent, since they are registered under the KGST Act. Subsection (2) of Section 22 speaks of collection of any sum purporting to be by way of tax on the sale of goods, in respect of which he is not liable to pay tax or at a rate exceeding the rate at which he is liable to pay tax as per subclause (a). Again, subclause (b) would not be applicable, since it deals with purchase of goods by a registered dealer. Only when there is any sum collected by way of tax by a registered dealer where he is not liable to pay tax or at a rate exceeding the rate at which the liability is cast on him could there be a p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under Section 46A of the KGST Act, when the collection was validly made. We extract the provision hereunder: "46A. Penalty for illegal collection of tax:- (1) If any person collects any sum by way of tax or purporting to be by way of tax in contravention of sub-section (2) or sub-section (3) of Section 22, he shall be liable to pay penalty not exceeding five thousand rupees and any sum collected by the person by way of tax or purporting to be by way of tax in contravention of sub-section (2) or sub-section (3) of Section 22 shall be liable to be forfeited to the Government by an order issued by the assessing authority after giving such person an opportunity to show cause why penalty or forfeiture shall not be ordered: Provided that no penalty or forfeiture shall be ordered under this sub-section if the assessing authority is satisfied that the sum so collected has been returned to the person from whom it was collected. (2) Where any sum is forfeited to the Government under sub-section (1), any person from whom the amount was collected in contravention of the provisions of sub-section (2) or sub-section (3) of Section 22 may apply to the assessing authority for reimbursemen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hen it is not exigible under the State law and indeed prohibited by it, shall be forfeited to the public exchequer punitively under Entry 54 & 64 of List II of the Seventh Schedule to the Constitution. The dealers attacked the provision mainly on the ground of the forfeiture being not a penal provision. The argument itself was that "the expression "forfeiture" is a ritualistic recital to cover up a secret design to snatch from the traders sums which cannot be reached at except by the device of forfeiture. In frank fact, it is not a measure of penalty but an oblique methodology to do an illegitimate thing which is beyond the legislature's legitimate reach." (sic-para 17); which question was pointedly dealt with in the concurring judgments. 13. Krishna Iyer, J. who authored the majority judgment; found that speaking generally and having in mind the object of the provision, forfeiture had a punitive impact. Quoting from Blacks Law Dictionary it was found that the terms 'fine', 'forfeiture' and 'penalty' are often used loosely and 'forfeiture' is a penalty by which one looses his right and interest in a property. However it did not require mens rea, was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; xxx xxx 28. Skilful submissions were made on the construction of the text of Section 37(1) of the Act to convince us that the sub-section itself made a distinction between penalty and forfeiture, suggesting that forfeiture was not regarded as a penalty. Side references to a few other sections were made to reinforce this thesis. The identity of the forfeit and the illegal collection was also urged by the assessee as a tell-tale circumstance to contend that it could not be a penalty. Moreover, the express penalty in Section 37(1)(a) had a ceiling while the ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ollected were forfeited while his obligation to the purchasers to refund the amounts continued. If the assessee by a mistake failed to collect tax, from the purchasers, tax was levied and collected from the assessee making him suffer in any event. When after a costly litigation, the assessee succeeded in establishing that sales tax cannot be collected on the railway freight on cement bags or inte r -State sales, the Government promptly forfeited such amounts. We agree these are instances of hardship to the assessees and deserve Government attention. But for that reason the Courts cannot say that the act is beyond the legislative competence. The fact that in some cases the dealers are prejudiced would not affect the validity of the legislation which is the question we are called upon to decide. On a careful consideration of the points raised, I am satisfied that the provisions of Section 37(1) are within the competence of the State Legislature". 15. Section 46A of the KGST Act, according to us, has two limbs; one imposing penalty and the other a clause of forfeiture, which, later limb, does not bring with it the essential requirement of mens rea though penal in nature. Any collect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tax. The auction purchaser had sold the timber locally and consigned it inter-State, which was sought to be assessed to tax by the Department. As to the inter-State sales, the assessee's contention that he had not made any sale to a purchaser outside the State and had merely transported the goods to its own stock-yard in the other State was accepted. On the local sales, it was found that only the first sale within the State was taxable under the State sales tax enactment. When the auction was conducted and the sale was made by the Forest Department, that Department was a dealer, liable to pay tax on its first sales. The second sale made by the auction purchaser within the State was exempt. However, the State took a contention that there was an exemption notification subsequently brought out by the Government which exempted the sale made by the Forest Department even when the subject auction and sale occurred. It was held that since the first sale at the said point was validly taxed, the exemption granted subsequently, though having retrospective effect, could not result in creating a fresh levy on the second sales made by the assessee. In the present case, no such issue arises.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt having clearly held that VAT cannot be collected on activation of SIM cards, the assessment orders levying and collecting VAT, are from their inception a nullity and, therefore, the levy and collection of VAT is without authority of law and violative of Article 265 of the Constitution of India". (underlining supplied by us to provide emphasis) 19. We agree with the Punjab & Haryana High Court that the levy and collection of sales tax in the context of the judgment in BSNL (supra) would be one without authority of law and violative of Article 265 of the Constitution of India. In this context, we only add a rider insofar as, if the declaration of law in BSNL (supra) was made prospective in its operation, then necessarily whatever paid over to the State as tax, would have to remain with the State. On the other hand, when subsequently the collection made by the registered dealer has been rendered illegal and without authority of law, in that context, sub-section (2) of Section 22 of the KGST Act squarely applies. At the time of collection in the subject assessment years it was perfectly valid by virtue of the declaration made by a Division Bench of this Court. However, on the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en collected from the petitioner/plaintiff - whether before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991 or thereafter - by misinterpreting or misapplying the provisions of the Central Excises and Salt Act, 1944 read with Central Excise Tariff Act, 1985 or Customs Act, 1962 read with Customs Tariff Act or by misinterpreting or misapplying any of the rules, regulations or notifications issued under the said enactments, such a claim has necessarily to be preferred under and in accordance with the provisions of the respective enactments before the authorities specified thereunder and within the period of limitation prescribed therein. No suit is maintainable in that behalf. While the jurisdiction of the High Courts under Article 226 - and of this Court under Article 32 - cannot be circumscribed by the provisions of the said enactments, they will certainly have due regard to the legislative intent evidenced by the provisions of the said Acts and would exercise their jurisdiction consistent with the provisions of the Act. The writ petition will be considered and disposed of in the light of and in accordance with the provisions of Section 11-B. This is f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... xxx (iii) A claim for refund, whether made under the provisions of the Act as contemplated in Proposition (i) above or in a suit or writ petition in the situations contemplated by Proposition (ii) above, can succeed only if the petitioner/plaintiff alleges and establishes that he has not passed on the burden of duty to another person/other persons. His refund claim shall be allowed/decreed only when he establishes that he has not passed on the burden of the duty or to the extent he has not so passed on, as the case may be. Whether the claim for restitution is treated as a constitutional imperative or as a statutory requirement, it is neither an absolute right nor an unconditional obligation but is subject to the above requirement, as explained in the body of the judgment. Where the burden of the duty has been passed on, the claimant cannot say that he has suffered any real loss or prejudice. The real loss or prejudice is suffered in such a case by the person who has ultimately borne the burden and it is only that person who can legitimately claim its refund. B....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; xxx K.S.Paripoornan,J (A) If the excise duty paid by the assessee was ultimately passed on to the buyers or any other person, and that the assessee has suffered no loss or injury, the action for restitution based on Section 72 of the Contract Act, is unsustainable. (This is the legal position even under general law, without reference to Section 11-B of the Central Excises and Salt Act as amended by Act 40 of 1991.) (B) The decision in Kanhaiya Lal case (AIR 1959 SC 135) and the cases following the same cannot be understood as laying down the law that even in cases the liability has been "passed on", the assessee can maintain an action for restitution. If the decision in Kanhaiya Lal case and the cases following the said decision, enables such a person to claim refund (restitution), with great respect to the lear....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... entitled to exemption, which decision was overturned by the Delhi High Court allowing the exemption claim. The Delhi High Court also overruled the Revenue's plea based on the theory of unjust enrichment, and directed refund. There were appeals filed before the Supreme Court, during the pendency of which the State granted refund to a large extent. When the appeals came up for hearing, there was a suggestion made by the assessee-respondent that if the entire refund is carried out, they would refund the duty to the purchasers. It was contended that the purchasers from the manufacturer were clearly identifiable, falling into two categories, being (i) manufacturers of beverages, like Bournvita and Horlicks etc. and (ii) breweries and distilleries engaged in manufacturing Indian Made Foreign Liquor. The proposal was in the context of the purchasers having claimed proforma credit on the excise duty paid by them; which was reversed by the Department consequent to the direction of the High Court to refund the excise duty. The proposal was also in mitigation of the hardship of the purchasers who having paid the duty was also dis-entitled to proforma credit. On refund being made to the a....