TaxTMI 
TaxTMI 
2019 (1) TMI 766
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....iding of the Passive Infrastructure Service and the petitioner is asked to submit the evidence and reasons as to why the amount received by the petitioner should not be considered as the amount of consideration received by the petitioner towards the transfer of right of using petitioners' goods and as to why tax, interest and penalty under the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as "GVAT Act") be not imposed on the petitioners. Thus, according to the Department, the gross receipts of the petitioner from providing the Passive Infrastructure Services in Gujarat is subject to VAT under the GVAT Act. [2.0] The facts leading to the present Special Civil Application and the case on behalf of the petitioners so pleaded in the petition in nut­shell are as under: [2.1] That the Passive Infrastructure Assets of Bharti Infratel Limited (hereinafter referred to as "BIL") were transferred to Bharti Infratel Ventures Limited (hereinafter referred to as "BIVL") by virtue of scheme of arrangement as approved by the High Court of Delhi vide its order dated 29.03.2011. That the demerger scheme was effective from 01.01.2009. Further, the Passive Infrastructure Assets ....
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....cation infrastructure support services of various telecom operators on a non­exclusive basis for which the petitioner has obtained an IP1 registration from the Department of Telecommunication, Ministry of Communication and Information Technology. According to the petitioner when the telecom operators were at their nascent stage, every telecom operator had to create its own passive infrastructure to deliver telecom services to various subscribers. According to the petitioner it was realized over a period of time that the services arising out of the passive telecommunication infrastructure need not be limited to its use by single telecom operator and therefore, it was found that the passive telecommunication infrastructure, instead of being owned and used by a single telecom operator, can be effectively used by two to four telecom operators simultaneously. It is submitted that therefore, the said concept gave birth to a new type of service in the field of telecommunication services i.e. passive infrastructure services. It is submitted that therefore with the aforesaid object telecom operators as per the outsourcing these services to such service providers including the petitio....
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.... the case on behalf of the petitioners that despite the above, vide the impugned show­cause notice the respondent No.3 has alleged that upon the amendment of Clause 2.1.1 of the MSA entered into between the petitioner and various Telecom Operators across Gujarat, the amount of service income received does not remain to be towards providing of the Passive Infrastructure Service and the petitioner is asked to submit the evidence and reasons as to why the amount received by the petitioner should not be considered as the amount of consideration received by the petitioner towards the transfer of right of using petitioners' goods and as to why tax, interest and penalty under the GVAT Act be not imposed on the petitioners. Therefore, it has been alleged that by the respondent No.3 that the gross receipts of the petitioner from providing the Passive Infrastructure Services in Gujarat is subject to VAT under the GVAT Act, whereas the petitioner has deposited service tax on the entire receipts. [2.7] It is submitted that the impugned show­cause notice being absolutely illegal, arbitrary and not sustainable under the law, the petitioner has no other alternative remedy other than fi....
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....feet and bolted on foundation either into the ground or on rooftop of a building A covered shelter to house various equipments owned by the petitioner and telecom operators An air­conditioner to maintain particular temperature inside the shelter Supply of electricity current to the air­conditioner and equipments installed inside the shelter and on the tower through (i) An electricity connection from the power grid, or (ii) Battery bank (bunch of batteries) to provide instant power back up whenever supply of electricity through the grid is disrupted (iii) DG set if the power outage is for a longer duration Power interface unit, to convert ACT current into DC current and also, to inter­connect various equipments inside the shelter with power supply. II. Active infrastructure (owned by telecom opertors and kept / installed at a telecom site owned by the petitioner) Base Transmission Station (BTS) - kept inside the shelter Microwave Radios - installed on the tower at a particular height Antennas - installed on the tower at a particular height B. The petitioner's Servi....
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....s and petitioner becomes a nullity. It is submitted that therefore in light of Section 52 of the GVAT Act, the proceedings and the proposed demand are non­maintainable, bad in law and non est. Shri Venkatraman, learned Counsel appearing on behalf of the petitioners has challenged the impugned show­cause notice and the proposed demand under the GVAT Act by making following submissions. 1. That the said show­cause notice is arbitrary, illegal, discriminatory, unjust, perverse, ultra vires, beyond jurisdiction, unconstitutional and even otherwise bad in law and on facts. 2. That it is a well settled principle that every sale or purchase of goods taking place within a particular State is subject to the provisions of VAT Law of that State. Further, every State has formulated Legislations to regulate the levy of VAT on sale or purchase of goods. 3. That as per the Section 2(23) of the GVAT Act, "sale" means a sale of goods made within the State for cash or deferred payment or other valuable consideration and includes, ­ (d) 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 c....
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....P. reported in (1997) 106 STC 540 (All) was that in addition to transfer of control and possession, there must also be a transfer of custody as the transfer needs to be exclusive in nature. Even the transferor should not be able to use the same during the period of transfer. 10. That the legal position established by judicial precedents can be summarised as under: (a) There must be a transfer of effective control and possession of the goods which are subject matter of transfer; (b) There must be a transfer of custody of the goods which are subject matter of transfer; (c) All the permissions and licenses should be made available to the transferee and should not be in possession of the transferor; (d) There must be goods available for delivery; (e) There must be a consensus ad idem as to the identity of the goods; (f) The transferee should have a legal right to use the goods - consequently all legal consequences of such use including any permissions or licenses required should therefore be available to the transferee; (g) For the period during which the transferee has such legal right, it has to be to the exclusion to the trans....
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....period of transfer is also not getting fulfilled. (e) The petitioner provides the same Passive Infrastructure to more than one Sharing Operator at one time As per Clause 2.5 and 5.2.3 of the Agreement, the petitioner retains the right to provide the same Passive Infrastructure to more than one Sharing Operator. Further, Schedule 3 of the Agreement, with respect to the consideration clearly provides that the consideration varies depending upon the number of Sharing Operators using the Passive Infrastructure. Accordingly, the test of exclusivity is also not getting satisfied. 12. That the activity of provision of Passive Infrastructure service clearly falls outside the purview of transfer of right to use goods. The MSA is clearly in the nature of a service contract and there is no transfer of right to use goods is involved. Accordingly, the petitioner is not liable to pay VAT on the consideration received from the Sharing Operators towards provision of Passive Infrastructure Services. 13. That the respondent No.3 failed to note that the telecom operators install their active telecommunication equipment at the site, which is peculiar to the operators' network. The petit....
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....ces. 18. That the Service tax is paid by the petitioner on the revenues under the Master Service Agreement in terms of Section 65(105)(zzzq) of the Finance Act, 1994 (up to 30 June 2012) under the category of 'Support Service of Business or Commerce' and 66B (with effect from 1 July 2012), on the entire consideration received for providing Passive Infrastructure Services to Sharing Operators. This is clear from the bill raised by the petitioner on the cellular operators and also from the returns filed under the Service tax law. 19. That it is a settled legal position that both VAT and Service tax cannot be levied on the same amount. That the reliance is placed on the decision of the Hon'ble Supreme Court in the case of Imagic Creative (P) Ltd. (Supra). In this matter, Hon'ble Supreme Court held that Service tax and VAT are mutually exclusive. If a particular transaction is taxable under either of the legislation, tax cannot be levied on the same amount under the other Legislation. 20. That the Respondent No.3 committed a fundamental error of jurisdiction in issuing notice under VAT on a transaction that is subject to Service tax. In the present case the transaction being p....
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.... all the periods up to the date of the High Court order by virtue of which the Scheme of Arrangement is sanctioned. 26. That without prejudice to contention of non­applicability of Section 52 to the facts of the case as in the facts of the matter the order is not taking effect before the date of the order, Section 52 should be read down to preserve its constitutionality and not encroach upon the rights of the petitioner guaranteed under Articles 14, 19(1)(g), 265 and 300A of the Constitution of India in as much as: * That the Merging Entities ceased to exist for all purposes after their amalgamation with Indus Towers Ltd. with effect from 01.04.2009 vide the Hon'ble Delhi High Court's order dated 18.04.2013 ("High Court Order"). In this view of the matter, with effect from 01.04.2009 the inter­se transactions seize to qualify as "sale" for the purposes of GVAT Act. Therefore, such transactions cannot attract any Sales Tax/Value Added Tax on any sale between the Merging Entities and the petitioner; * That with the approval of merger, the transactions­inter­se between the parties cease to exist. They do not have any nexus with the taxable event i.....
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....have an impact of levying tax on an incidence that has no linkage with the taxing event. The petitioner submits that under the Constitution of India, a State is not permitted to levy VAT on a transaction that is not a sale. A transaction which is not a sale cannot be deemed to be sale for the purposes of taxation. In this view of the matter, Section 52 cannot be given effect beyond the competence of state as it stands in that case, it would be beyond the powers conferred under Entry 54 of List II of the Constitution of India. 31. That Section 52 is required to be read down so as to not be in defiance of a High Court Order procured under section 391­394 of the Companies Act, 1956 whereby the existence of Transferor Companies cease to exist. 32. That in this regard, it is further submitted that the juristic personality of a company flows from the Companies Act. Once a High Court in exercise of its power under Section 391 of the Companies Act declares the effective date of merger, the identity of the merged company gets destroyed completely with effect from the said date. The Registrar of Companies as a procedural act merely records the transactions in his register from a da....
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...., Section 52 of the GVAT Act seeking reversal of an action undertaken under the union law i.e. Companies Act, 1956 is a colourable piece of legislation and needs to be read down to preserve its constitutionality. 38. That in any event and without prejudice to other contentions, the scheme of amalgamation of the Merging Entities was sanctioned by the Hon'ble Delhi High Court and therefore, Section 52 of the GVAT Act does not and cannot bind the sanction of the scheme of amalgamation in the present matter. 39. That when the Delhi High Court has sanctioned the amalgamation, in conformity with the provisions of the Companies Act, on 18.04.2013 to be effective from the appointed date i.e. 01.04.2009, the amalgamation has said to have taken effect from 01.04.2009 for all purposes and all acts. Making above submissions and relying upon above decisions of three High Courts referred to herein above and other decisions referred to in the petition, it is requested to allow the present petition. [5.0] Present petition is vehemently opposed by Shri Kamal Trivedi, learned Advocate General appearing on behalf of the respondent State Authorities. Shri Trivedi, learned Advocate General ....
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....t, merely a license would be created, then in that case, such terms could not have been inserted in the said contract. Clause 11 of the said contract also specifically stipulates the situations wherein either party may terminate the said contract. In this regard, it is humbly submitted that it is settled legal position that a license can be revoked at any time at the pleasure of the licensor whereas, in the present case, there is no right, whatsoever in nature, to the petitioner company to revoke and/or terminate the said contract at its own pleasure. In fact, as per Clause 3 of the Schedule 6 to the contract, it is specifically provided that if in case the petitioner company ceases its operations with respect to any site, the right to operate such sites shall be transferred to the sharing operators to maintain the business continuity of the sharing operators at such site. Clause 7.1.2 of the said contract further reveals that any taxes, excluding income­base taxes, that arise in relation to provision, establishment, installation, operation and/or maintenance of the passive infrastructure or any part thereof at the site shall be payable by the sharing operators to the petiti....
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....arned Advocate General appearing on behalf of the respondent State Authorities that various clauses in the instant cases which were admittedly not before the High Court of Karnataka for consideration are clauses 4.2.1, 4.2.2, 4.2.3, 5.2.1, 5.2.3, 7.1.2, 11.1, 11.2, 11.2.1 to 11.2.3, 21.1.1, 21.1.2, 2.5.3. It is submitted that therefore the decision of the Karnataka High Court shall not be applicable to the facts of the case on hand. It is submitted that similarly the judgments delivered by the High Courts of Delhi, Kerala and Madhya Pradesh which are relied upon by the learned Counsel appearing on behalf of the petitioner also shall not be applicable to the facts of the case on hand more particularly when the relevant clauses which are there in the present contract were not before the aforesaid High Courts. It is submitted that as such other High Courts have followed the judgment of the Karnataka High Court. It is therefore submitted that the transaction between the petitioner company and the sharing operators fulfill all the ingredients and conditions for qualifying as transfer as held by the Hon'ble Supreme Court in the case of BSNL vs. Union of India reported in (2006) 3 SCC 1 i....
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....iod during which the transferee has such legal rights, it has to be to the exclusion to the transferor - this is the necessary concomitant of plain language of the statute, i.e. a transfer of right to use and not merely a license to use the goods. (e) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same right to others." [5.7] It is submitted that considering various clauses of MSA dated 07.03.2009 and amended supplementary agreements, all the aforesaid conditions are specified and therefore, the transaction in question can be said to be "sale" as defined under Section 2(23)(d) of the GVAT Act. [5.8] It is submitted that vide supplementary agreement various important clauses of the original MSA have been amended including the definition of "Passive Infrastructure"; "Site Access Availability". It is submitted that on perusal of the said amendments it is discernible that by way of such amendments, the petitioner Company has agreed to providing passive telecommunication infrastructure to the telecom operators so as to facilitate them to install and operate the requisite equipments to ....
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....form the telecom operator in writing along with reasons as soon as possible. It is submitted that otherwise, the petitioner Company would issue a Ready of Installation notice to the telecom operator confirming the Site Access Availability in respect of such site, pursuant to which, within a period of seven days from the receipt of RFI notice the telecom operator shall inspect the site provided by the petitioner Company and respond about the same to the petitioner Company. It is submitted that in case of any defects in the site provided by the petitioner Company, the telecom operator shall notify the same to the petitioner Company and the same shall be rectified by the petitioner Company within a period of 30 days from the date of receipt of such notification of the said defects. It is submitted that finally, after rectifying the defects, if any, the petitioner Company and the telecom operator would execute a service contract in respect of such site provided by the petitioner Company and the telecom operator shall be charged for the same from the charge effective date. [5.9] It is further submitted by Shri Trivedi, learned Advocate General appearing on behalf of the respondent St....
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....etitioner Company does not appear to have the effective control over the manner, time and nature of use of a specified access to passive infrastructure allotted to a particular operator. It is submitted that once contract is executed with regard to access to the passive infrastructure, the petitioner Company does not appear to be free to either self use and/or to allot the same to any other telecom operator or to revoke the access granted to a telecom operator, save and except as provided under the contract. It is submitted that however, only on termination of the contract, the petitioner Company re­acquires the allotted access and is free to allot the same to any other operator if it is suitable for them. It is submitted that therefore, though the petitioner company can allot use of passive infrastructure to more than on operators, it appears that they would not be free to change the specified allotted use to a particular telecom operator. [5.12] It is submitted that therefore respective telecom operators appear to have possession as well as effective control of the specified access of the passive infrastructure and that too even in a situation where the petitioner Company ....
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....anies Act and/or the order passed by the High Courts sanctioned in the Scheme of Arrangement / Merger. It is submitted that if the submission on behalf of the petitioner is accepted in that case there shall not be any tax liability either by merging Company and/or petitioner Company as a successor during the period between the date from which the Scheme of Merger is sanctioned and the actual date of order passed by the concerned High Court accepting the Scheme of Arrangement / Merger as the case may be. It is the case on behalf of the petitioner that as on sanction of the Scheme of Amalgamation and/or the merger, the merging company would not be in existence and therefore, the liability to pay the tax of such merging Company would not be there and on the other hand it is the case on behalf of the petitioner that even the petitioner Company who is a successor also shall not be liable to pay the tax. Meaning thereby there shall be and there may be zero tax liability which cannot be the intention of any legislature. [5.15] It is further submitted by Shri Trivedi, learned Advocate General appearing on behalf of the respondent State Authorities that looking to the activity of providi....
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.... July 2012 are required to be considered in its true spirit and as a whole which are as under: "(a) "Passive Telecommunication Infrastructure means any infrastructure located at Site including but not limited to the tower, shelter, diesel generator sets, air conditioners and electrical and civil works to facilitate the sharing operators to install and operate the requisite equipment to provide telecommunication services." (b) "Site Access Availability in relation to a Site, means the availability of services to the Sharing Operator through the Passive Telecommunication Infrastructure at the Site." (c) "2.1.1. Indus shall provide Site Access Availability to the Sharing Operator on "use­only basis" for installation, operation and maintenance etc. of its Active Infrastructure in accordance with the terms and conditions of this Agreement." (d) "2.1.3 Indus shall ensure that each Site is capable of accommodating Sharing Operator Equipment in accordance with the standard configuration set out in paragraph 1 of Schedule 1 (Site Access Availability). Any additional requirements shall be specified by the Sharing Operators in the Service Order." ....
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....cate all Sharing Operator Equipment at such Site to an alternative Site ("Relocation"), subject to the reasonable technical satisfaction of the Sharing Operator. Relocation may also occur due to the acquisition of a Site by a competent Government Authority in India. In the event of Relocation and the Sharing Operator agreeing to such Relocation, the applicable Service Contract shall, following the removal of the last of the Sharing Operator Equipment from the original Site, immediately terminate and the Parties shall simultaneously execute a new Service Contract in relation to the new Site. The terms of the new Service Contract shall be determined in accordance with the provisions of this Agreement, provided that: (i) the term of the new Service Contract shall be the remaining term of the original Service Contract; (ii) the Sharing Operator shall not be subject to Charges greater than the Charges applicable under the original Service Contract; and (iii) the other provisions of the new Service Contract shall be materially equivalent to those of the original Service Contract. 4.2.2 The Sharing Operator shall be entitled to refuse Relocation if the ....
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.... such new operator shall make a pro­rata payment in relation to such nonrecoverable amount and each existing operator shall receive a pro rata payment for such non­recoverable amount paid by it in relation to such one­time Taxes. Indus shall provide a valid invoice that complies with all requirements imposed by the relevant taxation authorities in respect of such Taxes." (m) "11 Term and Termination 11.1 Term Neither Party shall have the right to terminate the Agreement, except as set out in this Clause 11. The Parties shall review and discuss the terms and conditions of this Agreement on an annual basis, commencing from the first anniversary of the Effective Date. 11.2 Termination by either Party Either Party may terminate this Agreement by written notice to the other Party at any time following: 11.2.1 the expiry or termination of all applicable Service Contracts; 11.2.2 the occurrence of an Insolvency Event in respect of the other Party; or 11.2.3 a change of Law or notification of any Government Authority (which has not been stayed by a court of law or by a competent authority within 30 days of ....
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.... Service Orders in respect of that Site and shall be transferred to the operator who accepts such right." (q) "2.2 In Clause 1.1 (Definitions) of the Master Service Agreement, after the definition of "Micro Sites" and before the definition of "New Sites", the following definition shall be, and is hereby, inserted: "New Geography Site" means any Site at which the Sharing Operator shall be the sole operator and which, at the time the Sharing Operator raises a Service Order on Indus for such Site, it not located within a radius of 8.5 kilometers (aerial distance) of any other Site, excluding such other Sites at which the Sharing Operator is the sole operator. A Site shall cease to be a New Geography Site upon any other operator commencing the utilization of the Passive Infrastructure at such Site. [6.2] Considering the working relationship between the petitioner and the sharing operators as so stated in para 4 of the further affidavit reveals as follows: "(i) The infrastructure provider (i.e. petitioner No.1 herein) allocates a specific height of its tower as required by the Sharing Operators and provides facilities for the mounting of the active infrastr....
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.... [6.3] To consider any transaction as a "sale" under the provisions of Section 2(23)(d) of the GVAT Act, transaction must fall within the following criteria. "(a) There must be goods available for delivery. (b) There must be a consensus ad idem between the parties as to the identity of the goods. (ci) The transferee should have a legal right to use the goods and consequently, all legal consequences of such use including any permission or licenses required should therefore be available to the transferee. (d) For the period during which the transferee has such legal rights, it has to be to the exclusion to the transferor - this is the necessary concomitant of plain language of the statute, i.e. a transfer of right to use and not merely a license to use the goods. (e) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same right to others." [6.4] Thus, on perusal of the MSA as amended from time to time it can be seen that the petitioner Company has agreed to provide passive telecommunication infrastructure to the telecom operator so as to facilitate them ....
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....the view taken by the High Courts in the aforesaid decisions. Even otherwise it is required to be noted that the Karnataka High Court which is the lead judgment, which has been followed by other High Courts did not have an occasion to consider the amended clauses and/or other clauses which are there in the present MSA amended from time to time. There is an amendment in the definition of "Passive Telecom Infrastructure"; "Site Access Availability", which was not there before the Karnataka High Court. Even the Clause 3.1.2 which was there in the present MSA as amended from time to time has not been considered by the Karnataka High Court. Under the circumstances, for the reasons stated above, we are not in agreement with the view taken by the aforesaid four High Courts in the case of Indus Towers Ltd. (Supra). [6.6] It is next contended on behalf of the petitioners that as the petitioner is paying the service tax, the impugned demand of tax under the GVAT Act would be double taxation is concerned, the aforesaid has no substance. The liability to pay service tax under the Service Tax Act imposed by the Union of India is on different eventuality and circumstances and the liabil....
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....has no substance. With respect to the sale / deemed sale to impose sales tax / value added tax within the State, the State has got the power to make laws. [6.9] Now, so far as the submission on behalf of the petitioners that section 52 of the GVAT Act which treats two or more amalgamating companies as distinct companies for all the periods up to the date of the High Court order by virtue of which the Scheme of Arrangement is sanctioned is beyond the legislative competence and/or the same could be in conflict with the provisions of the Companies Act enacted by the Union of India is concerned, the same has no substance. At the outset it is required to be noted that as such vires of section 52 of the GVAT Act are not under challenge. Secondly, what is provided under Section 52 of the GVAT Act is with respect to the taxability events under the GVAT Act and it cannot be said to be in conflict with any of the provisions of the Companies Act. Section 52 of the GVAT Act is to avoid the pilferage of the tax. If submission on behalf of the petitioners is accepted, in that case, there shall not be any tax liability either of the merging company and/or of the petitioner Company during the i....