Writ Appeal No. 629 of 2007. Case: Bharti Airtel Ltd. Vs State of Karnataka, Commissioner of Commercial Taxes, Deputy Commissioner of Commercial Taxes, UOI and Commissioner of Service Tax. High Court of Karnataka (India)
| Case Number | Writ Appeal No. 629 of 2007 |
| Counsel | For the Appellant: V. Sridharan, G. Shivadass and Suresh Astelar Advs. and for the Respondent: K.G. Raghavan, Sr. Adv. for K.J. Kamath, Aravind Kumar, Addl. Solicitor General |
| Judges | V. Gopalagowda and Arali Nagaraj, JJ. |
| Issue | Indian Telegraph Act - Section 4; Constitution of India - Article 366(29-A)(d); Sale of Goods Act, 1930 - Section 2(7); Customs Act, 1962 - Section 2(22)(e) |
| Citation | (2009) 22 VST 465 (Karn) |
| Judgement Date | January 16, 2009 |
| Court | High Court of Karnataka (India) |
Judgment:
V. Gopalagowda and Arali Nagaraj, JJ.
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The appellant herein namely Bharti Airtel Ltd. (Formerly M/s. Bharti Televentures Ltd.,) has challenged the order dated: 16.03.2007 passed by the learned Single Judge of this Court in W.P. No. 1537/07 (T-RES) declining to interfere with and quash the order of Re-assessment dated 12.01.2007 passed by the 3rd respondent - Deputy Commissioner, Commercial Tax, Audit-42, DVO-4, Bangalore (hereinafter referred to as the "Assessing Authority" for short) and consequent 12 notices of demand issued by him for the months of April 2005 to March 2006 demanding the tax from the appellant - company quantified thereunder. The learned Single Judge declined to interfere with and quash the said order and notices on the ground that the Appellant did not avail the statutory remedy provided under the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as the (" KVAT Act " for short). Therefore, the appellant has also challenged the legality and correctness of the said order of re-assessment.
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Stated in brief the case of the appellant-assessee company as averred in its W.P. No.1537/07 are as under:
(a) The Appellant company is incorporated under the Indian Companies Act, 1956. It has been granted license by the Government of India, Ministry of Telecommunications, under Section 4 of the Indian Telegraph Act, 1885 for providing 'broad band services' to its subscribers. It has also been registered with the 5th respondent, namely, the Commissioner of Service Tax, Bangalore under the Finance Act, 1994 and it has been regularly paying 'Service tax' in respect of the said service.
(b) The Appellant Company has established telecom infrastructure for providing'broadband connectivity'by laying clown about 35000 kms optic fibre cables across the country five feet deep in the ground. These optic fibre cables have enormous data carrying capacity at very high speed at which the light travels without any interference. The Appellant provides service of telecom connectivity to its subscribers from one'point of presence'(POP) to one or more "points of presence" through a complex network of copper cables as well as optic fibre cables. This service in commercial parlance is called as "leased lines" whereby the appellant allots to a particular subscriber a particular'bandwidth'. A 'bandwidth' means, the rate at which data is transferred across a transmission medium and is measured in units of 'Kilobits per second' (Kbps)/'Megabits per second' (Mbps). Each subscriber would be provided with a different bandwidth depending upon the individual needs and appellant would entere into a'Service Level Agreement'(SLA) with all its subscribers.
(c) Once a particular bandwidth is allotted to a particular subscriber, the latter will have the freedom to transmit any amount of data throughout the period of subscription from one end to another and for this, the appellant charges the subscriber a fixed sum for the subscription period. Since the Appellant Company does not effect any sale of goods, it would not be required to pay any tax under KVAT Act. Therefore, it has been submitting monthly returns showing thereunder taxable turnover as "Nil".
(d) On 4.4.2006, the officials of the Commercial Taxes Department of Karnataka, Bangalore visited the premises of the Appellant Company and recorded the statement of one Sri Er.Ashok Kumar, DGM (Sales), of the Appellant Company who stated that the company is not effecting any sale of goods inasmuch as its sole business is to provide broad band lease line services to its customers and therefore it is not liable to pay any tax under KVAT Act.
(e) Thereafter, the 3rd respondent issued to the appellant 12 Notices dated 20.05.2006 under Section 39 of the KVAT Act proposing to reject the Forms VAT-100 submitted by the Appellant and to conclude re-assessment, by adding to the turnover, the amounts received by the appellant towards leasing of broadbands by treating the same as'transfer of right to use goods', on the ground that the appellant had leased the physical lines of optic fiber to its various subscribers.
(f) The appellant submitted its detailed reply to the said notices on dated: 07.06.2006. However, by passing the re-assessment order dated 31.07.2006 the 3rd respondent confirmed the demand made in the said notices totally on a new ground that the appellant was engaged in'selling light energy'. Aggrieved by the said order of reassessment, the appellant filed W.P.No. 11728/06 before this court and the said W.P came to be allowed by Order dated 19.10.2006 and the said order of reassessment was quashed and the matter was remanded to the Assessing Authority for fresh disposal.
(g) After the remand, the 3rd respondent-Assessing Authority again issued 12 notices dated 28.10.2006 (Annexure-B) for the twelve months from April 2005 to March 2006 proposing to treat the transaction of providing broadband services as "sale of light energy". The appellant submitted detailed reply to the said notices on 30.12.2006 (Annexure-C). After hearing the appellant, the 3rd respondent - Assessing Authority passed the impugned order of re-assessment (Annexure-A) and thereby confirmed the entire demand proposed in the said notices and imposed penalties and also levied interest on the tax said to be payable and due by the appellant.
(h) Though the appellant had alternative remedy by way of appeal under the provisions of KVAT Act, the same could not be efficacious one inasmuch as for availing the said remedy of appeal, the appellant was to make deposit of huge amount of money (more than Rs. 12 crores). Besides this, the impugned order of re-assessment has been passed by the 3rd respondent - Assessing Authority in gross violation of the fundamental rights of the appellant under Articles 14 and 19(g) of Constitution of India. The issue'whether the action of the third respondent in levying the sales tax despite the appellant company being assessed to the Service Tax under the provisions of the Finance Act, 1994 is tenable in law has to be decided by this Court but not by the Appellate Authority under KVAT Act and therefore, the alternative remedy available to the appellant under KVAT Act could not be efficacious one.
(i) The third respondent Assessing Authority has initiated the present proceedings only against the appellant company leaving out the other persons companies carrying on the same activity as this appellant. Thus, the action of the 3rd respondent as against this appellant company alone is highly discriminatory and in violation of the fundamental rights of the appellant. Therefore availability of'alternative remedy'to the Appellant - Company could not be a 'bar' for maintaining the said Writ Petition.
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We have heard the arguments of Sri. Sridharan, learned counsel for the Appellant - Assessee and also Sri. K.G. Raghavan, learned Senior Counsel for Respondent Nos.1 to 3, and Sri. Aravind Kumar, learned Additional Solicitor General for Respondent Nos.4 and 5. We have also perused the impugned order of the learned Single Judge and the Re-assessment order of 3rd respondent - Assessing Authority and other material produced on record by the Appellant.
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Having heard the learned counsel for both the parties, the points that arise for our determination in this appeal are:
1) Whether the learned Single Judge is justified in dismissing the WP No. 1537/07, filed by the Appellant - Assessee, declining to quash the order of re-assessment passed by the 3rd respondent - Assessing Authority and consequent 12 notices issued by him demanding from the appellant - assessee the tax quantified thereunder, on the ground that the Appellant - Assessee did not avail the statutory remedy of appeal provided under Karnataka Value Added Tax Act, 2003?
2) Whether the 3rd respondent - Assessing Authority was justified in passing the impugned order dated 12.01.2007 making re-assessment of the tax payable by the Appellant - Assessee - Company on the ground that the broadband connectivity provided by the Appellant to its subscribers amounts to "sale of light energy" taxable under section 3 of the Karnataka Value Added Tax Act, 2003?
3) Whether the Government of Karnataka has authority under the Constitution of India to levy tax on the Appellant - Company under the provisions of KVAT Act in respect of its transaction of providing broadband connectivity to its subscribers, for the reason that'Service Tax'has been levied on it by the Union Government under the provisions of'Finance Act 1994'treating the said transaction as 'Service'?
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We now proceed to record our findings and reasons on the above points by considering the arguments advanced by the learned Sr. Counsel and other counsels for the respective parties.
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Point No.1:- Sri. V. Sridharan, the learned counsel for the Appellant-Assessee strongly contended that the learned Single Judge committed serious error in dismissing the Writ Petition on the ground that the appellant did not avail the statutory remedy of appeal provided under the provisions of KVAT Act, though the said writ petition was filed by the Appellant - Company making allegation of infringement of its fundamental right under Articles 14 and 19(1)(g) of the Constitution of India, despite the fact being that in order to avail the said statutory remedy of appeal the appellant-company was to deposit 50% of the tax demanded from it which amounts to more than Rs.12 crores and as such the said remedy could not be efficacious one. He further contended that the question whether the activity of the appellant-assessee in providing to its customers the broad band connectivity for the purpose of carrying data from one place to another could only be a service for which the appellant has been assessed to service tax under the provisions of the Finance Act, 1994, or it involved any sale of 'light energy' making the appellant-assessee liable to be taxed under KVAT Act or it amounts to both, could not...
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