1. Let us understand the judgment of Bharat Sanchar Nigam Limited (Bsnl) – Part–ii

The present part is in continuation of the First part published in the Review for the month of March, 2006.

2. The above judgment was first reported in the ‘Judgements Today’ 2006 (3) 114 (SC). Thereafter, the said judgement was reported in (2006) 145 STC 91 (SC). In ‘Judgments Today’, the judgement was covered in 118 paragraphs whereas in Sales Tax Cases, the judgment was covered in 122 paragraphs. Readers are requested to note this position.
    

3. Paragraphs 46 to 50 are very important to understand the mind of the Court. In paragraphs 46, 47, 48 and 49, the Court after noticing its earlier judgments, clearly stated that Rainbow Colour Lab is not a good law. At the same time, the Court stated that – "It is necessary to note that Associated Cement did not say that in all cases of composite transactions the 46th Amendment would apply."
    

4. Notwithstanding the above, in Paragraph 50, which is reproduced below, the Court indirectly, to my mind, affirms the correctness of the ratio of Rainbow Colour Lab. Therefore, it is likely that the BSNL judgment may also be tested at the hands of Constitutional Bench, in due course.
   
   "50. What are the "goods" in a sales transaction, therefore, remains primarily a matter of contract and intention. The seller and such purchaser would have to be ad idem as to the subject matter of sale or purchase. The Court would have to arrive at the conclusion as to what the parties had intended when they entered into a particular transaction of sale, as being the subject matter of sale or purchase. In arriving at a conclusion the Court would have to approach the matter from the point of view of a reasonable person of average intelligence."
    

5. I am explaining the said judgment as reported in ‘Judgments Today’. Dr. A.R. Lakshmanan, J. wrote his separate judgment concurring with the conclusions arrived by his colleagues on the Bench. His judgment is reported in ‘JT’ from Paragraph Nos. 93 to 118. In paragraph 115, the Court said thus: –
   
   "115. It is not possible to interpret the contract between the service provider and the subscriber that the consensus was to mutilate the integrity of contract as a transfer of right to use goods and rendering service. Such a mutilation is not possible except in the case of deemed sale falling under sub- clause (b). Nor can the service element be disregarded and the entirety of the transaction be treated as a sale of goods (even when it is assumed that there is any goods at all involved) except when it falls under sub-clause (f). This will also result in an anomaly of the entire payment by the subscriber to the service provider being for alleged transfer of a right to use goods and no payment at all for service. The licence granted by the Central Government fixes the tariff rates and all are for services."
    

6. The above is in conformity with the judgment of the Court in C.K. Jidheesh (2006) 144 STC 322 (SC).
    

7. In paragraph 116, the Court analyzed the judgment of 20th Century of Finance Corporation Ltd. vs. State of Maharashtra (2000) 119 STC 182 (SC) and stated that Sale of Goods Act, comprehends two elements, one is a sale and the other is delivery of goods and ruled as under: –

"(c) Where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use.

(d) In cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods."

8. Thereafter, the Court said it is, therefore, unnecessary to deal with the question of delivery of possession, which is related only to situs, and not to subject-matter of taxation, which is a transfer of right to use goods. According to the Court, in the BSNL case, as no goods element are involved; i.e., electromagnetic waves or radio frequencies, the transaction is purely one of service. Electromagnetic waves are nothing else but a medium through which subscribers’ communication (voice) is heard at both the ends of the telephone. Hence, in such a case, there is no transfer of right to use the goods at all. Apart from this position, I feel that the issues covered by 20th Century Finance case (supra) are going to be agitated further since the law is not clear so far on all the aspects of the matter.
    

9. Earlier, in paragraphs 104 to 106 Dr. A.R. Lakshmanan, J. explained nicely the scope and purpose of 46th Amendment as under: –

"104. The Amendment introduced fiction by which six instances of transactions were treated as deemed sale of goods and that the said definition as to deemed sales will have to be read in every provision of the Constitution wherever the phrase ‘tax on sale or purchase of goods’ occurs. This definition changed the law declared in the ruling in Gannon Dunkerley & Co. only with regard to those transactions of deemed sales. In other respects, law declared by this Court is not neutralized. Each one of the sub-clauses of Article 366(29A) introduced by the 46th Amendment was a re-suit of ruling of this Court which was sought to be neutralized or modified. Sub-clause (a) is the outcome of New India Sugar Mills vs. Commnr. of Sales Tax (1963) 14 STC 315 Suppl. 2 SCR 459 and Vishnu Agencies vs. Commissioner of Sales Tax (1978) AIR 449 (SC). Sub clause (b) is the result of Gannon Dunkerley & Co. (supra). Sub-clause (c) is the result of K.L. Johar and Company vs. C.T.O. (1965) (2) SCR 112. Sub-clause (d) is consequent to A.V. Meiyyappan vs. CIT 20 STC 115 (Madras High Court). Sub-clause (e) is the result of Jt. Commercial Tax Officer vs. YMIA (1970) (1) SCC 462. Sub-clause (f) is the result of Northern India Caters (India) Ltd. vs. Lt. Governor of Delhi (1978) (4) SCC 36 and State of H.P. vs. Associated Hotels of India Ltd. 29 STC 474.

105. In the background of the above, the history prevailing at the time of the 46th Amendment and pre-enacting history as seen in the Statement of Objects and Reasons, Article 366(29A) has to be interpreted. Each fiction by which those six transactions which are not otherwise sales are deemed to be sales independently operates only in that sub- clause.

106. While the true scope of the amendment may be appreciated by overall reading of the entirely of Article 366(29A) deemed sale under each particular sub clause has to be determined only within the parameters of the provisions in that sub-clause. One sub clause cannot be projected into another sub clause and fiction upon fiction is not permissible. As to the interpretation of fiction, particularly in the sales tax legislation the principle has been authoritatively laid down in the Bengal Immunity Company Ltd. vs. State of Bihar and Others (supra.)

The operative provisions of the several parts of Article 286, namely, clause (1)(a), clause (1)(b), clause (2) and clause (3) are manifestly intended to deal with different topics and therefore, one cannot be projected or read into another (S.R. Das, J.)"

10. So, you may have noticed that the above judgment is a bit difficult to understand. However, after reading it many times, you may be able to digest the same. Yet, on serious consideration, it appears that the above judgment is not a last word as it may be tested before the Constitutional Bench, as said earlier.

2. Central Information Commission says citizens can demand it Assessments Orders

The Right to Information Act, 2005 (RTIA), is showing its teeth. As per press report in Economic Times dated 18-4-2006, the Central Information Commission has ruled that confidential assessment order of IT Department termed as public documents and the information seekers are entitled for the same.

2. The decision was announced on March 30, under the RTIA, in a case involving Bollywood Director Sanjay Leela Bhansali. As a result, IT assessment orders which are treated as "private and confidential" documents by the Department, can no longer be described as such. The Commission’s ruling has made the documents public, irrespective of who is the assessee. This ruling therefore is likely to generate intense heat and controversy, and could well be vigorously contested before the higher courts by the IT Department. The appeal was filed by an antique dealer Farida Hoosenally. She was seeking details of the returns filed by ‘Applause Bhansali Films’. Initially her application was rejected by the Information Officer. The First Appeal before the Chief Commissioner was also rejected on the ground that no public interest is involved in seeking the information. In this connection, it may please be noted that the law does not require any reason or ground to be shown while seeking any information. The foundation is the fundamental rights of the applicant, which are required to be protected in certain circumstances.

3. VAT paralyses life in Maharashtra

About 15,000 hotels and restaurants in Mumbai observed a one-day token strike on 19-4-2006 to protest against the Government’s in difference over lowering the VAT rates. Members of the Indian Hotels and Restaurants Association (AHAR) say that the Government has hiked the taxes in regular restaurants from 1% to 12.5% while it reduced the taxes from 23% to 12.5% for five-star hotels. According to AHAR, it was a state-wide strike. The Association demanded 4% composition tax, as opposed to the present 8% tax or the 12.5% tax added to the bill. Further, they say that they can pay a maximum of 4% VAT, the prevailing rates in neighbouring States. If their demand is not met, they will go on indefinite strike from May 1.

2. As per Loksatta report dated 20-4-2006, the Government has decided to defer the levy of VAT on daily necessities which included food grains and sugar for a period of six months from
   1-4-2006. Dry fruits will continue to be taxed at 4% as hitherto. As a result, the traders have withdrawn their proposed strike against the proposed hike in VAT rates. So, consumers are spared from the VAT burden at least for a period of six months.
    

3. Earlier, readers may recall that I had written in this column, that the traders are not passing on the set-off benefit (input credit) in a chain of transactions terminating at the point of last buyer; i.e., consumer. As such, the objective of avoiding cascading effect of VAT, which is the foundation of VAT levy, gets defeated. No wonder then that the prices are going up and up! Unfortunately, the Government is silent on this scenario. In my opinion, to avoid cascading effect of VAT, there is a great need to change the tax structure whereunder, VAT should be imposed only on value addition at each stage of trade, and no set-off should be given as is the present provision. It is hoped that the Government will listen and consider this suggestion seriously.