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CASE NO.: Writ Petition (civil)  183 of 2003

PETITIONER: Bharat Sanchar Nigam Ltd. & Anr.                                         

RESPONDENT: Union of India & Ors.                                                            

DATE OF JUDGMENT: 02/03/2006

BENCH: Dr. AR. Lakshmanan  

JUDGMENT: J U D G M E N T WITH

C.A. No. 2408/2002, 3329-3330/02 WP (C) Nos. 227,223,372, 450/03, 468/05 C.A. Nos. 5337-5338/01, 4278-4288/02,  W.P. (C) No. 144-45/04, 149/04, 162/05,  C.A. Nos. 6323-25/99, 2517-2518/04, 3086/04, 2471/05 Dr. AR. Lakshmanan, J.

I had the privilege of perusing the judgment proposed by my learned Sister -  Hon’ble Mrs. Justice Ruma Pal.  While respectfully concurring with the conclusion  arrived by the learned Judge, I would like to add the following few paragraphs:-

The principal issue that arises in this batch of cases relate to the imposition of  sales tax in the light of Article 366(29A) clause (d) on different activities carried on by  telecommunication service provider.  The petitioner \026 Bharat Sanchar Nigam Ltd. (for short ’BSNL’) Is a licensee  under the Indian Telegraph Act, 1885.  The licence of the petitioner is obtained from the  Government of India which is the same as the licence given also to various private  telecom operators which entitles the BSNL to carry the activity of operating telegraph  limited to the scope of telecommunication facilities.  

The entire infrastructure/instruments/appliances and exchange are in the  physical control and possession of the petitioner at all times and there is neither any  physical transfer of such goods nor any transfer of right to use such equipment or  apparatuses.  

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 \026 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 \026 this is the necessary concomitant of  the plain language of the statute \026 viz. a "transfer of the right to use" and  not merely a licence 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 rights to  others.  

In my opinion, none of these attributes are present in the relationship between a  telecom service provider and a consumer of such services.  On the contrary, the  transaction is a transaction of rendition of service.  PRE-ENACTING HISTORY In the present case, the history as it prevailed before 46th Amendment is as  follows:

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The liability to sales tax of the goods involved in composite works contract fell  for determination before this Court in The State of Madras vs. Gannon Dunkerley &  Co., (Madras) Ltd.  \026 [1959] SCR 379.  This Court ruled at page 413 \026  "If the words ’sale of goods’ have to be interpreted in their legal sense, that  sense can only be what it has in the law relating to sale of goods."

Since this judgment has been elaborately considered in the main judgment, I am  not reproducing the verdict of this Court occurring at page nos. 413, 425, 426 & 427. The same Constitution Bench in Mithan Lal vs. The State of Delhi and  Another \026 [1959] SCR 445 at 451 ruled that \026 "It would, therefore, be competent to Parliament to impose tax on the supply  of materials in building contracts and to impose it under the name of sales  tax, as has been done by the Parliament of the Commonwealth of Australia  or by the Legislatures of the American States." ENACTING HISTORY:          As to the meaning of ’enacting history’, we can usefully refer to page no. 520 of  the Fourth Edition of Francis Bennion Statutory Interpretation.

       "The enacting history of an Act is the surrounding corpus of public knowledge  relative to its introduction into Parliament as a Bill, subsequent progress through and  ultimate passing by, Parliament.  In particular it is the extrinsic material assumed to be  within the contemplation of Parliament when it passed the Act.  A text constituting an  item of its enacting history may or may not be expressly mentioned in the Act.  If  inspected, it is unlikely to be self-explanatory.  On the contrary it will probably require  skilled evaluation."

       The Statement of Objects and Reasons appended to the Constitution (Forty- sixth Amendment) Bill 1981 is part of enacting history.          The Statement of Objects and Reasons for the 46th Amendment is, inter alia, as  follows:         "By a series of subsequent decisions, the Supreme Court has, on the basis of  the decision in Gannon Dunkerley’s case held various other transactions which  resemble, in substance, transaction by way of sales, to be not liable to sales tax.  As a  result of these decisions, a transaction, in order to be subject to the levy of sales tax  under entry 92A of the Union List or entry 54 of the State List, should have the following  ingredients, namely, parties competent to contract, mutual assent and transfer of  property in goods from one of the parties to the contract to the other party thereto for a  price.         This position has resulted in scope for avoidance of tax in various ways.  An  example of this is the practice of inter-State consignment transfers, i.e. transfer of  goods from head office of a principal in one State to a branch or agent in another State  or vice versa or transfer of goods on consignment account, to avoid the payment of  sales tax on inter-State sales under the Central Sales Tax Act.  While in the case of a  works contract, if the contract, treats the sale of material separately from the cost of the   labour, the sale of materials would be taxable but in the case of an indivisible works  contract, it is not possible to levy sales tax on the transfer of property in the goods  involved in the execution of such contract as it has been held that there is no sale of the  materials as such and the property in them does not pass as movables."         The Parliament had to intervene as the power to levy tax on goods involved in  works contract should appropriately be vested in the State legislatures as was pointed  out in Gannon and Dunkerly & Co., the passages quoted hereinabove.  There were 5  transactions in which, following the principles laid down in Gannon Dunkerly & Co.  relating to works contract, this Court ruled that those transactions are not exigiable to  sales tax under various State enactments.  The Parliament, therefore, in exercise of its  constituent power, by 46th Amendment, introduced Article 366 (29A).  The Statement of  Objects and Reasons has fully set out the circumstances under which 46th Amendment  was necessitated.  

       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 Dunkerly & Co. only with regard to those transactions of deemed sales.  In

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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 result 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 \026 14 STC 316 = 1963  Suppl. 2 SCR 459 and Vishnu Agencies vs. Commissioner of Sales tax \026 AIR 1978  SC 449.  Sub clause (b) is the result of Gannon Dunerly & Co. \026 1959 SCR 379.  Sub  clause (c) is the result of K.L. Johar and Company vs. C.T.O. \026 1965 (2) SCR 112.   Sub clause (d) is consequent to A.V. Meiyyappan vs. CIT \026 20 STC 115 (Madras High  Court).  Sub clause (e) is the result of Jt. Commercial Tax Officer vs. YMIA \026 1970 (1)  SCC 462.  Sub clause (f) is the result of Northern India Caters (India) Ltd. Vs. Lt.  Governor of Delhi \026 1978 (4) SCC 36 and State of H.P. vs. Associated Hotels of  India Ltd. 29 STC 474 = 1972 (1) SCC 472.  

       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.   

       While the true scope of the amendment may be appreciated by overall reading  of the entirety 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 \026 1955 (2) SCR 603 at 647. "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.) We can also see page nos. 720 and 721 (P.N. Bhagwati, J.)

NATURE OF TRANSACTION IN THE PRESENT CASE:         The contract between the telecom service provider and the subscriber is merely  to receive, transmit and deliver messages of the subscriber through a complex system of  fibre optics, satellite and cables.  

       Briefly, the subscriber originates/generates his voice message through the  handset.  The transmitter in the handset converts the voice into radio waves within the  frequency band allotted to the Petitioners.  The radio waves are transmitted to the  switching apparatus in the local exchange and thereafter after verifying the authenticity  of the subscriber; the message is transmitted to the telephone exchange of the called  party and then to the nearest Base Transceiver Station (BTS).  The BTS transmits the  signal to the receiver apparatus of the called subscriber, which converts the signals into  voice, which the subscriber can hear.   

       The modern legislature makes laws to govern a society, which is fast-moving.  It  is aware of the changing concepts of the emerging times.  The law adapts itself to social,  economic, political, scientific and other revolutionary changes.  Traditionally, a contract for carriage of goods or passengers is by roadways,  railways, airways and waterways.  This is associated with carriage of tangible goods.   Such a carrier has no right over the goods of the customer and does not effect transfer  of right to use any goods used by the carrier for goods.  On this analogy, the Petitioners  carry messages.  They are only carriers and have neither property in the message nor  effects any transfer to the subscriber.  The advancement of technology should be so  absorbed in the interpretation that this method of carriage of message should also be  understood as carriage of goods and not a transfer of a right to use goods, if any.  

The licence clearly manifests that it is one for providing telecommunication  service and not for supply of any goods or transfer of right to use any goods.  It  expressly prohibits transfer or assignment.  The integrity of licence cannot be broken  into pieces nor can the telecommunication service rendered by them be so mutilated.   Not only this position flows from the terms of contract, this also flows from Section 4 of  the Indian Telegraph Act which provides for grant of licence on such conditions and in

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consideration of such payments as it thinks fit, to any person "to establish, maintain or  work at telegraph".  The integrity of establishing, maintaining and working is not to be  mutilated.   

Clause 9 clearly interdicts the licensee provided that licensee will not assign or  transfer his rights in any manner whatsoever under the licence to third party.  It is  impossible to contend that the right to use goods, assuming without conceding that they  are goods, which are essential for the rendition of service can never be a transaction or  transfer of right to use goods.  Nor can the contract between subscribers and licensee  viz. service provider be interpreted as involving transfer of right to use goods.

Gannon Dunkerly declared that a transaction of sale of goods has to be under a  contract i.e. it is consensual.  

Section 4 of the Telegraph Act maintains the integrity of subject-matter of the  licence viz, "establish, maintain or work a telegraph".  Therefore, the transaction of  service is composite one not capable of disintegrated.  Except in sub-clause (a) in all  other sub clauses the transactions are contractual.  There is no scope for importing any  doctrine of statutory agency of the service provider.  Except in the case of sub clause (a)  where the transfer otherwise than in pursuance of contract of property in any goods is  deemed to be sale in each one of the other sub clauses the transaction is consensual.   The contrast between sub Article (a) and all other sub clauses clearly manifests that the  transaction involved in the present dispute are contractual.  The fiction operates to deem  what is not otherwise a sale of goods as a sale of goods i.e. even the transfer of a right  to use goods is deemed to be a sale of the goods.  

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.  

Sale of Goods Act, comprehends two elements, one is a sale and the other is  delivery of goods.  20th Century Finance Corporation Limited vs. State of Maharashtra \026  2000 (6) SCC 12 at 44, ruled that "(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." 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.  In the present case, as no goods element are involved, the  transaction is purely one of service.  There is no transfer of right to use the goods at all .                              I am, therefore, of the view that the imposition of sales tax on any facilities of t he  telecommunication services is untenable in law.