Sale of light energy – VAT and Service Tax – matter remanded to Appellate Authority
While reporting the case of Bharti Airtel vs State of Karnataka - , we had asked, “CAN there be a liability to pay both VAT and Service Tax on the same activity?”, and answered “While deciding a VAT case, the Karnataka High Court held that the assessee was liable to pay VAT on the whole value in spite of the fact that they were paying Service Tax.”
Bharti Airtel Ltd had challenged the order dated: 16.03.2007 passed by the Single Judge of the High Court declining to interfere with and quash the order of Re-assessment dated 12.01.2007 passed by the Deputy Commissioner, Commercial Tax, - "Assessing Authority" 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. The 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 (" KVAT Act”). Therefore, the appellant has also challenged the legality and correctness of the said order of re-assessment.
The High Court Division Bench had upheld the assessment and held that
1. the activity of providing Broad Band Connectivity by the appellant company to its subscribers amounts to ‘sale of light energy' taxable under Section 3 of the KVAT Act 2003,
2. the Government of Karnataka is competent to levy tax on the said sale under the provisions of the KVAT Act, 2003 on the entire proceeds collected by it from its subscribers as “lease rentals” despite the appellant company being assessed to service tax on the said activity by the Union Government under the provisions of Finance Act, 1994, treating it as ‘service'.
We had also reported, “ Bharti Airtel has appealed to the Supreme Court and the Court has ordered, “List on 02.03.2009. Status quo, as on today, shall be maintained till then.”
Now the Supreme Court has decided the issue and held that the “Single Judge was right in directing the assessee to exhaust statutory alternate remedy. Looking to the nature of the concept involved in these matters (in which technical evidence needs to be looked into and cross-examination of the experts is warranted) we are of the view that the matters need adjudication.”
The Supreme Court directed “the assessees to file statutory appeals before the First Appellate Authority within four weeks from today. On filing of the appeals the First Appellate Authority will hear and dispose of the appeals as expeditiously as possible, preferably within three months.”
Let us recap the issue again.
1. The Karnataka VAT Department taxed Bharti Airtel for 'broadband connectivity'. They were paying Service Tax for the same activity.
2. Instead of following the appellate Channel, Bharti filed a writ in the High Court and the Single Judge held that they had to exhaust the appellate channels.
3. On appeal by them, the Division Bench of the High Court held that VAT levy is correct, in spite of the fact that Service tax was paid. This actually opened up a Pandora's Box as the theory that Service Tax and VAT were mutually exclusive went for a toss.
4. On further appeal to Supreme Court, the Apex Court held that the Single Judge was right.
5. And so the case is back with the Departmental Appellate Authority.
This raises some important questions:-
1. Can the VAT Appellate Authority decide on the validity of Service Tax and VAT on the same activity?
2. Is the VAT Appellate Authority bound by the decision of the Division Bench of the High Court which was set aside by the Supreme Court?
3. Will not the Authority be influenced by the erudite judgement of the Division Bench?
4. Can it quote from the Division Bench Order?
One of our prolific writers is worried that this would have nationwide ramifications on issues concerning the interpretation of “goods” vs “services”.
If the same activity can be both service and sale, there is something terribly wrong with the LAW and what requires urgent change is the Law and not the Business Practice.
Today we bring you the Supreme Court order in the Bharti case. Please click here to open the Judgement.