(2012) 25 STR 514 (Kar.) — Bharti Airtel Ltd. v. State of Karnataka.

Facts:

The appellants were providing services related to telecommunication wherein electromagnetic waves were used for transmission of data generated by the subscriber to the desired destination. The case was whether sales tax or service tax should be levied.

Appellant’s contention:

The appellant contended that in their terms of contract there was no mention of the words ‘sale of goods’. The contract was one for rendering telecommunication services and that the consideration was paid for the services rendered to subscribers. Also they were of the view that Artificially Created Light Energy (ACLE) which was the form of energy used by the telecom service provider as carrier of data or information in optical fiber cable (OFC) broadband line without which data or energy could not be transmitted, came into existence when electrical energy was converted into light energy. The question was whether such a conversion was liable to sales tax or service tax. A technical report stated that telecommunication service providers were using optical fiber cables for transmitting messages or data using light energy which could be transmitted by a service provider either through copper wire, OFC, etc. The Department called it ACLE which had the characteristics of goods, whereas the experts did not agree to the same.

Department’s contention:

The Sales Tax Department (Department) contended that in case of contract in which the appellant claimed that it had no mention of the words ‘sale of goods’ were in fact sales and hence liable to sales tax. For imposition of tax on ACLE the Department contended that it was sale of goods which was liable to sales tax. In case of technical report, the Department was of the view transmission of message with the use of light energy from one network to another had the characteristics of goods.

Held:

The ACLE was a form of electromagnetic wave which was not marketable or abstracted or consumed or delivered or processed or stored and it was not something available in abundance of which service provider abstracted a portion. Hence these were services and liable to service tax. Also it was a contract of rendering services and the state was not empowered to levy sales tax. For the contract in question, it was a contract of service simpliciter and there was no element of sales involved in it.