Value Added Tax – Providing Passive Infrastructure Service and Related Operations and Maintenance Services – To Telecommunication Operators – on a Share Basis – Not a Transfer of Right to Use Goods – Not Taxable, Section 2(1)(2c) (vi) of The Delhi Value Added Tax Act, 2004.

Indus, the petitioner company, registered with the Department of Telecommunication for providing passive infrastructure services and related operations and maintenance services to various telecommunications operators in India on a sharing basis. It is the policy of the Government of India to encourage extensive infrastructure sharing and in pursuance with the policy, the telecom operators were required to create a high quality, rapid and wide coverage of mobile telecommunications network in India. The passive infrastructure facilities or services could be shared by several telecom operators so that it becomes cost effective.

Accordingly, it put up passive infrastructure facilities at several places. The arrangement worked this way. Indus would put up the towers and a shelter which is a construction in which the telecom operators are permitted to keep and maintain their base terminal stations (BTS), associated antenna, back-haul connectivity to the network of the sharing telecom operator and associated civil and electrical works required to provide telecom services. The telecom tower and shelter, both put up by the petitioner, is called “the passive infrastructure”. In addition to the tower and shelter, Indus also provided diesel generator sets, air-conditioners, electrical and civil works, DC power system, battery bank, etc. All these were known as passive infrastructure. The “active infrastructure” consists of the BTS, associated antenna, back-haul connectivity and other requisite equipment and associated civil and electrical works required to provide the telecommunication services by the telecom operator at a telecom and telecommunication site other than the passive infrastructure. The active infrastructure was owned and operated by the sharing telecom operator, passive infrastructure was owned by Indus. There could be several operators who may use the tower and shelter which are parts of the passive infrastructure by keeping their BTS, etc., therein and sharing the entire passive infrastructure on an agreed basis. The antennae belonging to the sharing telecom provider may be put up or installed at different heights in the tower as per the requirements of the sharing telecom operators. The working of the telecom network basically involves the process of receiving and transmitting the telecom signals. The active infrastructure which is owned and put up by the sharing telecom operators needs certain conditions for proper functioning and uninterrupted telecom network/ signals. These conditions are maintenance of a particular temperature, humidity level, safety, etc. These conditions are ensured by the passive infrastructure made available by the petitioner to the sharing telecom operators. The Indus Company filed application before the Commissioner of Vat u/s. 84 of the Delhi Value Added Tax Act, 2004 (DVAT ) and posed following question to be determined by him;- “Whether, in the facts and circumstances, the provision of passive infrastructure services by the applicant to sharing operators would tantamount to ‘Transfer of right to use goods’ as per section 2(1)(zc)(vi) of the DVAT Act, 2004 and therefore become liable to tax under the DVAT Act? If yes, then how should the sale price as per section 9(1) (zd) of the DVAT Act be determined for the purpose of discharging the liability under the DVAT Act ?” The Commissioner, on an examination of the agreement entered into between the petitioner and M/s. Sistema Shyam Tele Services Ltd., which was taken as representative of the agreements entered into by the petitioner with various telecom operators, held that the entire amount of consideration received from the sharing telecom operators for providing access to the passive infrastructure would amount to consideration for the “transfer of the right to use goods” as defined in section 2(1)(zc)(vi) of the DVAT Act and was exigible to tax under the said Act. He however held that since a separate bill was being raised for consumption of energy by each sharing operator as per actual consumption as detailed in the contract, the charges collected by the petitioner on this account shall be exempt from the levy of value added tax. The Company filed writ petition before the Delhi High Court against the impugned order of the Commissioner.

Held

The ‘right to use goods’ – in this case the right to use the passive infrastructure can be said to have been transferred by Indus to the sharing telecom operators only if the possession of the said infrastructure had been transferred to them. They would have the right to use the passive infrastructure if they were in lawful possession of it. There has to be, in that case, an act demonstrating the intention to part with the possession of the passive infrastructure. There is none in the present case. The passive infrastructure is an indispensable requirement for the proper functioning of the active infrastructure which is owned and operated by the sharing telecom operators. The passive infrastructure is shared by several telecom operators and that is why they are referred to as sharing telecom operators in the MSA. The MSA merely permits access to the sharing telecom operators to the passive infrastructure to the extent it is necessary for the proper functioning of the active infrastructure. It was the responsibility of Indus to ensure that the passive infrastructure functions to its full efficiency and potential, which in turn means that it had to be in possession of the passive infrastructure and cannot part with the same in favour of the sharing telecom operators. With several such restrictions and curtailment of the access made available to the sharing telecom operators to the passive infrastructure and with severe penalties prescribed for failure on the part of the Indus to ensure uninterrupted and high quality service provided by the passive infrastructure, it is difficult to imagine how Indus could have intended to part with the possession of part of the infrastructure. That would have been a major impediment in the discharge of its responsibilities assumed under the MSA. The limited access made available to the sharing telecom operators is inconsistent with the notion of a “right to use” the passive infrastructure in the fullest sense of the expression. At best it can only be termed as a permissive use of the passive infrastructure for very limited purposes with very limited and strictly regulated access. It is therefore difficult to see how the arrangement could be understood as a transfer of the right to use the passive infrastructure. When Indus has not transferred the possession of the passive infrastructure to the sharing telecom operators in the manner understood in law, the limited access provided to them can only be regarded as a permissive use or a limited license to use the same. The possession of the passive infrastructure always remained with Indus. The sharing telecom operators did not therefore, have any right to use the passive infrastructure. Accordingly, the High Court allowed the writ petition filed by the Indus and quashed the order passed by the Commissioner holding the Indus liable to pay vat.