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 u/s. 2(l)(zc)(vi) of the Delhi VAT Act, 2004 liable to VAT.? Held, No.
Facts:
Indus is a 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 shared basis. Its business is to provide access to the telecom operators, on shared basis to the telecom towers installed by it and to a shelter which is a construction. It would also provide diesel generator sets, airconditioners, electrical and civil works, DC power system, battery bank, etc. All these are known as “passive infrastructure”.
Inside the shelter 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. This is known as the “active infrastructure”.
Whereas the active infrastructure is owned and operated by the sharing telecom operator, passive infrastructure is 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 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. which are ensured by the passive infrastructure made available by the petitioner to the sharing telecom operators.
Issue:
The issue involved in the case was in the context of section 2(l)(zc)(vi) of the Delhi VAT Act, 2004 that, 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.
VAT authority considered the entire amount of consideration received for providing access to the passive infrastructure as one for “transfer of the right to use goods.
The Petitioner contended that there was no transfer of the right in any goods by the petitioner to the sharing telecom operators and therefore the levy of VAT on the assumption to the contrary was wholly untenable.
Held
On examination of various clause of sample Master Service Agreement (MSA), High Court held as under:
• The right to use the 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 was 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.
• Various aspects in the MSA clearly provided that Indus had to be in possession of the passive infrastructure and cannot part with the same in favour of the sharing telecom operators.
• The High court also referred to various provisions in the agreement while examining the contents of the agreement and observed that with several 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 part with the possession of part of the infrastructure.
• Therefore, it was held that, the limited access made available to the sharing telecom operators could not be considered transfer of “right to use” the passive infrastructure when the possession of the said infrastructure always remained with Indus. The sharing telecom operators did not therefore, have any right to use the passive infrastructure. The High Court placed reliance on decision of Indus Towers Ltd. vs. Dy. CIT (2013) 29 taxmann.com 301 (Kar)
