IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 23286 of 2010(I)
1. BHARATH SANCHAR NIGAM LTD.
... Petitioner
Vs
1. ASSISTANT COMMISSIONR (ASSESSMENT)
... Respondent
For Petitioner :SRI.S.ANIL KUMAR (TRIVANDRUM)
For Respondent :GOVERNMENT PLEADER
The Hon'ble MR. Justice C.K.ABDUL REHIM
Dated :04/10/2010
O R D E R
C. K. ABDUL REHIM, J.
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W.P.(C) No. 23286 of 2010
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Dated this the 4th day of October, 2010
JUDGMENT
Challenge in this writ petition is against Exts.P8 and
P9 orders of assessment finalized against the petitioner by
the 1st respondent under the provisions of the Kerala
General Sales Tax Act (for short KGST Act), pertaining to
assessment years 2003-’04 and 2004-’05.
2. On an earlier occasion, assessments with respect to
the said years were completed by the 2nd respondent,
exercising powers under section 17D of the KGST Act. By
Ext.P1 judgment this Court set aside those assessments and
directed the 2nd respondent/competent authority to pass
fresh orders, finding that mandatory procedures prescribed
under section 17D of the KGST Act as laid down by this
Court in Hindustan Petroleum Corporation Ltd. V. Asst.
Commissioner,Commercial Taxes, Ernakulam (2009(4) KHC
819) were not complied with. Thereafter, steps were
initiated by the 1st respondent to finalize the assessments
W.P.(C) No. 23286/2010 2
afresh. Proposal notices, Exts.P2 & P3 under section 17(3)
of the KGST Act were issued. The petitioner submitted
Ext.P4 request before the 3rd respondent for issuing
necessary directions to the assessing authority to refrain
from raising any arbitrary and illegal demand against the
petitioner and to complete the assessments in a judicious
manner. The petitioner also submitted Exts.P5 and P6
before the 1st respondent requesting time for filing reply to
Exts.P2 and P3. But without giving any reply the 1st
respondent had completed the assessments and issued
Exts.P8 and P9 orders, is the grievance of the petitioner.
3. There is an effective remedy of statutory appeal
provided under the KGST Act against the impugned
assessments. This writ petition is filed without resorting to
such remedy. Under such circumstances the preliminary
issue is as to whether there exists any cogent reason to
entertain this writ petition.
4. The petitioner is a Government of India
undertaking. The 2nd respondent conducted a sitting on
W.P.(C) No. 23286/2010 3
28-5-2010 and as per the notification published, the
petitioner was required to produce Books of accounts on
that day. According to the petitioner, they are having net
work of offices situated all over the State and accounts
relating to each unit is being maintained at such offices.
The petitioner being the major service provider in the State
having about 58 lakhs number of land line telephone
connections and more than 5 lakhs number of mobile
connections, bills for the customers are being generated
during every month, which will be nearly 30 lakhs in
number. Apart from that, records relating to service
provided to other organizations like Reliance, Airtel, etc. are
also there. Therefore the entire accounts will be highly
voluminous and it is not at all practicable to bring all such
records maintained at all the units spread all over the State,
for verification. When the above aspects were pointed out
before the 2nd respondent and when it was pointed that the
accounts are truly reflected in the audit report already
submitted, the matter was assigned to the 1st respondent,
W.P.(C) No. 23286/2010 4
and on that basis only Exts.P2 and P3 notices were issued.
5. According to the petitioner, the major issue in
controversy for finalising the assessment was tax sought to
be levied on income derived from other service providers for
usage of petitioner’s net work facility, commonly known as
“inter-connection usage charges”. It was contended by the
petitioner that there is no transfer of any goods as defined
under Article 366 and what is being transferred is only a
right to use the net work facility. Contention is that the
income received as “inter-connection usage charges” will
not come within the definition of ‘turnover’ or such
transaction could not be treated as “deemed sale” as per
provisions contained in the KGST Act.
6. In support of the above contentions the petitioner
is relying on various decisions like Bharat Sanchar Nigam
Ltd. V. Union of India and others ((2006) 14 KTR 115(SC)),
the Deputy Commissioner of Sales Tax (Law) V. S.
Bahuleyan ((1992) 1 KTR 137 (Ker.)), Bank of India V.
Commercial Tax Officer, Central Section, Calcutta ((1987)
W.P.(C) No. 23286/2010 5
67 STC 1999 (Cal.)) and State Bank of India V. State of
Andhara Pradesh ((1988) 70 STC 215 (AP)) etc:.
7. Sri.S.Anilkumar, learned counsel appearing for the
petitioner, had placed vehement arguments that since the
issue involved in the assessment is purely a legal and
constitutional question, it is not necessary for the petitioner
to resort to the statutory remedy of appeal. He also
contended that the assessments were finalized without
affording proper opportunity to file reply and opportunity to
substantiate contentions of the petitioner. Hence, the
impugned orders are per se illegal and opposed to
principles of natural justice, is the contention.
8. On a perusal of Exts.P8 and P9, it is evident that
when the matter was posted for consideration before the 2nd
respondent on 8-5-2010, the petitioner submitted
explanations, narrating the difference between “inter-
connection usage charges” and “inter-connection link
charges”. It is further stated that, a subsequent date was
fixed for hearing on the basis of promise made by the
W.P.(C) No. 23286/2010 6
petitioner to produce all records relating to the relevant
periods of assessment. But on that date also no records
were produced. Under such circumstances, specific notice
was issued by the 2nd respondent requesting the petitioner
to produce details of receipts relating to specific
transactions which are mentioned under Schedule ‘N’ and
Schedule ‘O’, which reflected turnover to the tune of
Rs.2,24,37,04,939/- and Rs.5,80,18,606/- respectively. It was
also mentioned therein that there is a discrepancy between
the total taxable turnover disclosed in the monthly returns
and the annual return, but no reconciliation statement was
seen filed along with the annual return. Further it was
pointed out that the above said turnover was not seen
disclosed in the audit report. Hence, through the notices the
petitioner was intimated about the proposal to reject the
return and to complete the assessment on a best judgment
basis. It is mentioned in the impugned orders that on receipt
of Exts.P2 and P3, the representative of the petitioner
appeared before the 1st respondent and a hearing was
W.P.(C) No. 23286/2010 7
conducted. The objections submitted as per Exts.P5 and P6
were also verified by the 1st respondent.
9. On a perusal of the objections submitted, it is
revealed that the petitioner had mainly expressed their
difficulty in producing the entire books of accounts. Further,
the petitioner offered for verification of such records at
offices of each secondary switching area. It is also noticed
that in Exts.P5 and P6 a request was made to grant time till
the 3rd respondent takes a decision on Ext.P4
representation. It is based on Exts.P5 and P6, that
arguments were advanced that the petitioner was not
provided with adequate opportunity to file detailed
objections on the merits of the proposals. But it is revealed
from Exts.P8 and P9 that the representative of the
petitioner who appeared before the assessing authority had
already advanced detailed arguments on the issue relating
exigibility of tax on the income derived from other service
providers. Placing reliance on a decision of the Tribunal
reported in Fascal Ltd. V. CESAT (2007 (8) STT 317) the
W.P.(C) No. 23286/2010 8
petitioner raised contention that providing of facility for
other service providers will not come within the ambit of
sale. But the assessing authority found that the petitioner is
receiving charges from other service providers for providing
usage of infrastructure facility of the petitioner and hence
there is a sale of the said facility, which will come within the
meaning of ‘sale’ as defined under the KGST Act. It is
categorically found that the facility permitted for usage of
the infrastructure owned by the petitioner, is a deemed sale
for the purpose of the assessment under the KGST Act,
because there is a transfer of right to use the goods
established from the nature of transaction. The 2nd
respondent also relied on a decision of the Karnataka High
Court in Anthix Corporation V. Assistant Commissioner of
Commercial Taxes, Bangalore ((2010) 29 VST 308 (Kar.)) in
support of the above defence.
10. From the facts narrated in the impugned orders
as described above, it is clear that the petitioner could able
to raise all their contentions with respect to the issue
W.P.(C) No. 23286/2010 9
involved in the assessments. It is clear that there was no
denial of opportunity for production of any Books of
Accounts as alleged. From Exts.P8 and P9 it is evident that
after verifying the audit report and the connected
statements, the assessing authority had requested only for
clarifications pertaining to certain specific transactions, for
which production of all basic accounts was not at all
necessary. But in spite of the onus being on the petitioner to
prove that the proposal is contrary to actual facts or figures,
the petitioner had not produced any documents.
11. Under the above mentioned circumstances, it
cannot be held that there was any patent denial of
opportunity to the petitioner with respect to filing of
objections or with respect to production of documents. On
the other hand, it is evident that major issues involved was
decided after taking note of all contentions raised by the
petitioner. Learned counsel for the petitioner had pointed
out a decision of this Court in M.S.Jewellery V. Assistant
Commissioenr (Assessment) ((1994)2 KTR 389 (Ker.))
W.P.(C) No. 23286/2010 10
wherein it is held that when lengthy pre-assessment notices
are issued raising various complicated issues which require
detailed analysis, the assessing authority will not be
justified in passing orders without affording an effective
opportunity of personal hearing to the assessee. In such
cases it will amount to violation of principles of natural
justice and it will render such orders mala fide and void. He
further placed reliance on another decision of this Court in
C.K.Sunny V. Addl. Sales Tax Officer-I ((2004) 12 KTR 360
(Ker.)) to emphasise the need of compliance of natural
justice and to afford opportunity of personal hearing.
12. On the facts of the case at hand, as stated above,
I am of the view that there is no manifest denial of any
effective opportunity. It is reflected from the impugned
orders that the petitioner had raised all possible contentions
before the assessing authority and he was given ample
opportunity for production of documents. Hence, I am of the
opinion that the impugned orders does not suffer from any
non-compliance of principles of natural justice.
W.P.(C) No. 23286/2010 11
13. Further argument of the petitioner is that the
issue being a legal question, there is no necessity to exhaust
the appellate remedy provided under the Statute. The main
issue upon which there is controversy relates to exigibility
of tax on the turnover of income derived as usage charge
from other service providers. It seems that different view
has been taken in various precedents by the High Court as
well as the Tribunals. A threadbare analysis of the nature of
the transactions as well as terms and conditions of the
agreement with respect to providing such facility, are need
to be considered. Under the scheme of the Statute, a
hierarchy of authorities are provided, including the
appellate Tribunal. Further, revisional power is also
conferred on this Court from the decisions of the Tribunal.
Hence, it is clear and evident that the controversial issue
which depends on various questions of law as well as
various aspects of facts and circumstances, can evaluated
by such statutory authorities. Any interference by this Court
in exercise of power under Article 226 of the Constitution of
W.P.(C) No. 23286/2010 12
India may not be proper and justifiable, under such
circumstances. Hence, I am of the considered opinion that
the petitioner need be relegated to the appellate remedy
available.
14. However, it is pertinent to note that the petitioner
is a public sector undertaking, fully owned by the Central
Government. The disputed tax liability mainly pertains to
the turnover related to the inter-connection usage charges.
The liability for payment of tax with respect to such
turnover is in serious dispute. Hence, I am of the opinion
that collection of the disputed tax amount can be restrained
till a decision is taken by the appellate authority, provided
the petitioner files appeals against Exts. P8 and P9 within a
short time.
15. In the result, the writ petition is dismissed
without prejudice to rights of the petitioner to approach the
appellate authority challenging Exts.P8 and P9. It is made
clear that if the petitioner files appeals before the appellate
authority within a period of two weeks from today, the
W.P.(C) No. 23286/2010 13
appellate authority concerned shall receive such appeals as
one filed within time and shall proceed to consider and
dispose of the same in accordance with law, after affording
an opportunity of hearing to the petitioner, as early as
possible at any rate within a period of three months from
the date of receipt of such appeals.
16. It is further directed that the respondents shall
keep in abeyance collection and recovery of tax in dispute
till the appeals are disposed of, on condition of the
petitioner furnishing security bond for the amount in
dispute.
It is made clear that the appellate authority should
dispose of the appeals independently untrammelled by any
of the observations contained herein.
C. K. ABDUL REHIM,
JUDGE.
mn.