{"id":60351,"date":"2003-02-04T00:00:00","date_gmt":"2003-02-03T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/state-of-uttar-pradesh-and-anr-etc-vs-union-of-india-and-anr-etc-etc-on-4-february-2003"},"modified":"2015-05-31T02:21:07","modified_gmt":"2015-05-30T20:51:07","slug":"state-of-uttar-pradesh-and-anr-etc-vs-union-of-india-and-anr-etc-etc-on-4-february-2003","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/state-of-uttar-pradesh-and-anr-etc-vs-union-of-india-and-anr-etc-etc-on-4-february-2003","title":{"rendered":"State Of Uttar Pradesh And Anr. Etc vs Union Of India And Anr. Etc. Etc on 4 February, 2003"},"content":{"rendered":"
Supreme Court of India<\/div>\n
State Of Uttar Pradesh And Anr. Etc vs Union Of India And Anr. Etc. Etc on 4 February, 2003<\/div>\n
Bench: Syed Shah Quadri, K..G. Balakrishnan<\/div>\n
           CASE NO.:\nAppeal (civil)  5781 of 1999\n\nPETITIONER:\nSTATE OF UTTAR PRADESH AND ANR. ETC.\n\nRESPONDENT:\nUNION OF INDIA AND ANR. ETC. ETC.\n\nDATE OF JUDGMENT: 04\/02\/2003\n\nBENCH:\nSYED SHAH MOHAMMED QUADRI &  K..G. BALAKRISHNAN\n\nJUDGMENT:\n<\/pre>\n
JUDGMENT<\/p>\n
2003 (1) SCR 785<\/p>\n
The Judgment of the Court was delivered by<\/p>\n
SYED SHAH MOHAMMED QUADRI, J. The State of Uttar Pradesh and the Sales Tax
\nOfficer (referred to in this judgment as, ‘the State’) are in appeal
\nagainst the common judgment of a Division Bench of the High Court of
\nJudicature at Allahabad in Writ Petition No.l 15 of 1995 Union of India and
\nAnr. v. Slate of U.P. and Am: and batch dated September 1, 1998.\n<\/p>\n
The State, being of the opinion that the second respondent (The Manager,
\nDepartment of Telecommunications, of the first respondent hereinafter
\ncollectively referred to as the ‘DoT’) failed to file return of the
\nturnover of the rentals collected from the subscribers for ‘the transfer of
\nright to use’ the telephone system during the year 1988, under the
\nprovisions of the Uttar Pradesh Trade Tax Act. 1948 (for short, ‘the U.P.
\nAct’), called upon the ‘DoT to file return therefor. However, no return was
\nfiled by the DoT. The State assessed the tax payable by the DoT in exercise
\nof the power conferred under sub-section (3) of Section 7 of the U.P. Act.
\nThe DoT challenged the validity of the orders of assessment in the writ
\npetitions before the High Court on various grounds. The State pleaded
\njustification for passing the order of assessment in view of the extended
\ndefinition of the expression ‘Tax on the sale or purchase of goods’ in
\nclause 29-A** of Article 366 of the Constitution of India and the relevant
\nprovisions of the U.P. Act. The High Court, by the impugned judgment and
\norder, allowed the writ petitions taking the view that (i) the DoT (Union
\nof India) is not a ‘dealer’ within the meaning<\/p>\n
[Reported in [1999] 114 STC 288]<\/p>\n
By the Constitution (Forty-sixth Amendment) Act.1982] of the Act; (ii)
\nSection 3-F of the Act applies to work contracts only and not to the rental
\ncharges collected by the DoT; (iii) there is no legislative competence in
\nthe State to levy Trade Tax in view of the fact that the Parliament
\nauthorised imposition of service tax under the Finance Act, 1994 on the use
\nof the telephone service by the subscribers; (iv) Article 285(1) of the
\nConstitution of India prohibits the State from imposing any tax on the
\nproperty of the Union of India; and (v) in providing telephone service
\nthrough the DoT, Union of India is discharging its sovereign function which
\ncannot be subjected to trade tax.\n<\/p>\n
Mr. Sunil Gupta, the learned senior counsel appearing for the appellants-
\nState, assailed the validity of the reasoning and conclusions of the High
\nCourt on all the points, referred to above.\n<\/p>\n
Mr. Mukul Rohtagi, the learned Additional Solicitor General, appearing for
\nthe respondents-DoT, conceded in our view rightly, that he would not be
\nsupporting the judgment of the High Court on the grounds (iv) and (v)
\nmentioned above. But he contended, rather vehemently, that the DoT would
\nnot fall within the definition of ‘dealer’ under the U.P. Act and that the
\nactivity of providing telephone service would not answer the definition of
\n‘the transfer of right to use the goods’ and, therefore, the High Court
\nrightly quashed the impugned orders of assessment.\n<\/p>\n
Mr. Joseph Vellapally, the learned senior counsel appearing for the
\nintervenor contended that the contract of the subscribers with the DoT for
\ninstallation of telephone was an indivisible contract for providing service
\nwhich cannot be split into two separate contracts – one for transfer of the
\nright to use any goods and the other for the service provided. He
\nelaborated the contention by pointing out that under the Indian Telegraph
\nAct, 1885 and the Rules made thereunder, no agreement can be spelt out to
\ntransfer the right to use any goods by the DoT to the subscriber. In any
\nevent, submitted the learned senior counsel, supply of goods, if any, was
\nincidental to the performance of the contract of service. Relying on the
\ndecision of this Court in The State of Punjab v. M\/s Associated Hotels of
\nIndia Ltd.<\/a> [1972] I SCC 472 he argued that such composite contracts are
\nindivisible as the parties never contracted to sell\/supply any goods; such
\nincidental sale\/supply, being merely concomitant of the performance of the
\nservice contracted for, would equally apply to a telephone service contract
\nwhich incidentally involved supply of instrument. He further contended that
\nin providing telephone service, it could not be said that the right to use
\nthe whole system of the telephone exchange was transferred as the
\npossession and control of the whole system was being shared by all the
\nsubscribers and it remained in the possession and under the control of the
\nDoT.\n<\/p>\n
The short but question of substantial importance arises for consideration:
\ncan rentals collected by the DoT from the subscribers of telephone in the
\nState, be assessed to tax under the U.P. Act?\n<\/p>\n
There can be. no dispute that Entry 54 of List II of the 7th Schedule to
\nthe Constitution of India authorises a State to impose tax on the sale or
\npurchase of goods other than newspapers, subject of course, to the
\nprovisions only of Entry 92-A of List I which deals with taxes on sale or
\npurchase of goods where such sale or purchase takes place in the course of
\ninter-State trade or commerce. However, levy of tax on the sale or purchase
\nof newspapers is not within the legislative competence of either the State
\nor the Union. The expression ‘Tax on the sale or purchase of goods’ is
\ngiven extended meaning by inserting clause 29-A in Article 366 of the
\nConstitution, which, to the extent relevant, reads as under :\n<\/p>\n
“29 A. ‘Tax on the sale or purchase of goods’ includes -(a) to (c) xxx
\nxxx                                       xxx<\/p>\n
(d) a tax on the transfer of the right to use any goods for any purpose
\n(whether or not for a specified period) for cash, deferred payment or other
\nvaluable consideration;\n<\/p>\n
(e)  to (f) xxx                        xxx\nxxx\"\n\n<\/pre>\n
After insertion of the aforementioned clause in regard to tax on the sale
\nor purchase of goods, the State Acts, including the U.P. Act, were amended
\nto fall in line with the above definition.\n<\/p>\n
The charging section in the U.P. Act is Section 3, which, insofar as it is
\nrelevant for our purposes, is quoted here under :\n<\/p>\n
“Section 3 – Liability to tax under the Act – (1) Subject to the provisions
\nof this Act, every dealer shall for each assessment year, pay a tax at the
\nrates provided by or under Section 3-A or Section 3-D on his turnover of
\nsales or purchases or both, as the case may be. which shall be determined
\nin such manner as may be prescribed.”\n<\/p>\n
The liability under Section 3 is on every dealer, for each assessment year,
\nto pay a tax at the rates provided by or under various sections of the U.P.
\nAct. Here, it would be useful to refer to Section 3-F which, inter alia,
\nprescribes rate of tax on ‘transfer of the right to use any goods’:\n<\/p>\n
“3-F. Tax on the right to use any goods or goods involved in the execution
\nof works contract – (Notwithstanding anything contained in Section 3-A or
\nSection 3-AAA or Section 3-D but subject to the provisions of Sections 14
\nand 15 of the Central Sales Tax Act, 1956, every dealer shall, for each
\nassessment year, pay a tax on the net turnover of –\n<\/p>\n
(a)    transfer of the right to use any goods for any purpose (whether or
\nnot for a specified period) for cash, deferred payment or other valuable
\nconsideration; or<\/p>\n
(b)   transfer of property in goods (whether as goods or in some other
\nform) involved in the execution of a works contract,<\/p>\n
at such rate not exceeding [twenty per cent] as the State Government may,
\nby notification, declare and different rates may be declared for different
\ngoods or different classes of dealers.\n<\/p>\n
(2) For the purposes of determining the net turnover referred to in sub-
\nsection (1), the following amounts shall be deducted from the total amount
\nreceived or receivable by a dealer in respect of a –\n<\/p>\n
(a)    transfer referred to in clause (a) of sub-section (1) whether such
\ntransfer was agreed to during that assessment year or earlier. –\n<\/p>\n
(i) to (iii) xxx                    xxx                                 xxx\n\n(b)    xxx                                   xxx\nxxx\"\n\n<\/pre>\n
A perusal of the provision, extracted above, shows that sub-section (1) of
\nSection 3F commences with a non-obstante clause, excludes the operation of
\nSection 3A, Section 3-AAA and Section 3-D but is subject to the provisions
\nof Sections 14 and 15 of the Central Sales Tax Act, 1956. It imposes on
\nevery dealer, for each assessment year, the liability to pay a tax inter
\nalia, on the net turnover of transfer of ‘the right to use any goods’, for
\nany purpose, whether or not for a specified period, for cash, deferred
\npayment or other valuable consideration at such rate, as may be prescribed
\nby the State<\/p>\n
Substituted by U.P Act No 31 of 1985 w.e.f. 139 1985 Government. The
\nprescribed rate cannot exceed twenty five per cent but the State Government
\nmay, by notification, declare different rates for different goods or
\ndifferent classes of dealers. The net turnover in respect of a transfer
\nreferred to in clause (a) of sub-section (1), has to be determined after
\nmaking deductions enumerated in sub-section (2) read with Rule 44C of the
\nTax Rules, Unfortunately, the High Court failed to notice Section 3F in its
\nentirety and erred in confining it only to “goods involved in the execution
\nof works contract’.\n<\/p>\n
For understanding the true import of the aforementioned provisions, it
\nwould be appropriate to notice the definitions of the terms ‘business’,
\n‘dealer’, ‘goods’, and ‘sale’ defined in clauses (aa), (c), (d) and (h)
\nrespectively, of Section 2 of the U.P. Act, which read as under:\n<\/p>\n
“(aa)’business’. in relation to business of buying or selling goods,
\nincludes –\n<\/p>\n
(i)      xxx                               xxx\nxxx\n\n<\/pre>\n
(ii) the execution of any works contract or the transfer of the right to
\nuse any goods for any purpose (whether or not for a specified period.\n<\/p>\n
(iii)     xxx                                xxx\nx.xx\n\n<\/pre>\n
but does not include any activity in the nature of mere service or
\nprofession which does not involve the purchase or sale of goods.”\n<\/p>\n
(c) ‘dealer’ means any person who carries on in Uttar Pradesh (whether
\nregularly or otherwise) the business of buying, selling, supplying or
\ndistributing goods directly or indirectly, for cash or deferred payment or
\nfor commission, remuneration or other valuable consideration and includes –\n<\/p>\n
(i)       to (iii) xxx                      xxx\nxxx\n\n<\/pre>\n
(iv) a Government which, whether in the course’ of business or otherwise
\nbuys, sells, supplies or- distributes goods, directly or otherwise for cash
\nor for deferred payment or for commission, remuneration or other valuable
\nconsideration;\n<\/p>\n
(v) every person who acts within the State, as an agent of a dealer
\nresiding outside the State, and buys, sells, supplies or distributes goods
\nin the State or acts on behalf of such dealer as –\n<\/p>\n
(a)      a mercantile agent as defined in the Sale of Goods Act, 1930; or<\/p>\n
(b)      an agent for handling of goods or documents of title relating to
\ngoods; or<\/p>\n
(c)      an agent for the collection or the payment of the sale price of
\ngoods or as a guarantor for such collection or such payment;\n<\/p>\n
(vi) a firm or a company or other body corporate, the principal office or
\nheadquarters whereof is outside the State having a branch or office in the
\nState, in respect of purchases or sales, supplies or distribution of goods
\nthrough such branch or office.\n<\/p>\n
(vii) xxx                                 xxx\nxxx\n\n<\/pre>\n
(viii)every person who carries on business of transfer of the right to use
\nany goods for any purpose (whether or not for a specified period) for cash,
\ndeferred payment or other valuable consideration.\n<\/p>\n
Provided xxx             xxx”\n<\/p>\n
“(d) ‘goods’ means every kind or class of movable property and includes all
\nmaterial commodities and articles involved in the execution of a works
\ncontract, and growing crops, grass, trees and things attached to or
\nfastened to anything permanently attached to the earth which under the
\ncontract of sale are agreed to be severed but does not include actionable
\nclaims, stocks, shares, securities or postal stationery sold by the Postal
\nDepartment.”\n<\/p>\n
“(h) ‘sale’ with its grammatical variations and cognate expressions, means
\nany transfer of property in goods (otherwise than by way of a mortgage,
\nhypothecation, charge or pledge) for cash or deferred payment or other
\nvaluable consideration, and include –\n<\/p>\n
(i)      to (iii) xxx                xxx\nxxx\n\n<\/pre>\n
(iv) a transfer of the right to use any goods for any purpose (whether or
\nnot for a specified period) for cash, deferred payment or other valuable
\nconsideration:”\n<\/p>\n
Inasmuch as under Section 3 read with Section 3F of the U.P. Act the
\nliability to pay tax, inter alia, on ‘the transfer of the right to use any
\ngoods’ at the specified rate is on a dealer, as defined in Section 2(c)
\nthereof, extracted above, we shall examine the scope of the definition to
\nascertain – is the DoT a dealer?\n<\/p>\n
The word ‘dealer’ means a person who (whether regularly or otherwise)
\ncarries on the business in U.P. and includes, inter alia, a government
\n[sub-clause (iv)] which (whether in the course of business or otherwise)
\nundertakes buying, selling, supplying or distributing goods directly or
\nindirectly for cash or deferred payment or for commission, remuneration or
\nother valuable consideration. Now it becomes necessary to look into the
\ndefinition of ‘buy’ and ‘sell’. The word ‘buy’ is not defined. It is an
\nantonym of ‘sell’ and has to be construed accordingly in the light of the
\ndefinition of ‘sale’ in clause (h), quoted above, It is an inclusive
\ndefinition. It means any transfer of property in goods and includes among
\nother transactions, a transfer of the right to use any goods for any
\npurpose (whether or not for a specified period) for cash, deferred payment
\nor other valuable consideration. It is thus clear that in regard to a
\ntransfer of the right to use any goods both a person and a government will
\nbe within the ambit of the definition of ‘dealer’ subject to the following
\ndistinction: A person to be a ‘dealer’ should carry on the business of
\nbuying selling etc., whether regularly or otherwise, but a government which
\nbuys, sells etc. (whether in the course of business or otherwise) will be a
\n‘dealer’ for purposes of the U.P. Act. Inasmuch as the definition of ‘sale’
\nincludes any transfer of property in the goods and a transfer of the right
\nto use any goods for any purpose, the DoT which engages in transfer of
\nright to use any goods will be a ‘dealer’ within the meaning of sub-clause\n<\/p>\n
(iv) of clause (c) of Section 2 of the U.P. Act.\n<\/p>\n
In M\/s. Vrajlal Manilal and Co and Anr. v. State of M.P. and Anr., [1986]
\nSupp. SCC 201, this Court considered the meaning of Explanation II to
\nSection 2 (d) of the Madhya Pradesh General Sales Tax Act, 1959, which was
\nsimilar in terms to sub-clause (iv) of clause (c) of Section 2 of the U.P.
\nAct and held: “The language of Explanation II shows that its purpose is to
\ncreate a legal fiction, and that while under the main clause, for a person
\nto be a dealer, he must carry on the business of buying, selling, supplying
\nor distributing goods, even if the Central Government or a State Government
\nor any of their departments or offices does not carry on such business, if
\nit buys, sells, supplies or distributes goods, it is to be deemed to be a
\ndealer for the purposes of the M.P. Sales Tax Act, that is. for the
\npurposes of the levy and collection of tax under M.P. Sales Tax Act. After
\nthe amendment of clause (d) by the 1971 Act, it is irrelevant for the
\npurposes of the levy of tax under the M.P. Sales Tax Act whether the
\nCentral Government or a State Government or any of their departments or
\noffices have bought or sold goods in the course of business.”\n<\/p>\n
While so, by U.P. Act 31 of 1995, sub-clauses (vii) and (viii) which deal
\nwith ‘person’ were inserted in clause (c) of Section 2 with effect from
\nSeptember 3, 1985. Sub-Clause (vii) incorporates business of transfer of
\nproperty in goods involved in the execution of a work contract and sub-
\nclause (viii) incorporates business of transfer of the right to use any
\ngoods for any purpose.\n<\/p>\n
In the present discussion, we are concerned with the effect of insertion of
\nsub-clause (viii) in clause (c) of Section 2 on the aforementioned
\nconclusion that the DoT is a ‘dealer falling in sub-clause (iv) of the said
\nclause. It was contended by the learned Additional Solicitor General that
\nin sub-clause (iv) about ‘a government,’ it was not specifically provided
\nas was done in sub-clause (viii) in regard to a person, that he must be
\ncarrying on the business of a transfer of the right to use any goods for
\nany purpose; in the absence of those words in clause (iv), the DoT, even if
\nit transferred a right to use any goods for any purpose for rentals, would
\nnot fall within the meaning of the term ‘dealer’. He urged that every
\nsection, every clause and every word in  a legislation should be given some
\nmeaning; it could not be presumed that the legislature carried out the
\nexercise in futility in adding sub-clause (viii) to Section 2(c). The
\nintention of the legislature, it was submitted, in adding sub-clause (viii)
\nto Section 2(c) was only to make it clear that ‘a government’ would not be
\na ‘dealer’ in regard to the extended meaning of ‘sale’ which included the
\ntransfer of a right to use any goods but only in regard to sale of goods in
\nits traditional meaning. Mr. Gupta countered that contention by inviting
\nour attention to the Statement of Objects and Reasons of U.P. Act 31 of
\n1995 that the sub-clauses (vii) and (viii) were added in the definition of
\nthe term ‘dealer’ to remove difficulties in the assessment of tax in the
\ntransaction relating to transfer of a right to use any goods. The
\nlegislature, submitted the learned counsel, earlier amended the definition
\nof ‘sale’ in Section 2(h) leaving the definition of ‘dealer’ static but
\nlater is was thought that ex abundanti cautela the definition of ‘dealer’
\nmight also be amended like the definition of ‘sale’ and by U.P. Act No. 31
\nof 1995 a new package of amendments was introduced relating to the transfer
\nof a right to use any goods by adding sub-clause (viii) to clause (c) of
\nSection 2. He argued that addition of sub-clause (viii) in the definition
\nof ‘dealer’ did not mean that prior to 1995, in various Ordinances and the
\nU.P. Act, having regard to the extended definition of ‘sale’, did not
\ninclude a person or a government ‘transferring the right to use any goods’
\nwithin the meaning of ‘dealer’. It was emphasised that if ‘the DoT’,
\nwhether in the course of business or otherwise, transferred a right to use
\nany goods, it was covered by the definition of ‘dealer’ even before the
\n1995 amendment inserted sub-clause (viii) in clause (c) of Section 2 and
\nthat position continued even thereafter.\n<\/p>\n
We are afraid, we cannot accede to the contentions of the learned
\nAdditional Solicitor General. After insertion of clause 29-A in Article 366
\nof the Constitution and consequential amendments of the term ‘sale’ in the
\nU.P. Act, if ‘sale’ is construed in the sense it was understood before the
\nsaid amendments, it will be a clear negation of the constitutional and
\nstatutory provisions, therefore, such a contention cannot be accepted. We
\nhave already held above that before insertion of sub-clause (viii) in
\nSection 2(c) of the U.P. Act, the activity of a transfer of the right to
\nuse any goods for any purpose (whether or not for a specified period) for
\ncash, deferred payment or other valuable consideration, fell within the
\nmeaning of ‘sale’ in clause (h) so the DoT while so doing could not but be
\na ‘dealer’ within the meaning of Section 2(c) of the U.P. Act. If that was
\nthe position before the enactment of U.P. Act 31 of 1 995 which inserted,
\ninter alia, sub-clause (viii), then unless a contrary intention appears
\nfrom the amended provisions, in our view, the pre-amendment position shall
\ncontinue. Had the intention of the legislature been to change that position
\nand exclude ‘a government’ from the definition of ‘dealer’ in regard to a
\ntransfer of the right to use the goods, it would have said so specifically.
\nIt follows that in view of the extended meaning of sale of goods, the DoT
\nwould continue to be within the ambit of a ‘dealer’ under the U.P. Act even
\nin regard to transfer of a right to use any goods after insertion of sub-
\nclause (viii) in clause (c) of Section 2 by U.P. Act 31 of 1995. We are,
\ntherefore, unable to uphold the reasoning of the High Court that in view of
\namendment of Section 2(c) in 1995, adding sub-clause (viii). sub-clauses\n<\/p>\n
(vi) had to be interpreted differently so as to exclude the DoT from the
\nmeaning of ‘dealer’ and also the contention of the learned Additional
\nSolicitor General. In our view, insertion of sub-clauses (vi) and (vii) in
\nclause (c) of Section 2 was, as submitted by Mr. Gupta, by way of abundant
\ncaution. This is not an unusual feature of the legislation. As long back as
\nin 1865 in The Wakefield Local Board of Health v. The West Riding and
\nGrimsby Railway Company, LR (1865) QB 84, Cockburn, C.J. held:\n<\/p>\n
“I am opinion that the objection raised by the respondents was untenable. I
\nthink the words inserted at the end of the definition in the interpretation
\nclause, section 3 of the 8 Vict.c.20, were interested, as Mr. Cleasby
\nargues, from excess of caution, in the apprehension that justices, if not
\nwarned of what the law is, might act although inserted; and the legislature
\nthought that, if they did not actually include what would be virtually
\nimplied, it might be assumed that it was excluded.”\n<\/p>\n
In Re: Sir Stuart Samuel. (1913) Appeal Cases 514, the Privy Council
\nobserved:\n<\/p>\n
“It is desirable to notice an argument derived from s.4 of 41 Geo.3,c.52,
\npassed in 1801. This section disqualifies for a seat in the Parliament of
\nthe United Kingdom any one who makes a contract with a Commissioner of His
\nMajesty’s Treasury in Ireland or with any other person whomsoever for or on
\naccount of the public service in Ireland. This was surplusage (such is the
\nargument) if the Act of 1782 had already made such contracts, irrespective
\nof place, a ground of disqualification for the British Parliament, since
\nall persons disqualified for the British Parliament were by s.l of the Act
\nof 1801 already disabled from sitting in the Parliament of the United
\nKingdom, at all events for British constituencies. There are several
\nanswers to this contention. It is not a conclusive argument as to the
\nconstruction of an earlier Act to say that unless it be construed in a
\nparticular way a later enactment would be surplusage. The later Act may
\nhave been designed, ex abundante cautela, to remove possible doubts.”\n<\/p>\n
To the same effects are the views expressed by this Court in Raj Bahadur
\nKanwar Raj Nath and Ors. v. Pramod C. Bhatt Custodian of Evacuee Property,<\/a>
\n[1955] 2 SCR 977:\n<\/p>\n
“The operative portion of the section which confers power on the Custodian
\nto cancel a lease is unqualified and absolute and could not be abridged by
\nreference to the non-obstante clause which was only inserted ex abundanti
\ncautela with a view to repel a possible contention that the section does
\nnot by implication repeal statutes conferring rights on lessees.”\n<\/p>\n
And in Bhikoba Shankar Dhumal (dead) by Lrs. and Ors. v. Mohan Lal Punchand
\nTathed and Ors.,<\/a> [1982] 1 SCC 680. This Court held :\n<\/p>\n
“It appears to us that the said paragraph was introduced by way of abundant
\ncaution to get over the possible objection raised on the basis of the
\ndecision in the case of Dadarao v. Slate of Maharashtra, AIR<\/a> (1970) Bom.\n<\/p>\n
144. The said paragraph is merely declaratory of what the true legal
\nposition had always been even from the commencement of the Act. The
\nintroduction of an express provision to the above effect does not have the
\neffect of altering the true legal position as explained by us above even
\nwithout the aid of such express provision. This becomes further clear from
\nthe observations found in the decision of this Court in Raghunath Laxman
\nWani v. State of Maharashtra,<\/a> [1971] 3 SCC 391.”\n<\/p>\n
It may be that the same amount of precaution was not taken by the
\nlegislature in defining ‘dealer’ with respect to ‘ a government, in sub-
\nclause (iv) as was done regarding ‘a person’ by inserting sub-clauses (vii)
\nand (viii) in clause (c) of Section 2; but that, in our view, in the light
\nof the above discussion, would hardly make any difference in construing the
\nprovisions of sub-clause (iv) of clause (c) in Section 2 of the U.P. Act.\n<\/p>\n
Before taking up the other contentions we may conveniently dispose of a
\nshort point – ambit of the definition of the term ‘goods’ – quoted above.
\nIt is defined in very wide terms so as to bring in both tangible and
\nintangible objects. It takes in its fold every kind or class of movables,
\nincluding all material commodities and articles involved in the execution
\nof a works contract and growing crops, grass, trees and things attached to
\nor fastened to anything permanently attached to the earth which under the
\ncontract of sale are agreed to be severed but excluding actionable claims,
\nstocks, shares, securities or postal stationery sold by the Postal
\nDepartment. According to the DoT, what is being supplied as service is a
\ntelephone connection with an instrument which is connected with permanent
\ntelephone lines laid up to the subscriber’s place where the telephone
\nsystem is installed and the same is connected with the exchange. Telephone
\ninstruments and other movables, including wiring, cable etc., are
\nundoubtedly goods. However, the position of telephone exchange was not
\nwithout demur on the ground that they were housed in immovable properties.
\nThat objection need not detain us because intangible object, like
\nelectricity which is generated in projects and transmitted through sub-
\nstations, housed in buildings, has been held to be goods. In Commissioner
\nof Sales Tax, Madhya Pradesh, Indore v. Madhya Pradesh Electricity Board,
\nJabalpur,<\/a> [1969] I SCC 200, a Bench of three learned Judges of this Court
\ntook the view that the electricity falls within the meaning of ‘goods’
\nunder the Madhya Pradesh General Sales Tax Act, 1959. That view was
\naffirmed in a recent judgment of a Constitution Bench of this Court in
\nState of A.P. etc. v. National Thermal Power Corpn. Ltd. and Ors. etc.,
\n[2002] 5 SCC 203 holding that electricity though an intangible object is
\n[good] covered by Entry 54 of List II of Schedule VII to the Constitution
\nas also Section 2(d) of the Central Sales Tax Act, 1956. The Supreme Court
\nWisconsin (U.S.A.) in Mckinley Telephone Company v. Cumberlant Telephone
\nCompany, [152 Wis. 359; 140 N.W. 38; 1913 Wise. Lexis 77] held the view
\nthat the furnishing of telephone service might be classed as the supplying
\nof a commodity constituting a subject of commerce. We, therefore, have no
\nhesitation in holding that telephone connection and all other accessories
\nwhich give access to the telephone exchange with or without instruments are
\n‘goods’ within the meaning of Section 2(d) of the U.P. Act.\n<\/p>\n
The next question, that generated lengthy debates, is : Does the supply of
\ntelephone connection involve a transfer of the right to use any goods or
\namount to providing a service?\n<\/p>\n
We have noticed above that the liability to pay tax under the U.P. Act is
\non every dealer on his turnover of sales of purchases; it is also concluded
\nthat telephone connection along with all accessories falls within the
\nmeaning of ‘goods’; we have also opined that the definition of ‘sale’ in
\nclause (h) of Section 2 is an inclusive definition and includes a transfer
\nof the right to use any goods for any purpose.\n<\/p>\n
It is necessary to notice here certain provisions governing supply of
\ntelephone connection provided by the DoT which alone has exclusive
\nprivilege and control. We have perused ‘the General Rules Governing the
\nProvision of Telephone Connections, Telex Connections and Accessories,
\nEtc.’ (for short, ‘the general rules’). Rule 3 of the general rules says
\nthat all telephone connections and other similar services provided or
\nauthorised by the department shall, unless governed by a separate contract,
\nbe subject to the conditions set forth in the Indian Telegraph Rules. It
\nfurther says that the Divisional Engineer shall install and, subject to
\nobservance of the Indian Telegraph Rules or the specific Hiring Contract by
\nthe subscriber, maintain in good working order the equipment and apparatus
\nprovided by the department and when necessary, substitute a different
\napparatus in accordance with departmental instructions issued from time to
\ntime. The Indian Telegraph Act, 1885 (for short, ‘the ITA 1885’) defines
\n‘telegraph’ to mean, any appliance, instrument, material or apparatus used
\nor capable of use for transmission or reception of signs, signals writing
\nimages and sounds or intelligence of any nature by wire, visual or other
\nelectro-magnetic emissions, Radio waves or Herzian waves, galvanic,
\nelectric or magnetic means. Telegraph line’ defined in Section 3(4) of the
\nITA 1885, means a wire or wires used for the purpose of a telegraph, with
\nany casing, coating, tube or pipe enclosing the same, and any appliances
\nand apparatus connected therewith for the purpose of fixing or insulating
\nthe same. In The Senior Electric Inspector and Ors. v. Laxmi Narayan Chopra
\nand Ors.,<\/a> [1962] 3 SCR 146, a Bench of three learned Judges held that
\n‘Telegraph line, is comprehensive enough and means a wire or wires used for
\nthe purpose of an appliance or apparatus for receiving telegraphic or other
\ncommunications by means of electricity, and it need not be a continuous
\nphysical channel from the point of transmission to the point of reception.
\nA wireless transmitter transmits sound as electro-magnetic waves and the
\nsaid waves are detected by the aerial and fed into the receiving apparatus
\nby wires. So the wires of the aerial as well as of the apparatus are used
\nfor the purpose of the apparatus receiving communications. Thus, the
\nreceiving apparatus employs ‘telegraph lines’ within the meaning of Section
\n3(4) of the ITA 1885 Section 4 of the ITA 1885 declares that the Central
\nGovernment shall have the exclusive privilege of establishing, maintaining
\nand working telegraphs. In State of Bihar v. Mangal Sao,<\/a> [1963] I SCR 148.
\nthis Court was inclined to approve that Section 4 applied to telephone. The
\nsame view is reiterated in Delhi Science Forum and Ors. etc. v. Union of
\nIndia and Anr. etc., [1996] 2 SCC 405. Under Section 7 of the ITA 1885, the
\nCentral Government is empowered to make rules consistent with the Act for
\nthe conduct of all or any telegraphs, established, maintained or worked by
\nthe Government or by persons licensed under this Act. Clause (e) thereof
\nprovides that the rules may also be framed in regard to the conditions and
\nrestrictions, subject to which any telegraph line, appliance or apparatus
\nfor telegraphic communication shall be established, maintained, worked,
\nrepaired, transferred, shifted, withdrawn or disconnected. Sections 20 and
\n21 make unauthorised use of telegraph an offence.\n<\/p>\n
The Indian Telegraph Rules. 1951 (for short, ‘the Rules’) were framed in
\nexercise of the power under Section 7 of the ITA 1885. Rules in Part-V
\nthereof deal with telephones. Under the Rules, the subscribers are required
\nto take care of the telephone apparatus and in the event of the apparatus,
\nin the premises of the subscribers, being damaged or lost, they are obliged
\nto pay the cost of replacing and repairing. Rule 413 says that all services
\nwill be subject to the said Rules. Rule 411 gives classification of the
\nconnections under various Heads. Rule 412 provides for supply and
\nmaintenance of equipment by the Divisional Engineer, Telegraph. The Rules
\nalso provide for disconnection of service in certain conditions. Rule 434
\nprescribes charges for various services, like installation and additional
\nfacilities, reconnection, transfer, shifting, etc. For ‘Measured Rate
\nSystem’ bi-monthly rentals have to be paid by the subscriber at the
\nprescribed rate as also the fees. Different rate is provided for ‘Flat Rate
\nSystem’. The Rules, referred to above, show complete control of the DoT in
\nregard to all matters connected with the installation of the telephone by
\nproviding apparatus and matters connected therewith including the charges
\npayable by the subscribers for the service provided. Rule 437 says that the
\nrental for a period shall be payable before the commencement of that
\nperiod. Rule 438 defined the term ‘Rental periods’ – Monthly, bi-monthly
\nand annual rental periods shall commence from the first of a month or from
\nsuch other day as the Telegraph Authority may fix: rentals for broken
\nperiods of a month shall be charged proportionately. Though calls whether
\nlocal, STD or ISD are charged separately, rentals give allowance for
\ncertain number of free calls.\n<\/p>\n
The case of the State is that in supplying instruments, accompaniments and
\nthe telephone connection to a subscriber, the DoT which is having exclusive
\nprivilege, is transferring the right to use those goods. The DoT maintains
\nthat it is providing a service which does not involve transfer of a right
\nto use any goods and that by the Finance Act, 1997, the Parliament has
\nimposed service tax, as such the State cannot levy any tax under the U.P.
\nAct. The State, however, did not dispute that providing a telephone to a
\nsubscriber was a service, but what was pressed was that in providing
\nservice, ‘transfer of the right to use the instrument, appliance and the
\nwhole exchange system was involved’. Now, it is clear that when the DoT
\nprovides a telephone to a subscriber, it installs instrument, accessories
\nand gives necessary connection which enables him to access the whole system
\nto avail of the service by making out-going calls and receiving incoming
\ncalls whether local, STD or ISD and that is compendiously termed as
\n‘service’.\n<\/p>\n
The question whether a given activity is one of sale or service is a vexed
\nquestion. The terminology employed to describe an activity as sale or
\nservice is not conclusive in itself. By calling sale as service or vice-
\nversa, the substance of the transaction will not get altered. The question
\nhas to be determined by discerning the substance of the transaction in the
\ncontext of the contract between the parties or in a case of statutory
\ncontract in the light of the relevant provisions of the Act and the Rules.
\nIf an activity or activities are comprehensively termed as ‘service’ but
\nthey answer the description of ‘sale’ within the meaning of a Statute, they
\ncan nonetheless be regarded sale for the purpose of that Statute. In other
\nwords, it is possible, an activity may be service for purposes of one Act
\nand sale for purposes of another Act. It may also be that in a given case,
\non the facts of that case, a particular activity can be treated as
\n‘service’ but in a different fact situation the same could be sale under
\nthe same Statute. In M\/s. Northern India Caterers (India) Ltd. v. it.
\nGovernor of Delhi, [1980] 2 SCC 167 the question that fell for
\nconsideration of the Constitution Bench of this Court was, whether the
\nservice of meals to casual visitors in the restaurant was taxable as a
\n‘sale’, (i) when the charges were lump sum per meal or (ii) when they were
\ncalculated per dish? It was held that in both the above situations it would
\nbe ‘service’. On an application filed to review the said judgment while
\ndismissing the review petition it was observed that the judgment had rested
\non the factual foundation and must be understood in that light. Rejecting
\nthe contention that the respondent therein as well as the States were
\napprehensive that the judgment would be invoked by the restaurant-owners in
\ncases where there was a sale of food and title in the food passes to the
\ncustomers, as one which could not be reasonably entertained, it was held:\n<\/p>\n
“Indeed, we have no hesitation in saying that where food is supplied in an
\neating-house or restaurant, and it is established upon the facts that the
\nsubstance of the transactions, evidenced by its dominant object, is a sale
\nof food and the rendering of services is merely incidental, the transaction
\nwould undoubtedly be exigible to sales tax.”\n<\/p>\n
The learned Additional Solicitor General in support of his contention
\nsubmitted that the DoT was providing service so it is not liable to tax
\nunder the U.P. Act and invited our attention to the second part of the
\ndefinition of the word ‘business’ in clause (aa) of Section 2. The
\ndefinition is extracted above. The word ‘business’ is defined in relation
\nto business of buying or selling goods. The definition is in two parts. The
\nfirst part includes among others transfer of the right to use any goods for
\nany purpose (whether or not for a specified period). The second part which
\nexcludes any activity in the nature of mere service not involving purchase
\nor sale of goods reads, “but does not include any activity in the nature of
\nmere service or profession which does not involve the purchase or sale of
\ngoods.” “It was argued that any activity in the nature of mere service or
\nprofession is excluded from the definition of the term ‘business’ and as
\nthe DoT is providing service, the same cannot be subjected to tax. In our
\nview, the contention though attractive, is devoid of any substance. There
\nare more answers than one to this contention. The first is that the
\ndefinition of a ‘dealer’ takes in ‘a Government’, when it sells, supplies,
\netc. whether in the course of business or otherwise. Therefore, it is not
\nnecessary that the activity of sale, etc. by the DoT should be in the
\ncourse of business. Even assuming that the supply of the telephone to a
\nsubscriber, being, a service, falls outside the meaning of the term
\n‘business’, the DoT would nonetheless be liable to pay tax under the U.P.
\nAct as a ‘dealer’ for the simple reason of transferring the right to use
\nthe telephone instrument\/apparatus and the whole system as that falls
\nwithin the extended meaning of ‘sale’ under clause (h) of Section 2 of the
\nU.P. Act. And the second is, only such service is excluded from the
\ndefinition of the term ‘business’ which does not involve the purchase or
\nsale of goods. In the instant case, it cannot be legitimately disputed that
\nthe service involves installation of instrument and access to the exchange
\nand telephone system as a whole which has been found to fall within the
\nmeaning of the term ‘sale’. Therefore, the second part of the definition of
\nthe term business is of no help to the DoT.\n<\/p>\n
It was then urged that in providing telephone service by the DoT,
\ninstallation of instrument\/apparatus and appliances is insignificant and in
\nmany cases subscribers themselves have their own instruments; the more
\nimportant part is access to the area exchange and the whole system
\nconnected thereto without which the installation is of no consequence and
\nthe same remains under the possession and full control of the DoT so there
\nwas no transfer of the right to use any goods so as to attract liability
\nunder the U.P. Act. We are not persuaded to accept this submission. It is
\ntrue that under the Rules, referred to above, as service, a number is
\nallotted, an instrument\/ apparatus and other appliances are installed at
\nthe premises of a subscriber and the same are connected with the area
\nexchange to enable him to have access to the whole system, to dial and to
\nreceive calls. In our view, it makes no difference whether any subscriber
\nreplaces instruments of the DoT with his own instrument because the most
\nimportant thing is the connection of the subscriber’s telephone number with
\nthe area exchange and that was provided by the DoT. Insofar as the
\ncontention of giving possession or control of the whole system of Exchange
\nis concerned, which is said to comprise mostly of immovable property, it
\nneeds to be borne in mind that handing over of the possession is not sine
\nqua non completing the transfer of the right to use any goods. It was so
\nheld by a Constitution Bench of this Court in 20th Century Finance
\nCorporation Ltd. and Am: v. Stale of Maharasahtra, [2000] 6 SCC 12. A
\n‘transfer of the right to use any goods’ will be complete according to the
\nlaw laid down by the majority in that case, on completion of the contract
\nto transfer of the right to use the goods. The contention that the area
\ntelephone exchanges and other systems would remain under the control of the
\nDoT, are irrelevant to complete such a transfer. Even otherwise, after
\ninstallation of the instrument and other appliances, once the DoT connects
\nthe telephone line of the assigned number of the subscriber to the area
\nexchange, access to other telephones is established. There cannot be denial
\nof the fact that giving such an access would complete the transfer of the
\nright to use the goods. However, reliance is placed on the decision of the
\nHigh Court of Andhra Pradesh in Rashtriya Ispat Nigam Ltd. v. Commercial
\nTax Officer, [1990] 77 STC 182 which was affirmed by this Court in State of
\nAndhra Pradesh and Am. v. Rashtriya Ispat Nigam Ltd.,<\/a> [2002] 126 STC 114.
\nIt is unnecessary to deal with these cases in any detail; suffice it to
\nsay, in that case there was a finding of fact that the transaction did not
\ninvolve transfer of the right to use the machinery in favour of contractors
\nand that determined the issue.\n<\/p>\n
It may be mentioned that during the relevant period (1988) no service tax
\nwas enforced. It was in 1994 that service tax was levied for the first time
\nas per Chapter V of the Finance Act, 1994. Section 66 thereof created
\ncharge of service tax in regard to taxable services. ‘Service tax’ is
\ndefined in clause (34) of Section 65 to mean tax chargeable under the
\nprovisions of that Chapter. ‘Taxable service’ is defined (under sub-clause\n<\/p>\n
(b) of clause 41 of Section 65) to mean any service provided to. inter
\nalia, a subscriber by the telegraph authority in relation to a telephone
\nconnection. No provision of the U.P. Act or the said Finance Act, 1994 or
\nthe Constitution of India is brought to our notice to hold that rentals
\ncollected by the DoT from the subscriber cannot be subjected to tax as is
\ndone under the U.P. Act. Merely because service tax is imposed by the
\nParliament under the said Finance Act in respect of telephone connection to
\na subscriber, is no ground to hold that the.State cannot levy tax under the
\nU.P. Act.\n<\/p>\n
For the aforementioned reasons, we hold that providing telephone service by
\nthe DoT which comprises of allotment of number, installation of an
\ninstrument\/apparatus and other appliances at the premises of a subscriber,
\nwhich are connected with a telephone line to the area exchange to enable
\nhim to have access to the whole system, to dial and to receive calls, in
\neffect, falls within the meaning of the extended definition of ‘sale’, viz.
\nwithin the meaning of ‘the transfer of the right to use any goods’ and the
\nfact that it is described as service under the ITA 1885 and the Rules made
\nthereunder or under the Finance Act. 1994 would not militate against the
\nsame being a ‘sale’ within the meaning of the U.P. Act.\n<\/p>\n
The contention that remains to be considered is that in a contract
\nproviding telephone by the DoT the service and sale – transfer of the right
\nto use the goods – are so inter-twined that the rentals cannot be
\nattributed to one or the other part and, therefore, such a composite
\ncontract cannot be dissected so as to attribute one part of the rentals to
\nservice and the other part to the transfer of the right to use the goods
\nand accordingly assess that part of rentals to tax. Reliance was placed on
\na decision of this Court in Northern India Caterers, (supra) and it was
\nadded that it had resulted in insertion of sub-clause (f) in clause 29-A of
\nArticle 366 of the Constitution; the argument proceeded that as there was
\nno such provision to tax service in sub-clause (d) of clause 29-A, no tax
\ncould be levied by the State. We shall deal with this argument with the
\ncontentions of Mr. Joseph Vellapally, learned senior counsel appearing for
\nthe intervenors. He focussed on the fact that the instrument could be used
\nonly when access to the whole system is provided by the DoT and argued that
\nwhen the contract was a composite contract involving service and the
\ntransfer of the right to use any goods, in the absence of any provision in
\nthe Constitution enabling the State to levy tax for service separately, no
\ntax could be levied and collected under the U.P. Act. Mr. Sunil Gupta
\nsubmitted that in a case of composite contract, the dominant object test
\nwill have to be applied.\n<\/p>\n
The following three situations were adverted to in the submissions:\n<\/p>\n
(1)    where the service is the main object of the contract and the supply
\nof other things are merely incidental to enable the enjoyment of the
\nservice itself;\n<\/p>\n
(2)    where the service is incidental and the real contract is to sell the
\ngoods; and<\/p>\n
(3)    where both the service as well as the sale of goods are equally
\nprominent and they have been clubbed in one contract.\n<\/p>\n
Whether a given contract falls under one or the other category is
\nessentially a question of fact to be determined on the terms of the
\ncontract between the parties or, in case of a statutory contract, the rules
\ngoverning such a contract.\n<\/p>\n
Whereas in the case of a composite contract falling under the first
\ncategory, where the service is the dominant object of the contract, the
\nsupply of goods is incidental to the enjoyment of the service; for example,
\nin a hotel, where a room is hired, the supply of ornamental objects in the
\nroom, like chandelier, scenery, decoration pieces in the room or items,
\nlike linen, soap, shampoo etc. are incidental to make the service more
\nuseful, effective and attractive. In such a case, it is not possible to
\nseparate service from the supply of goods. This principle was laid down by
\nthis Court in State of Himachal Pradesh v. Associated Hotels of India Ltd.,<\/a>
\n(1972) 29 STC 474 SC and affirmed in Northern India Caterers, (supra).\n<\/p>\n
The insertion of clause 29-A in Article 366 of the Constitution of India
\ndid not altogether obliterate the distinction between sale and service,
\nexcept in a case falling under sub-clause (f) thereof which enables levy of
\ntax on the supply, by way of or as part of any service or in any other
\nmanner whatsoever, of goods, being food or any other article for human
\nconsumption or any drink (whether or not intoxicating), where such supply
\nor service, is for cash, deferred payment or other valuable consideration.
\nIn such a case, the transfer, delivery or supply of any goods shall be
\ndeemed to be a ‘sale’ of those goods by the person making the transfer,
\ndelivery or supply and a purchase of those goods by the person to whom such
\ntransfer, delivery or supply is made. In other respects the distinction
\nbetween sale and service for imposing tax is maintained.\n<\/p>\n
In regard to sale of goods where the service is incidental, the principle
\nof non-separatability will apply in the absence of a specific valid
\nstatutory provision; for example, in a restaurant\/hotel, where food or
\nother articles are sold, the supply of service like providing cutlery
\nwashing liquid, towels, music, etc., is merely incidental and it would not
\nbe permissible to treat such service as a transfer of right to use the
\ngoods for the purpose of taxation under the relevant Sales Tax Act. Where,
\nhowever, the supply of service as well as supply of goods are prominent
\nobjectives and they have been clubbed together under a composite contract
\nit would be possible to treat them separately; for example, where in a
\nholiday package, transportation, boarding and lodging are separately
\ntreated, it would be possible to assess them separately, though covered
\nunder the same contract.\n<\/p>\n
In British Railway’s Board v. Customs and Excise Commissioners, [Simon’s
\nTax Cases, 1977 (page 221)] the question before the Court of Appeal was :
\nwhether the supply of a student identity card constituted the supply of
\nservice of a description which qualified for zero-rating. In that case, the
\nBritish Railways Board provided special facilities for rail travel by
\nStudents. A student could purchase an identity card for pound 1.50 to
\nenable him to obtain rail ticket at reduced rates. It was held that sale of
\nidentity card and the subsequent sale to the card-holder of a ticket for a
\nparticular journey at a reduced price could not be treated as separate and
\nisolated transactions and, therefore, pound 1.50 paid for the identity card
\nwas properly to be regarded as a part payment in advance for the supply of
\ntransport service.\n<\/p>\n
British Airways Plc v. Customs and Excise Commissioners [Simon Tax Case.
\n[1990] page 643; is a case wherein in the flights operated by the British
\nAirways to transport passengers by air, food was served to the passengers,
\nthe price was the same whether or not a passenger availed the facility of
\nfood. The Court of Appeal observed that the question was : whether British
\nAirways had made one supply or two supplies. It was held that in flights
\ncatering was part of and integral to the supply of transportation and,
\naccordingly, British Airways had made only one supply, that of air
\ntransportation.\n<\/p>\n
To the same effect is the view in Customs and Excise Commissioners v.
\nBritish Telecommunications Plc [Simon Tax Cases, [1999] (page 758). In that
\ncase British Telecommunications purchased new cars for its fleet of
\nvehicles. The question that arose was : whether the sale of cars and their
\ntransportation to the agreed delivery point comprised two distinct
\nsupplies. The Tribunal found that the two are different and distinct
\nservices. The Court of Appeal held that the supply of the service of
\ndelivery was physically and economically distinct from the supply of the
\ncar. On appeal, the House of Lords held:\n<\/p>\n
“In order to identify the supply it was necessary to consider whether the
\ndelivery was ancillary or incidental to the supply of the car or was a
\ndistinct supply. The fact that separate charges were identified in a
\ncontract or on an invoice did not on a consideration of all the
\ncircumstances necessarily prevent the various supplies from constituting
\none composite transaction nor did it prevent one supply from being
\nancillary to another supply which for value added tax (VAT) purpose was the
\ndominant supply. Although each supply in a composite transaction might be
\nan independent separate supply, the essential features of a transaction
\nmight show that one supply was ancillary to another and that it was the
\nlatter that for VAT purposes was to be treated as the supply. In the
\ninstant case it was artificial to split the various parts of the
\ntransaction into different supplies for VAT purposes. What British
\nTelecommunications wanted was a delivered car; the delivery was incidental
\nor ancillary to the supply of the car and it was only on or after delivery
\nthat property in the car passed. Accordingly, if the transaction was looked
\nat as a matter of commercial reality, there was one contract for a
\ndelivered car and one supply for VAT purposes.”\n<\/p>\n
Having given our anxious consideration to the submissions made in regard to
\nthe composite contract of service of goods and the classification, above
\nreferred, we are of the view that they will not apply to the present case.
\nHere the service of telephone connection cannot be artificially split into
\nvarious categories – supply of instruments and accompaniment on the one
\nhand and supply of telegraphic line\/connection on the other, to name the
\nformer as ‘sale’ and the latter as ‘service’ . The analogy of composite
\ncontract will apply where ‘sale’ and ‘service’ are to different independent
\nobjects.\n<\/p>\n
Inasmuch as we have found that the DoT is a ‘dealer’ as defined in Section
\n2(c) of the U.P. Act and it collects rentals for the supply of transfer of
\nuse of telephone connection, which is compendiously called ‘service’ and
\nthat the supply of telephone satisfies the requirements of a transfer of
\nthe right to use the goods within the meaning of ‘sale’ in Section 2(h); it
\nalso receives consideration, therefore, the requirements of charging
\nSection 3 read with Section 3 F are satisfied. The jugdments and orders
\nunder challenge in these appeals are, therefore, set aside.\n<\/p>\n
In Union of India and Ors. v. Secretary, Revenue Department (CTll),
\nGovernment of Andhra Pradesh and Ors., (1999) 113 STC 203, the High Court
\nof Andhra Pradesh took the view that the rentals are not subject to sales
\ntax within the meaning of provisions of the Andhra Pradesh General Sales
\nTax Act, 1957. This judgment and the judgment under appeal was followed by
\nthe High Court of Punjab & Haryana in Union of India and Anr. v. State of
\nHaryana and Anr., [2001] 123 STC 539 to hold that the rentals collected by
\nthe DoT cannot be equated with sale of goods or deemed sale of goods by way
\nof transfer of the right to use goods within the meaning of the Haryana
\nGeneral Sales Tax Act, 1973. For the aforementioned reasons we overrule
\nthose judgments. We must, however, consider the last submission that the
\nimpugned demands relate to not only rentals but also to various other
\ncharges and, therefore, for working out the correct demand, the cases have
\nto go back to the assessing officer for raising fresh demand. We find
\nconsiderable force in that submission. We set aside the demand in question
\nand direct the DoT (the respondent) to file the ‘Returns’ within three
\nmonths from today. The Assessing Authority shall make order of assessment
\nand raise fresh demand in accordance with law.\n<\/p>\n
The appeals are accordingly allowed with costs.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India State Of Uttar Pradesh And Anr. Etc vs Union Of India And Anr. Etc. Etc on 4 February, 2003 Bench: Syed Shah Quadri, K..G. Balakrishnan CASE NO.: Appeal (civil) 5781 of 1999 PETITIONER: STATE OF UTTAR PRADESH AND ANR. ETC. RESPONDENT: UNION OF INDIA AND ANR. ETC. ETC. DATE OF JUDGMENT: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-60351","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nState Of Uttar Pradesh And Anr. Etc vs Union Of India And Anr. Etc. 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