No sales tax on telecom: SC

Category: Government | No Comments | Posted on March 3, 2006

The Supreme Court today ruled that states could not impose sales tax on services offered by operators. The court, however added that states could impose sales tax on handsets, if sold by operators, as mobile phones were considered goods.

A three-judge Bench headed by Justice Ruma Pal stated that a contract between a telecom service provider and a subscriber is merely to receive, transmit and deliver messages of the subscriber through a complex system of fibre optics, satellite and cables.

The court clarified that licences granted under the Indian Telegraph Act clearly manifest that they were for providing telecommunication services and not for supplying any goods or transfer of right to use any goods.

Telecom operators heaved a sigh of relief as it was estimated that they would have had to pay up to Rs 10,000 crore in sales tax as the case pertained to the period from 1995-96 till now.

One of the two concurring judgments explained that traditionally, a contract for carriage of goods or passengers is by roadways, railways, airways and waterways.

This is associated with carriage of tangible goods. Such a carrier has no right over the goods of a customer and does not effect transfer of right to use any goods used by the carrier for goods.

Source: Business Standard