STATE OF UTTAR PRADESH Vs. UNION OF INDIA

JUDGEMENT

(1.) The State of Uttar Pradesh and the Sales Tax Officer (referred to in this judgment as, 'the State') are in appeal against the common judgment of a Division Bench of the High Court of Judicature at Allahabad in Writ Petition No. 115 of 1995, Union of India and another v. State of U.P. and another and batch dated September 1, 1998*.

(2.) The State, being of the opinion that the second respondent (The Manager, Department of Telecommunications, of the first respondent-hereinafter collectively referred to as the 'DoT') failed to file return of the turnover of the rentals collected from the subscribers for 'the transfer of right to use' the telephone system during the year 1988, under the provisions of the Uttar Pradesh Trade Tax Act, 1948 (for short, 'the U.P. Act'), called upon the DoT to file return therefor. However, no return was filed by the DoT. The State assessed the tax payable by the DoT in exercise of the power conferred under sub-section (3) of Section 7 of the U.P. Act. The DoT challenged the validity of the orders of assessment in the writ petitions before the High Court on various grounds. The State pleaded justification for passing the order of assessment in view of the extended definition of the expression 'Tax on the sale or purchase of goods' in Clause 29-A** of Article 366 of the Constitution of India and the relevant provisions of the U.P. Act. The High Court, by the impugned judgment and order, allowed the writ petitions taking the view that (i) the DoT (Union of India) is not a 'dealer' within the meaning of the Act; (ii) Section 3-F of the Act applies to work contracts only and not to the rental charges collected by the DoT; (iii) there is no legislative competence in the State to levy Trade Tax in view of the fact that the Parliament authorised imposition of service tax under the Finance Act, 1994 on the use of the telephone service by the subscribers; (iv) Article 285(1) of the Constitution of India prohibits the State from imposing any tax on the property of the Union of India; and (v) in providing telephone service through the DoT, Union of India is discharging its sovereign function which cannot be subjected to trade tax.

(3.) Mr. Sunil Gupta, the learned senior counsel appearing for the appellants-State, assailed the validity of the reasoning and conclusions of the High Court on all the points, referred to above.