BHARAT SANCHAR NIGAM LTD. Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) These appeals are by the assessee challenging the interim order passed by the learned single judge directing them to deposit a sum of Rs. 550 crores within four weeks as a condition for staying the impugned reassessment order passed by the third respondent. The assessee is a public limited company, which is engaged in the business of telecommunications (i.e., data transfers) at Bangalore, under the name and style of M/s. Bharat Sanchar Nigam Limited. The main business activity of the assessee is data transfers (telecommunications). In the impugned order it is stated that telecommunication is all about data transfers only, in the telecom network. Various types of data routinely transferred in telecommunications can be broadly classified into three categories--audio data, video data and textual data. Whatever the type of data be, data of all kinds are basically lifeless and, therefore, lack spontaneous movement of its own. To cause transfer/movement of such data from one place to another, some specific carrier (energy) is indispensably required. Without such carrier, the data cannot even be imagined to move an inch forward, let alone at the speed of light. According to the assessing officer, such data carrier energy is the artificially created light energy (ACLE) which is acting as the sole driving force behind every type of data transfer in telecommunications. ACLE is possessable in the same sense as the electrical energy, as the customers can use it any time they want during the agreement period to transfer any quantum of his data to any destination, without any hindrance/restrictions from the assessee. This is despite the fact that the custody of the network as a whole, including the energy, rests with the assessee. The light carrier/ACLE works very much like "electrical energy" which has been held as "goods" by the honourable Supreme Court in the case of Commissioner of Sales Tax v. Madhya Pradesh Electricity Board, 1970 25 STC 188 and National Thermal Power Corporation Ltd. v. State of A. P., 1990 78 STC 132 . In simple terms, electrical energy is a "flow of electrons" while ACLE is a "flow of protons". They operate in a very similar way, but with different and distinct properties, utilities and fields of application. Therefore, if flow of electrons is held as goods, why not flow of protons.

(2.) At para 25 of the order it is stated that, even presuming for a moment that dominant intention is not sale of goods, the transfer of property in goods that is taking place in these telecom contracts for data transfers would take the shape of compulsory/involuntary transfer of property in goods for a consideration, in which case too, these transactions would constitute a deemed sale, in terms of article 366(29A)(a) of the Constitution. The plain actual fact is that after reaching the first mile tower in mobile telephone connections, the data gets carried to the destination, only by OFC's invariably. The scientific reason for this is that radio frequencies have limited transmission capacity, and, therefore, can carry data on electromagnetic energy only over very short distances. Thus, without the very substantial back end support of the OFC's, mobile telephone network cannot render instant global data transfers. The data carrier in telecommunications, always and without exception, is energy, associated with the frequencies, and not the frequencies themselves. The difference between frequencies and the energy is comparable to the difference between goods vehicle carrying parcel loads on the roads--parcel loads being comparable to data, goods vehicle to the data carrier energy, frequencies being comparable to roads. According to the assessing officer, these facts were not taken note of by the apex court while rendering the judgment in Bharat Sanchar Nigam Ltd. v. Union of India, 2006 3 VST 95 . Therefore, he held, notwithstanding the aforesaid judgment of the apex court, the law declared by the Supreme Court is not applicable to the facts of this case and, therefore, the assessee is liable to pay sales tax and for some years value added tax. It is that order which is challenged by the assessee before the learned single judge.

(3.) The learned single judge has passed an interim order of stay subject to the condition assessee depositing Rs. 550 crores and he has listed the matter for final hearing on September 14, 2010. Assailing the said order it is contended that, when the impugned order passed by the assessing officer is contrary to the law declared by the apex court and when the stand of the assessee was accepted in the original proceedings, the learned single judge was not justified in passing an interim order and directing the assessee to pay Rs. 550 crores. The order does not disclose any reasons for such conditional order and, therefore, it is submitted the condition imposing depositing of Rs. 550 crores is liable to be set aside.