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Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • A. Rama Venkatesh Vikram
  • Sr. Counsel
  • Darius B. Shroff
  • Vasan Associates
  • Sr. Counsel
  • K.G. Raghavan
Judges
  • D.V Shylendra Kumar, J.
Acts
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Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • A. Rama Venkatesh Vikram
  • Sr. Counsel
  • Darius B. Shroff
  • Vasan Associates
  • Sr. Counsel
  • K.G. Raghavan
Judges
  • D.V Shylendra Kumar, J.
Acts
See more information ...
Smart Summary

Structured Summary of the Opinion (D.V. Shylendra Kumar, J.)

Factual and Procedural Background

Multiple writ petitions were filed by assessees under the Karnataka Value Added Tax Act, 2003 challenging assessment orders issued by VAT assessing authorities either at first instance or by reopening deemed assessments. The petitioners contend that the impugned assessments in effect tax transactions that are in the nature of services and that those same activities have been or could be subject to service tax under the Central Finance Act, 1994. Several writ petitions cited include W.P. Nos. 1984 of 2008, 7622 of 2008, 727 to 732 of 2009, 746 to 814 of 2009, and 2647 to 2650 of 2009.

One set of petitioners (W.P. Nos. 2647 to 2650 of 2009) is a Government of India-owned entity whose activity involved leasing part of transponders located on a satellite in space. These petitioners relied on a Supreme Court decision (Bharat Sanchar Nigam Ltd. v. Union of India) to argue that their activity is inherently a service and not a sale of goods and therefore outside the scope of the State VAT enactment.

Petitioners sought relief in writ jurisdiction, bypassing statutory remedies, asserting that the legal issues were settled by higher court precedent. The State respondents contended that the questions involve disputed facts and the VAT authorities had taxed only that portion which is a sale of goods; hence the statutory appellate process should be followed.

Legal Issues Presented

  1. Whether transactions that the petitioners contend are in the nature of services (and may be subject to service tax under the Finance Act, 1994) can be validly subjected to tax under the Karnataka Value Added Tax Act.
  2. Whether the High Court should entertain these questions in writ jurisdiction under Articles 226 and 227 of the Constitution, despite the availability of statutory appeal and adjudicatory remedies under the VAT enactment.
  3. Whether the specific activity of leasing satellite transponder capacity constitutes a sale of goods or a service for the purposes of State VAT law.
  4. Whether the VAT authorities acted beyond their competence by taxing activities already held to be services by central authorities (and whether there is a risk of double taxation).

Arguments of the Parties

Petitioners' Arguments

  • The impugned assessment orders levy State VAT on activities that are in substance services and have been, or are properly characterized as, services under the Central Finance Act, 1994.
  • Relying on the Supreme Court decision in Bharat Sanchar Nigam Ltd. v. Union of India, when an activity is identified as a service it cannot be simultaneously subjected to sales tax by a State enactment; service and sale cannot co-exist for the same activity.
  • Because the legal principle is settled (per the cited Supreme Court authority), the petitioners are justified in invoking the High Court's writ jurisdiction rather than exhausting statutory remedies first.
  • Specific petitioners (including those who have deposited a portion of the tax) requested equitable safeguards — e.g., stay of enforcement — to avoid the harsh consequences of potential double taxation while statutory appeals are pursued.

Respondents' (State) Arguments

  • The issues involve mixed questions of fact and law; the factual matrix must be examined by the assessing and appellate authorities under the VAT statute before the High Court adjudicates the matter.
  • In the case of the government-owned petitioner leasing transponder capacity, the Supreme Court decision relied upon by petitioners may not apply to the factual circumstances of this petitioner.
  • The VAT authorities contend they have taxed only that part of the activity which amounts to a sale of goods under the Constitution (articles 366, 245 and 246) and the VAT enactment, not services liable to central service tax.
  • Because statutory remedies are available and because the questions are fact-sensitive, petitioners should be relegated to the statutory appellate process; the High Court should not, as a general rule, decide such disputes in writ jurisdiction.
  • As to interim protection, the State suggested conditions such as additional deposits or security to protect public revenue pending adjudication of appeals.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Bharat Sanchar Nigam Ltd. v. Union of India [2006] 145 STC 91; [2006] 3 VST 95; [2006] 2 STR 161 (Supreme Court) The principle that certain activities (as identified in that decision) are in the nature of services and not sale of goods, such that the State sales tax/VAT should not be levied on those activities when they are service activities. The petitioners relied on this decision to argue that their activities (including satellite transponder leasing in some petitions) are services outside State VAT. The court acknowledged the reliance on this Supreme Court authority but held that application to the present cases requires detailed factual and legal examination by statutory authorities; therefore the court declined to decide the merits in writ jurisdiction and instead relegated petitioners to statutory remedies, while providing conditional interim protection for certain petitions.

Court's Reasoning and Analysis

The court's analysis proceeded on the following lines, strictly as stated in the opinion:

  1. The matters raised involve mixed questions of fact and law, particularly factual matrices arising from new and technologically advanced commercial activities (for example, satellite transponder leasing), which require careful factual determination.
  2. The law in this area is described by the court as being in a formative stage; consequently, an adequate and satisfactory resolution requires examination by the assessing authorities and appellate hierarchy created by the statute so that factual and technical aspects can be fully developed and examined.
  3. The Supreme Court has indicated that where facts are disputed, it is not advisable for the High Court to determine such questions on the threshold in writ jurisdiction before statutory authorities have had an opportunity to consider them.
  4. An examination by the High Court at the threshold, assuming certain facts before they are finally settled, risks inadequate adjudication and may impede the satisfactory development of the law.
  5. Statutory provisions provide an appellate route and ultimately an avenue to approach the High Court after the statutory process is exhausted; accordingly, the appropriate course is to relegate petitioners to those statutory remedies rather than decide the merits under Articles 226/227 in these circumstances.
  6. Recognizing the petitioners' apprehension of double taxation and potential financial hardship, the court considered equitable interim measures in respect of certain petitioners: where appropriate, conditional stays of enforcement could be granted on specified security/deposit terms so as to protect both public revenue and petitioners' interests pending statutory appeal and adjudication.

Holding and Implications

Holding: The court declined to adjudicate the merits of these disputes in writ jurisdiction and relegated the petitioners to avail of the statutory remedies under the Karnataka Value Added Tax Act. The court refused to examine these matters under Articles 226 and 227 at this stage.

Direct consequences and implications:

  • For W.P. Nos. 727 to 732 of 2009 and 746 to 814 of 2009: if the petitioner deposits 50% of the disputed demand (if not already deposited) and furnishes security to the satisfaction of the authority for the balance, enforcement of the demand may be stayed pending adjudication of the appeal. The petitioner must file the statutory appeal within four weeks from the date of the order; the petitioner may explain any delay by reference to the writ proceedings. This conditional arrangement balances protection of public revenue with safeguards for the petitioners.
  • Other petitioners are permitted to approach the appellate authority for conditional interim orders of a similar nature; the authorities are invited to examine appeals on merits and to consider condonation of delay, taking into account the pendency of these writ petitions before the High Court.
  • No substantive determination on whether the impugned activities are services or sales was made by the High Court; those determinations are to be made by the statutory authorities and appellate process. The opinion does not purport to lay down a new legal precedent on those questions but directs that the statutory adjudicatory route be followed.

This summary is limited to the statements and directives contained in the provided opinion and does not infer outcomes beyond what is expressly recorded in the text.

Show full summary ...

    Sap India Private Limited v. State Of Karnataka And Others (And Other Cases)

    D.V Shylendra Kumar, J.:— All these writ petitions are by the assessee under the provisions of the Karnataka. Value Added Tax Act, 2003 who have been assessed to certain tax liability under the provisions of this Act by the assessing authorities either at the first instance or by reopening of the deemed assessment.

    2. The petitioners are basically aggrieved by the assessment orders passed by the assessing authority and have questioned the legality of the assessment orders and consequential demands on several grounds. In the case of writ petitioners in W.P Nos. 1984 of 2008, 7622 of 2008, 727 to 732 of 2009 and 746 to 814 of 2009, it is contended that the assessing authorities have in effect subjected to tax the transaction which is more in the nature of a service transaction, that in respect of the very transaction the authorities under the Finance Act, 1994, have/assessed the petitioners to service tax under the provisions of this Act; that it is settled law, when once the particular activity is identified as a service activity, it is not an activity attracting the provisions of the State sales tax enactment, that there is no element of sale involved in respect of the very activity of service and therefore the authorities under the Karnataka Value Added Tax Act are [basically wrong in calling upon the petitioner to pay sales tax in respect of the very activity. It is submitted on the strength of the law declared by the Supreme Court that service and sales cannot co-exist and if the authorities under the Central Finance Act, 1994, had already identified the activity as in the nature of a service and had subjected that activity to levy of tax under the Finance Act, 1994, there cannot be a further levy under the respective sales tax enactment by the State legislators and the assessment order is bad in law and has to be set aside.

    3. The petitioners have also contended that the petitioners have approached this court invoking the writ jurisdiction and by-passing the statutory remedy for the reason that the law is well-settled on the questions arising in these writ petitions.

    4. In so far as W.P Nos. 2647 to 2650 of 2009 are concerned, the petitioner is actually owned by the Government of India and it is contended on the strength of the law laid down and declared by the Supreme Court in the case of Bharat Sanchar Nigam Ltd. v. Union of India reported in [2006] 145 STC 91; [2006] 3 VST 95; [2006] 2 STR 161 that the kind of activity carried on by the petitioner who virtually acts as a limb of Union of India, Department of Space is an activity never in the nature of sale of goods, but, more in the nature of service either to the consumer or to the Union of India provided by this petitioner and therefore no part of their activity, attracts the provisions of the Karnataka Value Added Tax Act and therefore the assessment order passed in respect of this petitioner is an order not sustainable in law.

    5. It is contended that for resolving such questions as is pointed out by the Supreme Court in the very decision, are questions which are required to be examined by the High Court; that such questions cannot be relegated to the assessment authorities and the statutory authorities. Therefore, this is a fit case for examination in writ jurisdiction. Such are the submissions advanced on behalf of the petitioner by Sri Darius B Shroff, learned Senior Counsel appearing for the petitioner in Writ Petition Nos. 727 to 732 of 2009 and 746 to 814 of 2009 on behalf of M/s. A. Rama Venkatesh Vikram and Alur and Sri K.G Raghavan, learned Senior Counsel appearing on behalf of the petitioner in W.P Nos. 2647 to 2650 of 2009.

    6. Learned counsel for the petitioners have also vehemently urged that these are all fit matters, which merit examination in writ jurisdiction and therefore availability of statutory remedies cannot come in the way of petitioners seeking relief in writ jurisdiction; that the rule of writ court, not interfering when statutory remedies are available is not a strict or strait-jacket rule and it is therefore submitted that the present cases must be examined by the High Court on the strength of the authority of law as declared by the Supreme Court in the case of Bharat Sanchar Nigam Ltd. v. Union of India reported in [2006] 145 STC 91; [2006] 3 VST 95; [2006] 2 STR 161.

    7. Notices had been issued to the respondents and the respondents-State and its officials are represented by Mr. Ashok Haranahalli, learned Additional Advocate-General along with Mr. Shivayogiswamy, learned HCGP. Learned Additional Advocate-General would submit-that the present cases particularly in the case of writ petitioner in W.P Nos. 2647 to 2650 of 2009, which is by a Government of India Company, the subject-matter of the assessment order was the activity of leasing a part of transponders located on a satellite in space; that it is not as though any part of any service provided by the petitioner is sought to be assessed under the impugned assessment order; as to whether the activity attracts liability for payment of tax under the provisions of the Karnataka Value Added Tax Act is a matter, which is required to be examined on facts and by, applying the relevant law; that the law declared in the case of Bharat Sanchar Nigam Ltd. v. Union of India, [2006] 145 STC 91 (SC); [2006] 3 VST 95 (SC); [2006] 2 STR 161 (SC), does not necessarily apply and cover the Case of the petitioner, etc. It is also submitted that having regard to the nature of the factually disputed aspects, even assuming that the petitioners have any merit in these cases it is necessary that the petitioners should avail of the statutory appeal remedy; that examination of all such questions in writ jurisdiction is not desirable.

    8. Insofar as the writ petitioners in other cases are concerned, submission of the learned Additional Advocate-General is that the authorities under the provisions of the Karnataka Value Added Tax Act are not seeking to levy tax on any part of any service rendered by the petitioner, which may be otherwise liable to tax under the provisions of the Finance Act, 1994. But have levied tax only on such part of the activity, which constitutes a sale of goods as is Under the definition and within the scope of articles 366, 245 and 246 of the Constitution of India and therefore the goods do not necessarily involve the question of jurisdiction and it is not as though the statutory authorities are incompetent to examine such question and observation of the Supreme Court in the case of Bharat Sanchar Nigam Ltd. v. Union of India, [2006] 145 STC 91; [2006] 3 VST 95 : [2006] 2 STR 161, may not be applicable to the present cases.

    9. In this regard, learned Additional Advocate-General would also draw my attention to the order of the Supreme Court opining that in matters involving disputed facts and law also, it is not advisable for the High Court to embark to give an opinion to one away from the other even before the matter is examined at different levels of the statutory authorities and in the light of such view taken by the Supreme Court, the present cases should not be examined in writ jurisdiction. But the petitioner may be relegated to avail of their statutory remedies available under the Act itself.

    10. While it may be true that all these writ petitions may involve even complicated questions of law for a satisfactory resolve of all such questions of law, factual matrix of the cases will have to be examined whether by this court or by the authorities. Particularly, the law on this aspect being in a formative stage and in respect of new activities, as a result of advancement and developments in science and technology and their applications in the commercial field, for resolving questions of law arising in such context and even questions arising in the context of taxation statute, it will be very (sic) to avail the appeal remedies and necessary all aspects of their development in the filed of science and technology, the commercial application, the nature of the activities and as to under what area they can be classified in the background of either the sales tax enactment of the State Legislature or if there is an Overlapping area, in the context of the provisions of the Finance Act, 1994, seeking to levy tax on service, are all matters which are to be essentially examined by the authorities in the first instance, that such matters are required to be gone through the hierarchy of the various authorities provided under the respective enactment and can reach this court in a manner provided under the respective enactment.

    11. An examination of such question even at the threshold by this court bypassing the statutory authorities, in my view will not be a satisfactory examination of the questions involved and it may result in an inadequate examination. An examination on assuming certain facts even before it is fully settled or finalised could also lead to the possibility of law being not developed in a satisfactory manner.

    12. When the statutory provisions provide for appellate authority and ultimately ah avenue is provided by the statute itself to bring the questions to this court also, when the question of law is still required to be resolved, in a proper manner by this court, it is not at all desirable to examine these questions under the writ jurisdiction of articles 226 and 227. of the Constitution of India. It is for this reason, I am not inclined to examine these matters in writ jurisdiction, but Would relegate the petitioners to avail of the statutory remedies and pursue their relief before the statutory authorities.

    13. Sri Shroff, learned Senior Counsel, Would submit that even when this court would relegate the petitioner to avail of the statutory remedy, which the petitioners would definitely avail of, nevertheless some safeguards have to be provided in respect of the liability arising and foisted on them under the provisions of the State Act and by the State authorities particularly as the petitioners are facing the unpleasant prospect of being taxed both by the Central Act, Finance Act of 1994 as the service provider and also being subjected to tax by the State sales tax authorities and when the liability can be under only one of the two enactments, a liability fastened on the same activity under both enactments will virtually amount to levying a tax, which is not permitted at least by one of the authorities and would be a great financial strain and burden on the, petitioners. It is therefore, the submission of learned counsel that as had been laid down by the Supreme Court in one earlier situation, the authorities under the Kamataka Value Added Tax Act, may issue notices and keep the matter pending or even if they have to finalise assessment they be directed not to enforce the demand that would be a satisfactory arrangement when the matters can be examined by the appellate authorities.

    14. Sri Ashok Haranahalli, learned Additional Advocate-General, would respond to the point, the State authorities have been levying tax only in respect of the liability that arises under the State Act and on an activity which can be levied tax under the Act and it is not as though/the State authorities are trying to subject to tax, an activity, which is in the nature of service.

    15. This again is a question, which is mixed up with facts and law and insofar as the law under the Karnataka Value-Added Tax Act is concerned, it is essentially a matter to be examined by the authorities to be resolved.

    16. It is submitted by learned counsel for the petitioner in W.P Nos. 727 to 732 of 2009 and 746 to 814 of 2009 that having deposited a part of the liability under the Sales. Tax Act, this petitioner may be put on like terms regarding payment of tax liability during the pendency of the appeal.

    17. Learned Additional Advocate-General would submit, that if the petitioners have already deposited 50 per cent of the disputed amount, subject to the order, they may be directed to deposit another 50 per cent of the balance and for the remaining portion security to the satisfaction of the authorities may be provided. This request is opposed by Sir Shroff, learned Senior Counsel.

    18. The condition to be imposed on the Writ petitioners cannot be uniform in all situations. Even the Supreme Court has observed that the condition should be in the interest of larger public revenue and to safeguard the interest of the petitioners also.

    19. So far as W.P Nos. 727 to 732 of 2009 and 746 to 814 of 2009 are concerned, if the petitioner deposits 50 per cent of the demand, if not already deposited, of the disputed amount and furnishes security to the satisfaction of the authority, for the balance, the enforcement of the demand may be stayed pending adjudication of the appeal, which they can how avail of by filing appeals before the appellate authority within four weeks from today. It is open to the petitioner to explain the delay in preferring the appeals by pointing out the pendency of these matters before this court. It is open to the other petitioners to take benefit of this order of to move the appellate authority for any conditional interim order.

    20. If the petitioners file the appeal within four weeks, the authorities may examine the appeal on merits and accept any explanation for condoning the delay, taking note of the pendency of these writ petitions till now before this court.

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    Comments

    Sap India Private Limited v. State Of Karnataka And Others (And Other Cases)
    (Mar 6, 2009)