Nagarathna, J.

These writ appeals are filed against the order of the Learned Single Judge dated 6.3.2009 passed in W.P No. 2647 to 2650 of 2009 by which the writ petitions filed by the appellants are dismissed. By an interim order dated 30.3.2009 stay as sought in Misc. W. 3042/2009 in these appeals was granted till the next date of hearing and extended subsequently and on 24.4.2009 an interim order of stay was granted subject to deposit of 25% of the demand made by the respondent-authority. The stay order was challenged before the Apex Court and the same was stayed and further direction was given that the main matter in the appeals be disposed of by this Court. Hence, we have heard these writ appeals for final disposal.

2. The demand made by the respondent-authority under the Karnataka Value Added Tax Act (‘KVAT Act’ for short) pursuant to assessment orders passed against the appellants was challenged before the Learned Single Judge who dismissed the writ petition on the ground that it was not proper to examine the nature of the controversy involved in these cases under Articles 226 and 227 of the Constitution of India and that the petitioners could file appeals before the authorities and accordingly, the writ petitions were dismissed. Being aggrieved by the said order, these writ appeals have been preferred.

3. The factual matrix, which gives rise to, these appeals are that, the appellant which is a wholly-owned Government of India Company incorporated under the provisions of Companies Act, 1956 and established as the Commercial Arm/Corporate Front of the Government of India, Department of Space, has been nominated as the Contract Manager for administering specific contracts between Department of Space and private parties for ‘transponders’ on INSAT Satellites owned by the Department of Space and engaged in providing services relating to use of transponders of INSAT Satellites, on behalf of Department of Space to private users, such as direct to Home Operators as per the Satellite Communications Policy Guidelines.

4. The INSAT Satellites which belong to the Department of Space are placed in geo-stationary orbit around the earth contain slots called “transponders” which may be 20 to 30 on a single satellite having different frequency bands. According to the appellant, the Department of Space entered into a memorandum of understanding with it, with regard to contracts entered by the Department of Space with various customers for providing INSAT “Space Segment Capacity” in the transponders attached to the satellite belonging to it. Under the said memorandum of understanding, the appellant provides marketing and contract services for hiring of transponders of INSAT satellites by providing users as per the existing satellite communication policy guidelines and the appellant is required to carry out certain activities on behalf of the Department of Space including billing of customers' collection of service tax and remittance, realization of payments against invoice raised on customers and providing of service support for marketing of INSAT/G-SAT Space Segment Capacity both in local and global markets.

5. According to the appellant, pursuant to agreements entered into by Department of Space with the customers pertaining to allotment of space segment capacity in the transponders termed as “lease agreement”, the customers have to obtain necessary licences from Governmental Department such statutory bodies and the customer is duly authorized to make use of transponder bandwidth allotted to it for a specific period to provide up-linking facility to the customer. According to the appellant, by virtue of being Contract Manager for Department of Space and for providing contract services for leasing of transponders of INSAT Satellites, is registered as a service provider and also registered with the Central Excise Department under the Head of Scientific and technical consultancy with effect from 5.10.2001 The appellant is also engaged in the sale of certain goods to the Government Department and is registered under the provisions of the ‘KVAT Act’ and has been remitting taxes from time to time to the Commercial Tax Department.

6. According to the appellant, the second respondent by an order dated 4.9.2008 permitted the first respondent to initiate proceedings for reassessment under Section 39 of the KVAT Act and pass orders of assessment under the provisions of Karnataka Tax on Entry of Goods, 1979 and the Central Sales Tax Act. 1956. Pursuant to he said order, the first respondent issued a proposition notice dated 16.10.2008 for the period commencing from April, 2005 up-to July, 2008 inter alia, calling upon the appellant to show-cause as to why the Turnover related to rental receipts towards lease of space segment capacity in the transponders should not be taxed under the provisions of the Act as constituting the transfer of the right to use goods. As per Annexure-E to the writ petition, the appellant filed detailed reply by way of objections dated 19.11.2008 and additional objections dated 13.12.2008 objecting to the proposals made by the first respondent by contending that there was no transfer of property or any goods which would attract the provisions of the Act. The same is produced as Annexures-F and G to the writ petitions. The first respondent however, rejected the stand of the appellant and by an order dated 24.12.2008 levied tax on the turnovers pertaining to the rentas received towards lease of the facility to use the transponders in the space segment capacity and also passed an order levying penalty under Section 72 of the Act and interest for the period in question. The said orders are produced as Annexures-H and J to the writ petitions. The appellant being aggrieved by the same challenged the correctness of the said order by way of filing writ petitions.

7. The respondents filed the statement of objections by stating that the writ petitions were not maintainable as the petitioner was engaged in a commercial activity in the sale of space products like transponders, edu-sat equipment and carto-sat project and also engaged in providing foreign host facility for launching of space satellites on board PSLV launching vehicles and also track foreign satellites. According to the respondents, since the company is engaged in leasing of transponders band-width in INSAT satellites to customers who are allowed to up-link the INSAT transponders, it is a dealer and is registered under the provisions of the Act and in view of the definition of sale under the Act the appellant is liable to pay VAT tax on right to use transponders. That the dealer received charges in respect of leasing the facility to use the transponders, which are not declared in the returns filed. That the first respondent visited the business premises of the petitioner/appellant on 12.3.2008 and 25.8.2008 and had gone through the documents relating to satellite segment charges collected as well as collection of access fee and royalty fee and also charges in respect of leasing the facility to use the transponders. That the customers had to approach the petitioners for obtaining the facilities provided by them and for all practical practices; the petitioner has only the privity of contract with the customers and that the Senior Assistant of the petitioner-company had clarified certain terminologies used in the balance sheet viz., foreign host facility, foreign segment charges, foreign access fee, royalty fee, inland access fee and royalty, inland space segment charges and upon verification, it was found that in respect of leasing out the facility to use the transponders for a specific period and specified bandwidth in terms of the agreement entered in the State of Karnataka by using the “INSAT master control facility” at Hassan, Karnataka State was a sale. Hence, the activity of a dealer in leasing out the facility to the customers of the appellant to use the transponder is ‘sale’ within the definition of Section 2(29) of the KVAT Act, 2003 and the receipts are qualified as ‘turnover’ for the purpose of Section under Section 2(35) by virtue of Section 3 of the Act, the turnover tax was at 12.5%, but the petitioner had not declared the said taxable turnovers to the department, in any of the returns filed for the months of April, 2005 to July, 2008. Therefore, the proposition notice was issued to levy tax on leasing of facility to use the transponders and also access fee and royalty fee collected and the objections filed by the dealer was examined in the light of the lease agreement which would constitute a sale under the provisions of the KVAT Act and therefore, the proposition notices were justified in law. The respondents therefore, have sought dismissal of the writ petitions.

8. Learned Single Judge dismissed the said petitions by observing that the petitioners should avail of alternative statutory remedy by pursuing their relief before the statutory authorities. Being aggrieved by the said order of the Learned Single Judge, these writ appeals have been preferred. Pursuant to the order of the Apex Court these writ appeals have been heard finally.

9. We have heard Sri. V. Sridharan, Learned Counsel for the appellant, and Learned Advocate General, Sri. Ashok Haranahalli, for the respondents.

10. It is submitted on behalf of the appellant that the nature of transaction between the appellant and the customers are such that there is no transfer of right to use the goods in the instant case as the satellites are owned by the Government of India and therefore, the transaction does not come within the scope of Article 366 (29-A)(d) of the Constitution of India, as also Section 2(29) of the KVAT Act and hence, the proposition notice issued by the respondents are ultra vires and not valid in the eye of law. He has also relied upon the decision of this Court reported in (2001) 124 STC 426 (Kar) in support of his submission and has drawn our attention to two affidavits filed by experts in the field with regard to the nature of the transaction as well as a ruling of Advance Ruling Authority in this regard. He has also contended that even if there a transfer of the right to use the goods within the meaning of the KVAT Act, there is no delivery of possession of the goods, the same being a sine qua non for a valid sale, the taxable event has not occurred in the instant case. In support of this contention he has relied upon (2006) 145 STC 91 (SC) and (2001) 124 STC 426 (Kar). Thirdly, he contended that Section 6(1) of the KVAT Act read with Section 6(4) deals with place of sale of goods and in the instant case, the transaction does not come within the scope of Section 6(4) of the said Act and therefore, tax is not leviable under the Act. In support of these contentions, he has drawn our attention to certain decisions of the Apex Court and this Court, which shall be adverted to in the judgment while referring to the legal submissions of the Learned Counsel for the appellant and in the reasoning portion, in answer to the contentious points.

11. Per contra, Learned Advocate General submitted that the appellant is a Commercial Arm of the Department of Space. The facility to use the segment of the transponder can be leased as well as sub-leased. Therefore, there is a sale of the facility to be used by the customers within the meaning of Section 2(29) of the KVAT Act. He has drawn our attention to the reply given by the appellants and has stated that in view of the advancement in science and technology a purposeful interpretation must be given to the Sections of the Act. He has also stated that for the ruling of the Authority of Advance Ruling is not applicable to the present case because the said ruling with regard to navigation satellite, whereas the present case deals with the communication satellite. He has also stated that since the agreement has been entered into within the State of Karnataka, Section 6(4) of the Act has no application. He has also adverted to certain decisions in support of his submission that the respondent authorities were justified in issuing the demand notices against the appellant. He also drew our attention to the order of the Apex Court in the case of Bharathi Airtel Limited dated 02.03.2009 to contend that, the Learned Single Judge was right in not interfering with the matter in the instant case.

12. Having heard the Learned Counsel on both sides and on perusing the material on record, the following points would arise for our consideration:

I) Whether the 1st and 2nd respondents were justified in concluding that, the allotment of “space segment capacity” in the transponders and bandwidth of a communication satellite having different frequency would amount to “sale or purchase of goods” within the meaning of Article 366 (29-A)(d) of the Constitution of India as well as Section 2(29)(d) of the KVAT Act?

ii) Whether the transaction in question does not come within the scope of Section 6 of the Karnataka Value Added Tax Act, 2003?

iii) What order?

13. Before answering Point No. 1, on the basis on which the issues have to be considered, it is necessary to advert to the legal background at the outset. By the 46th amendment made to the Constitution of India, Article 366 (29-A) was amended to enlarge the scope of the expression “sale or purchase of goods” and amplified by means of fiction in law. The constitutional validity of the said amendment by which the legislatures of the states were empowered to levy sales tax on certain transactions described in sub-Clause(a) to (f) of Article 366 (29-A) of the Constitution was called in question in Builders Association of India v. Union of india1. In the said case an account of the history of the relevant constitutional and statutory provisions with reference to judicial decisions having a bearing on the said provisions were set out to appreciate the contention of the parties, particularly, in the context of Article 286 of the Constitution and Articles 301 and 304 and entry 54 of the list-II of the Constitution and entry 92A of list-1 of the VII schedule and Article 269 and the 61 report of the Law Commission with regard to levy of sales tax on certain transactions which though strictly not sale had to be considered as sale and accordingly, it led to the passing of the 46 amendment incorporating a new definition of sale. The Apex Court upheld the validity of the amendment of the said definition. However, in the said decision, the Apex Court stated that Article 366 (29-A) is a part of the definition Clause which states that unless the context otherwise requires, the expressions defined in that Article shall have the meaning assigned respectively to them in that Article. The expression “goods” is defined in Article 366(12) has included all materials, commodities and Articles, it is an inclusive definition and therefore not exhaustive. It refers to a tax on the transfer of trade in goods and while referring to the transfer, delivery or supply of any goods that takes place as per sub-Clause (a) to (f) of Clause (29-A) of Article 366 of the Constitution of India. The latter part of the said Clause contains “such transfer, delivery or supply of any goods” shall be deemed to be sale of those goods by the person making the transfer, delivery or supply and purchase of those goods by the person to whom such transfer, delivery or supply is made. Hence, the transfer of any goods in sub-Clause (a) to (f) of Clause 29-A of Article-366 of the Constitution is by way of a deeming provision. The object of the new definition of Clause (29-A) of Articles 366 is to enlarge the scope of tax on sale or purchase of goods wherever it occurs in Constitution so that it may include within its scope, the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-Clause (a) to (f) thereof wherever such transfer, deliver or supply becomes subject to levy of sales tax. The Apex Court also held that the levy of sales tax after the 46tn amendment to the Constitution of India has to still comply with the restrictions imposed under Articles 286 and 269 of the Constitution.

14. In the case of 20th Century Finance Corporation Ltd., and Another v. State of Maharashtra 2 the Apex Court was considering the business of leasing equipment in the context of levy of sales tax and examined the question of situs of sale with regard to such transactions of deemed sale under sub-Clause (a) to (f) of Clause (29-A) of Article 366 of the Constitution and after referring to certain decisions by a majority of 3:2 held that where situs of sale was not fixed or covered by any legal fiction created by the appropriate legislature, location of sale would be the place where the property in goods passes. That it was the passing of the property within the State that was intended to be fastened on for the purpose of determining whether the sale was ‘“inside” or “'outside” the State. The question as to where the taxable event occurs on the transfer of right to use any goods was also considered in the said decision and held in the context the words ‘“transfer, delivery or supply” in the latter portion of Clause (29-A) with regard to various transactions as follows:

“26. Thus, the transfer of goods will be a deemed sale in the cases of sub-Clauses (a) and (b), the delivery of goods will be a deemed sale in case of sub-Clause(c), the supply of goods and services respectively will be deemed sales in the cases of sub-Clauses (e) and (f) and the transfer of the right to use any goods will be a deemed sale in the case of sub-Clause(d). Clause (29-A). cannot, in our view, be read as implying that the tax under sub-Clause(d) is to be imposed not on the transfer of the right to use goods but on the delivery of the goods for use. Nor, in our view, can a transfer of the right to use goods in sub-Clause (d) of the Clause (29A) be equated with the third sort of bailment referred to in ‘“Bailment” by Palmer, 1979 ediction, page 88. The third sort referred to there is when goods are left with the bailee to be used by him for hire, which implies the transfer of the goods to the bailee. In the case of sub-Cause(d), the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use the goods. In our view, therefore, on a plain construction of sub-Clause(d) of Clause (29A), the taxable event is the transfer of the right to use the goods regardless of when or whether the goods are delivered for us. What is required is that the goods should be in existence so that they may be used. And further contract in respect thereof is also required to be executed. Given that, the locus of the deemed sale is the place where the right to use the goods is transferred. Where the goods are when the right to use them is transferred is of no relevance to the locus of the deemed sale. Also of no relevance to the deemed sale is where the goods are delivered for use pursuant to the transfer of the right to use them, though it may be that in the case of an oral or implied transfer of the right to use goods, it is effected by the delivery of the goods.

27. Article 366(29-A)(d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer, which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer, which legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods.

28. No authority of this Court has been shown on behalf of respondents that there would be no completed transfer of right to use goods unless the goods are delivered. Thus, the delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods. We are, therefore, of the view that where the goods are in existence, the taxable event on the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is executed. Thus, where goods to be transferred are available and a written contract is executed between the parties, it is at that point situs of taxable event on the transfer of right to use goods would occur and situs of sale of such a transaction would be the place where the contract is executed.

The conclusions in the said case are as follows:

‘“35. As a result of the aforesaid discussion our conclusions are these:

(a) The State in exercise of power under Entry 54 of List II read with Article 366(29A)(d) are not competent to levy sales tax on the transfer of right to use goods, which is a deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the course of import or export.

(b) The appropriate legislature by creating legal fiction can fix situs of sale. In the absence of any such legal fiction the situs of sale in case of the transaction of transfer of right to use any goods would be the place where the property in goods passes, i.e, where the written agreement transferring the right to use is executed.

(c) Where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use.

(d) In case where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transaction may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods.

(e) The transaction of transfer of right to use goods cannot be tenned as contract of bailment as it is deemed sale within the meaning of legal fiction engrafted in Clause (29A)(d) of Article 366 of the Constitution where the location or delivery of goods to put to use is immaterial.”

15. As far as the Karnataka Sales Tax Act 1957, which came up for consideration is concerned, while referring to definition of ‘sale’ under Section 2(t) of the said Act which is in para materia with Section 2(29) of the KVAT Act and in the context for explanation 3(d) to Section 2(t), the Apex Court in the said Judgment, held that the said explanation was in excess of the legislative power under Entry 54 of List II of the seventh schedule and accordingly directed that explanation 3(d) to Section 2(t) of the Karnataka Sales Tax Act, 1957 shall be read down to this effect that would not be applicable to the transactions of transfer of right to use any goods if such deemed sale is (i) an outside sale, (ii) sale in course of the import of the goods into or export of the goods out of the territory of India and (iii) an Inter-State sale.

16. In the case of Bharat Sanchar Nigam Ltd., & Another v. Union of India and others 2006 145 STC 91, the question that came up for decision before the Apex Court, was with regard to the nature of the transaction by which mobile phones connections were obtained, as to whether, it is a sale or a service or both. In the said decision, after reiterating the legal history of Article 366(29-A) of the Constitution, the Apex Court held as follows:

“41. Sub-Clause (a) covers a situation where the consensual element is lacking. This normally takes place in an involuntary sale. Sub-Clause (b) covers cases relating to works contracts. This was the particular fact situation, which the Court was faced with in Gannon Dunkerley, and which the Court had held was not a sale. The effect in law of transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley was directly overcome. Sub-Clause (c) deals with hire-purchase where the title to the goods is not transferred. Yet by fiction of law, it is treated as sale. Similarly the title to the goods under sub-Clause (d) remains with the transferor who only transfers the right to use the goods to the purchaser. In other words, contrary to A.V Meiyappan decision a lease of a negative print of a picture would be a sale. Sub-Clause(e) covers cases which in law may not have amounted to sale because the member of an incorporated association would have in a sense begun as both the supplier and the recipient of the supply of goods. Now such transactions are deemed sales. Sub-Clause (f) pertains to contracts, which had been held not to amount to sale in State of Punjab v. Associated Hotels of India Ltd. That decision has by this Clause been effectively legislatively invalidated.”’

17. The Apex Court thus held that all the sub-Clauses of Article 366(29-A) serve to bring transactions where one or more of the essential ingredients of a sale as defined in the Sale of Goods Act, 1930 are absent within the ambit of purchase and sales for the purposes of levy of sales tax and the amendment especially allows specific composite contracts viz., works contracts, hire-purchase contracts, catering contracts, by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax.

18. The Apex Court ultimately held that in the context of providing a telephone connection that electromagnetic waves or radio frequencies are not goods for the purpose of Article 366(29-A) of the Constitution and that the goods in telecommunication are limited to the handsets supplied by the service provider and as far as the SIM cards are concerned, the issue was left for determination by the assessing authorities.

19. In the decision of Bharath Sanchar Nigam Ltd. (BSNL), reference has been made to the case of H. Anraj v. Government Of Tamil Nadu. 28 1986 1 SCC 414 in which the question was whether the sale of lottery ticket was a sale of goods for the purpose of Entry 54 of List II and Vikas Sales Corpn., v. CCT5 as to whether REP licences/EXIM Scripps were goods on the sale of which sales tax could be levied. The Apex Court in the first of the above cases held that the sale of lottery tickets confer on the purchaser two rights viz. (i) the right to participate in the lottery draw and (ii) right to claim a prize contingent upon his being successful in the draw. It was held that the right to participate in a draw was “goods” for the purpose of levying sales tax. Similarly in Vikas Sales Corporation, REP licences were held to be “goods” for the purpose of sales tax. Both the above decisions were doubted Sunrise Associates v. Govt. of NCT of Delhi 2000 10 SCC 420. Since there was no concrete view taken at the time of rendering the decision in BSNL's case, the Apex Court assumed that an incorporeal right is also “goods” by placing reliance on Associated Cement Companies Ltd., v. Commr. of Customs7 and Tata Consultancy Services v. State Of A.P 2005 1 SCC 308 in which it was held as follows:

“A ‘goods’ may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold and (c) capable of being transmitted, transferred, delivered, stored and possessed. If a software whether customised or non-customised satisfies these attributes, the same would be goods.’”

20. Thus, computer software was held to be goods and the Apex Court also approved the approach to the question as to what are goods for the purpose of sales tax by accepting the above definition of goods.

21. Proceeding on the basis that, an incorporeal right is also ‘goods’ for the purpose of levy of sales tax, whether Electro Magnetic Waves by which data generated by the subscriber was transferred to the desired destination, can fulfill the criteria laid down in Tata Consultancy as goods was considered. After referring to scientific explanations of “electromagnetic waves”’ in the context of definition of the word “goods” under Article 366(12) and Section 2(7) of the Sale of Goods Act, 1930 and the definitions of goods in various sales tax legislations of the states, held, that electromagnetic waves are neither abstracted nor are they consumed, in the sense they are not extinguished by their user. They are not delivered, stored or possessed. Nor are they marketable. They are merely, the medium of communication. What is transmitted is not an electromagnetic wave, but the signal through such means and the signals are generated by the subscribers themselves. On the said reasoning it was held that a subscriber to a telephone services could not reasonably be taken to have intended or purchase or obtain any right to use electromagnetic waves or radio frequencies when a telephone connection is given. However, in the said decision it was categorically stated that it would not be possible to anticipate what may be achieved by scientific and technological advancement in future. Therefore, it was held that electromagnetic wave or radio frequency do not fulfil the parameters applied by the Supreme Court in Tata Consultancy for determining whether they are goods, right to use of which, would be a sale for the purpose of Article 366(29-A)(d).

22. In the said decision, by way of a concurring the judgment his Lordship Dr. A.R Lakshmanan J., stated that to constitute a transaction that the transfer of right to use the goods the transaction must have the following attributes:

“(a) there must be goods available for delivery;

(b) there must be a consensus ad idem as to the identity of the goods;

(c) the transferee should have a legal right to use the goods-consequently all legal consequences of such use including any permissions or licences required therefor should be available to the transferee;

(d) for the period during which the transferee has such legal right, it has not be the exclusion to the transferor-this is the necessary concomitant of the plain language of the statute viz., a “transfer of the right to use” and not merely a licence to use the goods;

(e) having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same right to others.”

23. It is held that, between a telecom service provider and a consumer in rendition of service. In 20 Century Finance Corporation Ltd., v. State of Maharashtra referred to supra, it was held that handing over of possession is not a sine qua non was to complete the transfer of right to use any goods. Therefore, delivery of possession of goods is not a necessary concomitant for completing the transaction of sale for the purpose of Article 366(29-A)(d) of the Constitution. The same view was taken by the Apex Court in the case of State of U.P v. Union of India 2003 SCC 239. However in the BSNL case the Apex Court clarified that 20 Century Finance Corporation Ltd., was a decision with regard to where the taxable event for the purpose of sales tax took place in the context of sub-Clause(d) of Article 366 (29-A) and it was held that the transfer of right to use took place where the agreements were executed and in that context it was observed that delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods. It was further clarified that in determining the situs, transfer of right to use the goods, the Court did not say that the delivery of goods was inessential for the purpose of complete transfer of right to use. But it was emphasised that actual delivery of the goods is not necessary for effecting the transfer of right to use the goods, but the goods must be available at the time of transfer must be deliverable and delivered at some state. That at the time of execution of any agreement to transfer of right to use that the goods are available and deliverable. If the goods are such that, are not deliverable at all, the question of right to use the ‘goods’ would not arise. But if there are no deliverable goods in existence, there is no transfer of user at all. Therefore whether the goods are tangible or intangible, they must be deliverable. While holding so, it was held in State of U.P v. Union of India (supra) was not correctly decided.

24. In the very same decision, with regard to a SIM card, it was stated that a SIM card merely represented a means of access and identified the subscribers and it was held that what a SIM card represents is ultimately a question of fact.

25. Thus, what emerges from the aforesaid decisions is the fact that the 46 amendment to the Constitution of India has enlarged the scope of the definition of sale and while considering the same under Artilce-366 (29-A) of the Constitution in 20 Century Financial Corporation Limited, it was held that in case of sub-Clause (d) of Clause-29-A of Article-366, “goods” are not required to be left with the transferee but all that is required is that there is a transfer of right to use the goods and that the location of deemed sale be under Clause (d) the place where the right to use the goods is transferred, but the place where the goods are situated is if no relevance to the location of deemed sale. Therefore, transfer is sine qua non for the right to use any goods and when the contract is executed, the right is vested in the lessee under-Clause(d). Hence, the taxable event on such a deemed sale would be the execution of the contract for transfer of right to use the goods.

26. In the case of BSNL, it was stated that title to the goods under sub-Clause (d) of Clause 29-A of Article-366 remains with the transferor who only transfers the right to use the goods to purchaser, while noticing the fact that under amended Article-366 (29-A). one or more of the essential ingredients of sale, as defined in the Sale of Goods Act are absent within the ambit of purchase and sales for the purposes of levy of sales tax after the 46 amendment as the intention of the Parliament is to enlarge the scope of the definition of sale” by a fiction.

27. As far as the definition of “goods” is concerned, in the case of BSNL, the Apex Court approved, the definition of ‘goods’ given in Tata Consultancy by holding that goods may be either tangible or intangible one. In 20 Century Finance Corporation, it was also clarified that, whether the goods are tangible or intangible, they must be deliverable for the purpose of sales tax, even in the context of sub-Clause (d) of Article-366 Clause (29-A) of the Constitution of India. The transfer of right to use would take place, where the agreements are executed and in that context, in 20 Century Finance Corporation's it was observed that, delivery of goods cannot constitute the basis for levy of tax but the transfer of right to use the goods is the basis for tax. But the Court emphasised that actual delivery of the goods is not necessary for effecting the transfer of right to use the goods, but the goods must be available at the time of transfer that is at the time of execution of agreement of transfer of right to use the goods, the same must be available and deliverable and when they are not deliverable, question of right to use the goods would not arise. Therefore, if there is no deliverable goods in existence, there is no transfer of goods to the user at all. Thus, whether the goods are tangible or intangible, they must be deliverable. On the aforesaid premise, the Apex Court held in the case of State Uttar Pradesh v. Union of India, referred to supra, was not correctly decided.

28. Keeping the above precedents in mind, it is necessary to consider the affidavits filed on behalf of the appellant in the instant case.

29. By an affidavit dated 11-06-2009, the Director of business development of the appellant company has stated that, the Department of Space (“DOS” for short) is the owner of various satellites which are of two types, namely, ‘communication satellites’ and ‘Remote Sensing Satellites’; that a communication satellite (SATCOM) is an artificial satellite stationed in space for the purpose of telecommunication; that modern communication satellites are launched in a variety of orbits called Geostationary orbits, Molniya orbits, elliptical orbits etc., and that geo synchronous orbit over the equator represents the orbital path that is located at a distance 36000 Kms away from the earth; that a geostationary satellite revolves around the earth at a speed of 3.75 Kms per second in its orbit to be in synchronization with the earth's rotation so that the satellite would appear to be in a fixed position over a certain longitude to an earth based observer; that the communication satellites are made up of many systems consisting of various complex equipment various forces, such as the Sun's gravity, earth's gravity and that the temperature and other factors are managed and controlled from the earth in order to ensure the smooth functioning or operation of the satellite for its life span of roughly 16 years. The same is done by the ground stations by sending coded signals which are essentially instructions to the satellite to perform certain actions; the satellite and the specilised ground station used for its monitoring are owned, controlled and operated by the Department of Space only and that, each of the satellites will be having a capacity to handle a specified range of frequency and that the department of Space and Antrix (appellant herein) enter into contracts with customers who are interested in using this on board capacity for sending their signals, getting them amplified and receiving the signals back for use in various applications. The available range of frequency in a satellite is allotted to different customers without causing technical difficulties to each other while sending and receiving the signal; that after entering into agreements and on obtaining requisite permission from various authorities, the customer sends the signals to the satellite at particular frequency allotted to him and the same is called ‘up-linking of signals’. The signals so beamed from customer's ground station are amplified and sent back to the designated area called as ‘foot print’ at the allotted receiver frequency and the same is called as ‘down linking’; that the set on board equipment that receives, amplifies and gives out the amplified signals are called ‘transponders’. The configuration, control and the possession of the satellite always remain with ‘DOS’ and it cannot be handled by the customers who do not have the high level of technical expertise; that the term leasing’ of transponders in the agreement with the customers is only to represent the allotment of a specific, fixed or dedicated bandwidth or range of frequencies for that particular customer at all times within the contractual period so as ensure that there is an uninterrupted receipt of signals amplification and sending of the amplified signals to the customer. The control of transponder is always with the Department of Space and it should not be given to the customers; that the available bandwidth cannot be accommodated to all the customers and that the appellant will be entitled to arrange with foreign satellite owners for obtaining the requisite frequency which could be given to the customers in India; that, at times, the appellant also allots the excess bandwidth to foreign customers.

30. The remote sensing satellites are used for acquisition of information of an object or area and the data so collected is used for various applications such as water resource monitoring, coastal studies, crop related studies and mineral resource monitoring; that the appellants allows various Government Departments, defence department and foreign companies to access the date sent by the satellite and download such data or imagery and such customers including the foreign customers are required to pay access fees and royalty fee when it is given for use to others. Even in case of remote sensing satellite, the appellant and the customers enter into an agreement and the customers have only access to the required data/imagery in the satellite and no control and possession of the satellite is given to the customers.

31. By another affidavit dated 15-06-2009, functioning of the communication satellites has been explained in the following terms;

i) Pick up signals sent in a range of frequencies from the ground

ii) Amplify the received faint level signals electronically.

iii) Retransmit them back to earth on a different set of frequencies and in the direction desired.

iv) The signals thus retransmitted illuminates wide area on the surface of earth, a feature that can be exploited for broadcast or wide area communication purposes.

v) The signal coverage area is called foot print of the satellite and depending on the design of satellite, the foot printing may encompass different national boundaries.

vi) The operational range of frequencies and foot printing are agreed upon and internationally well co-ordinated among member countries of United Nations through Intentional Telecommunication Union (ITU) in Geneva.

32. It is further stated that launching of satellites into geosynchronous orbits approximately 36000 KMs above the earth is a very complicated and complex process which is monitored on second to second basis from the Master Control Facility, at Hassan, Karnataka; that receiving and re-broadcasting of signals is facilitated by a set of equipment on board a satellite that receives, amplifies and gives out the amplified signals are called “Transponders’ in the satellite and each transponder is allotted a specific frequency range of operation and satellite is equipped with around 20 to 30 or more transponders along with suitably shaped receiving and transmitting antennas; that each of the transponders can be individually made active to respond to ground sent range of signal frequencies within the overall allocation of frequency and different type of communication methods called modulation schemes to implement the communication or information content delivery intended by the ground user and the total number of transponders represents the communication capacity of a satellite.

33. That at present, more than 300 geostationary satellite have been placed in orbit and operated for different communication purposes by various countries across the world. The affidavit states details with regard to major systems of communication of satellite such as orbit injection and position maintenance system, electrical power system, attitude and orbit control system, communication subsystem; that the above subsystems are operated and controlled by the department of space from master Control Facility on continuous basis throughout the life time of the satellite, right from its launch until the end of its life of the satellite.

34. That in so far as the “Remote Sensing Satellite” is concerned the customers are required to enter into an agreement in respect of remote sensing satellite as per the requirement of all the cameras in the satellite which are used only for collection of data/imageries by the satellite and that the access fee is calculated based on the number of cameras used and the time for which it is used for the particular customers. Apart from this, the appellant also collects royalty from the foreign customers who give the data so downloaded by them to the others for use and such customers will have exclusive right to use the data and give it to others for use within the customer's National boundaries and the royalty so collected is based on the declaration made by such customers for the use of copyright of the appellant; that in the case of remote sensing satellite, the appellant has entire control and possession and the customers only download the required data and imagery in the satellite and no control and possession of the satellite is given to the customers.

35. Yet in another affidavit dated 15-06-2009 filed by the Head Accounts of the appellant company, reference is made to the proposition notice dated 16-10-2008 issued under Section 39 of the Act calling upon the appellant to show cause as to why the turn over relating to receipts of space segment charges, access fee and royalty charges collected by the appellant company should not be taxed under the provisions of the KVAT Act as constituting a transfer of the right to use goods. In response to the said notice, a reply dated 19-11 -2008 was filed and additional objections statement dated 13-12-2008 also filed contending that, the activity of the appellant does not involve any sale or any transfer of right to use and, therefore, the same cannot be subjected to tax, as stated in the notice.

36. At this stage, it is just and necessary to refer to the proposition notice dated 16-10-2008 produced at Annexure-F to the writ petition wherein it has been stated that the appellant used the transponders as a property and leased out the facility to use the said transponders in the Space Segment capacity for which purpose the appellant received consideration from the customers and hence, the facility to use the transponders is a property and is commercial in nature and it is goods and therefore, it should be termed as ‘turnover’ for the purpose of Section 2(36) of the KVAT Act and that the transaction of lease of ‘facility to use the transponders, is a ‘deemed sale’ for the purpose of Section 2(29) of the KVAT Act.

37. In response to the said notice, a reply dated 09.11.2008 was given wherein it is stated that the transponder is nothing but space in satellite and it is let out in mega hertz, say 32 mega hertz to customers in telecommunications or television satellites. Referring to the decisions in the case of Rashtriyaispat Nigam Ltd., v. Commercial Tax Officer, Company Circle, Visakhapattanam10; Lakshmi Audio Visual Inc. and Another v. Assistant Commissioner of Commercial Taxes and Another 124 STC 426; ISRO Satellite Centre, Department of Space, Bangalore v. The Director of Income Tax, by the Authority for Advance Rulings (Income Tax) AAR No. 765 of 2007 Dated 22.10.2008 2008 — TIOL-17-ARA-IT and Vikas Sales Corporation13, it is stated that the same are not applicable, as the transfer does not come within the scope of provisions of Section 6(4) of the KVAT Act 2003, as the satellite or the transponders are located in the geostationary orbit outside the territory of India and therefore, the question of levy of tax by the State does not arise; that taxability of access fees and royalties received by the appellant was also not taxable. The sum and substances of the reply was that since there was no transfer of property or goods from the appellant to the customers, the question of levying sales tax did not arise; that there was no deemed sale in the instant case. By a further reply dated 13.12.2008, it was stated that there was no effective control and possession of the transponders which was transferred to the customers and, therefore, the proposition notice dated 16.10.2008 has to be dropped.

38. Annexure-H is the order of re-assessment wherein it is stated that, the agreement for the lease of INSAT Space Segment Capacity for VSAT operations (Extended C-Band) executed between the Department of Space and the Stock Exchange, Mumbai is considered and it is concluded that the dealer has leased out the facility to use the transponder in the space segment capacity for which purpose the dealer has received consideration from the customers and that the space segment and INSAT systems remained as the property of the dealer and the customer is provided with the facility to use the transponder for an agreed consideration and hence, the facility to use the transponder is a property and it is commercial in nature and ‘goods’ for the purpose of Section 2(15) of the KVAT Act and that the agreement for a specified period and specified bandwidth was entered into in the State of Karnataka in respect of leasing out the facility to use the transponders, using the INSAT master control facility at Hassan, Karnataka and therefore, the proposition notice dated 16.10.2008 was justified. The Royalty and access fees are paid by the customers by entering into an agreement to access or down link data consisting of imageries. Further, referring to various Judgment of the Supreme Court it was held that ‘Sales Tax’ was leviable and accordingly, the notice of demand was issued to the appellant.

39. The relevant decisions referred to in the proposition notice and reply have to be considered at this stage, in the light of the precedents in the case of Vikas Sales Corporation and Another v. Commissioner of Commercial Taxes and Another, (supra) the question before the Apex Court was whether, the transfer of import license called REP license/Exim Scripps by the holder to another person constituted a ‘sale of goods’ within the meaning of the sales tax enactment for the purpose of levy of sales tax thereunder. The object behind issue of such license was to provide to the registered exporters the facility of importing the essential inputs required for the manufacture of the products exported, in order to encourage exports and for that purpose, import license called R.E.P licenses were issued equally to the prescribed percentage of the value of exports and such licenses were transferable which require only a letter from the transferor recording and evidencing the transfer and on that basis, the transferee became the due and lawful holder of the license and could either import the goods permitted thereunder or sell it to another in turn. Subsequently, the name of the said license was changed into Exim Scrip (export-import License) and it should be traded freely in the market and on Stock Exchanges and the sales tax authority proceeded to subject such sales to Sales Tax, whereas the Assessee contended that the licenses or Scripps do not constitute ‘goods’ within the meaning of relevant sales tax enactements and therefore, they cannot be assessed to sale tax. By then, this Court, in the case of Bharat Fritz Werner Ltd., v. Commissioner of Commercial Taxes14, held that, transfer of R.E.P licenses are ‘goods’ within the meaning of the Sales Tax Act and premium or price received by the transferor thereof is liable to Sales Tax thereunder. The Madras High Court, also took a similar view. On appeal, before the Apex Court, it was contended that, such transactions do not come within the definition of ‘goods’ in the relevant enactment and therefore, cannot be subjected to Sales Tax. The Apex Court, after analysing the definition of ‘goods’ in various Sales Tax enactments, General Clauses Act 1892, Sale of Goods Act 1930, Black Law Dictionary with regard to the expression of property and on going through the transferability of R.E.P, licenses and by placing reliance on the decision in the case of H. Anraj v. Government Of Tamil Nadu. (supra) which dealt with regard to sale of lottery tickets coming within the definition of ‘goods’, upheld the decision of this Court by holding that R.E.P licenses/exim Scripps constitute goods and therefore, on their transfer, sales tax is leviable.

40. In Laxmi Audio Visual Inc. and Another v. Assistant Commissioner of Commercial Taxes and another (supra), this Court, while considering the question as to whether a person engaged in the service of providing audio visual services for any programme does not deliver any equipment to customers but takes equipment to the site of the programme, installs them, operates them and then dismantles them and brings them back after the period of hiring and under such circumstances, no deemed sale attracting tax under Sales Act was considered and in that context held thus:

“The procedure adopted by each assessee (petitioner) for conducting their business was stated to be as follows:

i) A customer contacts the petitioner for providing audio/visual service for his program or event. After assessing the need and availability of the equipment and suitable operator/technician to operate them on the specified dates, the petitioner accepts the order. The engagement is for short duration ranging from few hours to few days.

ii) The stores department of petitioner release the necessary equipment under a gate pass showing the name of the technical/operator who will be in-charge of such equipment, the mode of transport and the time, date and venue of the program/event.

iii) The equipment is transported to the venue of the programme under the supervision of the petitioner's employee. At site the audio/visual equipments are handled, arranged, installed and operated by petitioners' technicians/operators to meet the requirements of the programme/event. At no time the equipment is given to the possession or control of the customer, nor operated by the customer.

iv) After conclusion of the programme/event, the petitioner's technician/operator dismantles the equipment/system and brings them back to the petitioner's stores.

v) The entire risk in regard to the equipment during transit as well as during the programme remains with the petitioner. Petitioner takes out insurance of all its equipments to cover transit and the programme periods.

vi) The billing is done by the petitioner either in advance or after the programme, as per the agreed rates for all the services, without any bifurcation.

41. The assessee therein had contended that he is not a dealer within the meaning/expression of Karnataka Sales Tax Act 1957 and he filed a petition for quashing the notice issued under Section 12(3) of the said Act and seeking a direction to the authorities not to proceed further in pursuance of the said notice issued to them. In the said decision it is stated that transfer of right to use any goods as sine qua non are leviable to tax under the sales tax enactment. It is further held that, “The transfer of the right to use the goods”, which may be by way of leasing, letting or hiring, involves the transferor permitting the transferee (lessee/hirer) to use his goods. To constitute such transfer, there should be delivery of possession of the goods by the transferor to the transferee, that is transfer of the effective and general control of the goods from the transferor to the transferee. But such transfer need not be a ‘legal transfer of the goods’ nor have all trappings of a ‘lease’. The question whether there is such transfer or not is essentially a question of fact which has to be determined with reference to the terms of the contract governing the transfer of the right to use goods. The nomenclature of the agreement may not be relevant. Even if the agreement used the title “Licence agreement” but the terms provided for transfer of effective control to the customer, then the transaction will be a transfer of the right to use the goods and thus a “deemed sale”.

42. In the said decision, reference was made to the decision rendered in the case of Aggarwal Brothers v. State of Haryana 1999 113 STC 317, and Rashtriya Ispat Nigam Ltd., v. Commercial Tax Officer, Company Circle Visakhapatnam (supra) and other decisions. In the first of the aforesaid decisions, the Apex Court held that transfer of possession of shuttering material by the assessee to its customers for use during the construction of buildings was “transfer of the right to use goods”, as the customer was in effective control of the shuttering material during the period it remained in his possession. In the second decision, a distinction was made between delivery of possession and mere custody without possession and while stating that when there is a delivery of possession, the effective control is with the customers and whereas in the latter case, it is lacking.

43. In Bank of India v. Commercial Tax Officer, Central Section Calcutta 1987 67 STC 199 Cal and in the case of State Bank of India v. State of Andhra Pradesh MANU/AP/0163/1988, the Calcutta High Court and the Andhra Pradesh High Court considered the question as to whether leasing of a Bank locker amounted to transfer of the right to use the locker and thus fell within the extended definition of “sale” and answered it in the negative. Similarly, in Modern Decorators v. Commercial Tax Officer 1990 77 STC. 470 WBTT, it was held that business carried on by a decorator who constructed/erected pandals, barricades, rostrums etc., and dismantled them by his own men and labour and taken back to its godown and hiring chairs, tables and furniture was held to be service rendered by the decorators, in so far as the erection of pandals etc., was considered. But chairs and other furniture used during the course of trade was held to be ‘goods’ within the meaning of the West Bengal Taxation Act and it was stated that they are the goods within the definition of the ‘sale’ as amended. On the basis of the aforesaid decision, it was held as follows:

“Thus if the transaction is one of leasing/hiring/letting simpliciter under which the possession of the goods, i.e, effective and general control of the goods is to be given to the customer and the customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the frame work of the agreement, then it would be a transfer of the right to use the goods and fall under the extended definition of “Sale”. On the other hand, if the customer entrusts to the assessee the work of achieving a certain desired result and that involves the use of goods belonging to the assessee and rendering of several other services and the goods used by the assessee to achieve the desired result continue to be in the effective and general control of the assessee, then the transaction will not be a transfer of the right to use goods, falling within the extended definition of “Sale”.

44. With regard to hiring of audio — visual and multimedia equipment, in the light of the aforesaid principles, it was held that the transaction was not a transfer and the use of the goods to mean “a deemed sale” eligible to tax under the Sales Tax Act.

45. As far as the concept of “goods” is concerned, in the case of Vikas Sales Corporation, the Apex Court held that, the REP licenses/Exims Scripps are held to be goods within the meaning of Article-366(1) of the Constitution.

46. Keeping in mind the aforesaid decisions, the affidavits filed by the appellant and the agreement in question, point No (i) would have to be answered. In the instant case, one such agreement for the lease of INSAT space Segment Capacity for VSAT operations (Extended ‘C’ Band) was entered into between Department of Space (DOS) and stock Exchange. Mumbai (customer) for lease of part of its “space segment capacity in the INSAT satellite for such purpose, under certain terms and conditions which was referred to in the contract by the appellant in the reply date 13.12.2008, which, inter alia, stated that the Department of Space has acceded to the request of the customer and thereby agreed to lease of 36 MHZ equivalent units of extended C-band capacity as per Article-1.1 with the following satellites:

Satellite No. Bandwidth (MHz) Transponder No INSAT-3A - - NSAT-3B 36 CNo. 7-Cno.13 p1289

INSAT-3C - - INSAT-3E Yet to be allotted -

47. Article-1 of the said contract/agreement further states that, the customer shall have the option of augmenting the bandwidth during the service term by giving 3 (three) months prior notice to DOS. DOS shall allocate the additional bandwidth to the Customer only form the next quarter on furnishing the necessary clearance from the compentent authorities as per Article 10-C and upon payment of quarterly charges as per Exhibit B to this agreement.

48. The technical performance and other specifications are defined in Exhibit-A to this agreement (hereinafter “leased capacity”). Further it was agreed that “leased capacity” shall be a “premptible Service” in the event of any unforeseen technical contingencies, the Department of Space shall use its best efforts to provide alternate capacity at the earliest. Article-2, which deals with the period of lease, reads thus:

“(a) DOS shall make the leased capacity available to the Customer on a 24 hours, seven-day-per-week basis for the period of lease set forth in subparagraph (b) and (c) belo (“Period of Lease”)”.

(b) The period of lease shall commence on July 1 2003.

(c) The period of lease shall terminate on March 31, 2006.

49. Article-3 deals with interruption in the provision of leased capacity during the duration of lease. ArticLe-6 deals with termination or surrender by the customers or by the Department of Space, Clause-A and Clause-D of Article-6 reads thus:

“A. Termination or surrender by customer:

i) The customer may terminate for its convenience, the leased capacity at any time after the date of this agreement by giving at least three (3) months written notice to DOS. In the notice, the Customer shall specify the effective date of termination (“ETD”).

ii) The Customer may surrender part of the leased capacity at any time after the date of this agreement by giving at least three months written notice to DOS. In the notice, the customer shall specify the effective date of surrender (“ESD”).

“D. Vacation of Leased Capacity upon Termination.

Upon the termination of this agreement either by the customer or DOS or surrender of a part of lease capacity by the customer or at the end of the period of the lease, the use of the leased capacity so terminated shall revert to DOS unconditionally.”

Article-10, which speaks about operational requirements of the leased capacity, reads as under:

“Article-10. Operational Requirements:

b) The INSAT system shall remain the property of DOS and DOS is the registered owner of the orbital location on which the leased capacity is being made available to the customer.

c) Prior to the commencement of the date of lease and also, if required subsequently, DOS and the customer shall discuss and develop mutually agreeable operating constraints for operation in the transponders taking into account the potential for adjacent transponder interference. Interference to other satellite systems, with which DOS may have concluded coordination arrangements or is in the process of coordinating arrangements, shall be kept at an acceptable level.

d) The customer shall be responsible for obtaining all the requisite clearances for operating the earth stations, which use the leased capacity. These earth stations shall be operated and maintained in accordance with the applicable provisions. The relevant copies of requisite clearances shall be forwarded to Anthrix.

e)For the purpose of ensuring that the transmission by the customer is within the acceptable levels of operating parameters, DOS may monitor the transmission of the leased capacity.

Article-14, which deals with assignment, reads as under:

The Customer shall not assign any of its rights or privileges or delegate any of its obligations, liabilities or duties hereunder without the prior written consent of DOS.

50. Article-15, which pertains to sub-lease, reads as under:

“The Customer shall not sub-lease the leased capacity under this agreement without the prior written consent of DOS”.

51. On careful consideration of the terms and conditions of the agreement, what becomes clear is the subject matter of agreement is in respect of lease of “space segment capacity” called “leased capacity” in various satellites with the customer who has an option of augmenting the bandwidth during the term of lease by giving prior notice to Department of Space. The specifications of the leased capacity is given in Ex.A to the agreement. The leased capacity is to be made available to the customers on a 24 hours or 7 days week basis for the period of lease. If there is any interruption in the provision of leased capacity, then subject to Articles-3 and 9, the Department of Space has to make good the said interruption. Article-6 speaks of termination or surrender of leased capacity. The fact that a customer may surrender apart of the leased capacity at any time clearly implies that when the leased capacity is given to the customer, it is in the customers control. But by such control, we do not mean that it is technical control of the leased capacity in the satellite, but we mean ‘legal control’. In fact, sub-Clause-D of Article-6 clearly stipulates that upon termination of agreement either by the customer or by the Department of Space or in the event of surrender of part of the leased capacity by the customers or at the end of completion of lease to use the leased capacity so terminated the leased capacity, shall revert back to the Department of Space unconditionally. This again implies that during the currency of agreement, the leased capacity cannot be transferred to any other person or any other customer. Further, Article-10 makes it clear that, INSAT system shall remain the property of Department of Space, but only the leased capacity is made available to customer and that the customer has to obtain all requisite clearances and permissions for operating the earth station in order to use the leased capacity and that, in order to ensure that transmission by the customer is within the acceptable levels of the operating parameters (as per the requisite technical requirement) and the Department of Space can monitor the transmission of the leased capacity. Further, Article-14 states that the customer cannot assign any right or privileges or delegate any of its rights, obligations, liabilities or duties without prior written consent of the Department of Space and he cannot sublease the leased capacity without prior consent of the Department of Space.

52. The foregoing terms of the agreement therefore, make it very clear that there is a transfer of right to use the “leased capacity” under the contract of agreement executed by the Department of Space with the customers and that the leased capacity which is the subject matter of the agreement in a satellite which is a space segment capacity in a transponder of a satellite is, in our considered view “goods” within the meaning of Article 366(12) of the Constitution and therefore, the transaction in question is one which comes within the scope of sub-Clause (d) of Section-29-Aof Article-366 of the Constitution, inasmuch as, there is a delivery of possession of the goods by the transferor (Department of Space) to the transferee (customer) and in law, the transferee has the effective control over the goods i.e,. “Space Segment Capacity” in the transponder of satellite, though its technical operation is handled by the Department of Space. The facts in Lakshmi Audio Visual Inc. are different from the present case and therefore the said decision is not applicable.

53. In this context, the affidavit filed on behalf of the appellant in the context of “Communication Satellite” is relevant for the purpose of taking into consideration the fact that, the customer send signals to the satellites at a particular frequency allotted to him which is called “Up-linking of Signals” and the said signals are not just sent back but, the set on board equipment which receives the signals from the transponder of satellite amplifies the said signals electronically and then re-transmit them back to earth on different set of frequencies and in the direction desired. Though the operation of the satellite may be under control of the Department of Space, yet the “leased capacity” in the transponder of the satellite is dedicated to a particular customer, who can use it at any time of the day on any day of the week and that said “leased capacity” is given to a particular customer and the same cannot be handed over or transferred to any other customer. Therefore, it cannot be said that there is no delivery of possession of the “leased capacity” to the customer and hence, there is no “transfer of right to use the goods”. Further, the satellite, in the instant case, are “Communication Satellite” unlike “Remote Sensing Satellite” which are used for acquisition of data information or imageries, which would be downloaded by the respective customers for which an access fee is collected as well as royalty and the same is paid to the Department of Space by the customers.

54. In the Ruling of the Authority for Advance Rulings (Income Tax) New Delhi, the facts were that Department of Space (DOS), Government of India had entered into contract with M/s. Inmarsat Global Limited (‘IGL’ for short), United Kingdom for “leasing of Inmarsat navigation transponder capacity” for its Gagan project and it had taken on lease a particular space segment capacity consisting of L1 & L5 transponder centered on “Inmarsat 4 generation Satellite”. The capacity was utilised through the data commands sent from a ground station set up by the applicant, ISRO. The transponder for navigation purposes was meant to dispatch the Satellite Based Augmentation System Signals (SBAS) in space on two specified frequencies, which are accessed for Gagan. The data transmitted by the said transponder was to use for better navigational accuracy on fixed annual charge regardless of the actual use of the transponder capacity to be paid by the DOS.

55. In the said Ruling, the nature and substance of the contract was considered by which the use of capacity for designated purpose was to be made use by the Department of space and the question that arose for consideration therein was “'Whether payment made to IGL by the DOS was in the nature of ‘royalty’ within the meaning of Article-13 of Double Taxation Avoidance Agreement and prevention of fiscal evasion with respect to taxes on income and capital gains consequent upon the treaty and Section 9(1)(vi) of the Income Tax Act 1961”.

56. On consideration of the nature of transaction, it was concluded that the substance of contract was the facility given through Department of Space for the utilization of “space segment capacity” of transponders from the satellite for transmitting the augmented data as to the position of an object on land, air or water so that the end user can have access to it through SBAS receiver who is thereby enabled to correct the errors in the GPS signal leading to significant improvement in position accuracy. The use of the capacity involved use of particular band width in the transponder meant exclusively for navigation purpose which is linked to the earth station (INLUS). The expression “Use of Space Segment Capacity” (USSC) of transponder has no reference to any operations performed by means of transponder. According to the Authority, the use and operation of transponders as such was not at all contemplated under contract. What really happens is that augmented data sent by the earth station, INLUS reaches the transponders and it transmit back to the earth and the same is accessed by SBAS user receiver in the coverage area. The Department of Space clarified that Transponder did not perform any operation with reference to the data up-linked and down-linked and there is no “on board data storage”. It was also contended that by use of equipment i.e, transponder by the applicant therein, he did not operate the same and had no control over the equipment and use of the equipment connotes that the grant of right has possession and control over the equipment and the equipment is virtually at its disposal, but there is nothing in any part of the agreement which could lead reasonable inference that possession or control had been given to the applicant under the terms of the agreement, in the course of operating facility.

57. Placing reliance on its previous Ruling rendered in Dell International Pvt. Limited's case, wherein a two way telecom bandwidth was provided to the applicant Del by means of dedicated private line circuit through net work of service provider, it was noticed that the case under consideration, existing space segment capacity of the navigation transponder which enabled the transmission of up-linked data over the entire foot print of satellite and it was concluded that the applicant therein did not use nor was it conferred with the right to use the transponder of IGL, UK. It was further held that the income received by IGL did not come within the definition of ‘royalty’.

58. The said Ruling is, in our considered view, not at all applicable to the facts of the present case, as, taking into consideration the nature of operations, in the said Ruling, the Authority held that navigation transponder which only up-links and down-links the data is a “passive transponder” unlike “communication transponder”. In the instant case, we are concerned with “communication transponder”. Therefore, on facts Ruling cited, supra, does not apply to the case under consideration.

59. In Chamber's dictionary of Science and Technology, transponder (communication) is defined as an equipment forming part of a communication, satellite which receives signals from a ground station at one frequency and re-transmits them to another ground station or to domestic satellite receivers at another frequency.

60. In the said Ruling, a distinction has in fact made between “communication transponder” and “Navigation Transponder” and it is held that, the manner and object of use of two categories of transponders are different. In the case of “Navigation Transponder”, the segment capacity of a transponder of a particular frequency is made available to a customer through INLUS (Navigation Land Up-link Station) which involves the use of a bandwidth operated by the customer and the said capacity will be utilised through the data command issued from the ground station, pursuant to which, the transponder transmits the signals or data so received from the ground station from geostationary orbit. According to the Authority, a navigation transponder, which up-links and down-links data is a passive transponder unlike the communication transponder. In “navigation transponder”, the substance of the contract is to give facility to customers for utilization of space segment capacity of the transponder to transmit the augmented data as to the position of an object on land, air or water so that the end user can have access to it through Satellite Based Augmentation System (SBAS) receiver. In fact, the Department of Space has clarified in the said Ruling that, “navigation” transponder does not perform any operation with reference to the data up-link and down-link and “there is no on board data storage”. The data sent by the customers does not undergo any change or improvement through the transponder. Thus, the “navigation transponder” is unlike “Communication Transponder” not an active transponder in the sense, it does not respond in any way to the date up-linked, though the customer does not operate the transponder data, but it gets access to the navigation transponder through his own network/apparatus and therefore, the data received by him does not undergo any change or improvements through the media of transponder, inasmuch as, the data is amplified and send back to the designated area at the allotted receiver frequency which is called as down-link.

61. However, in a “communication transponder”, after receiving the signals from the ground station at one frequency, it transmits them to another ground station at another frequency. For the operation, there is a need of particular data to reach the transponder. In such circumstances, the use of transponder is ensured when its responds to the direction sent through the ground station and the exclusive capacity of the specific transponder is kept entirely at the disposal of the customer.

62. The ‘communication transponder’ is, therefore, an active transponder as it amplifies the data, whereas, the ‘navigation transponder’ is passive transponder and in such case, there is no usage of the equipment (transponder) as such. But in a ‘Communication Transponder’, since the data is amplified it undergoes a change or improvement through the media of transponder and thereafter retransmit back to the earth. Therefore, there is dedicated, effective and general control of the SBAS given to the customers who has the freedom of choice of selecting the manner, time and nature of use of the equipment, though within the frame work of the agreement of lease and hence, the right to use “space segment capacity” falls within the extended definition of “Sale”, inasmuch as, there is delivery of possession in the said lease and there is a clear identification of the “space segment capacity” been delivered to the customer and the customer is given the right to use it in any manner as he deems fit. Of course, subject to terms of the lease agreement during which period, the appellant or the Department of Space has no right to use the “Space Segment Capacity” either for its own or to transfer the same to any other customers. Therefore, the transaction involved in this case is a “deemed sale” coming within the definition of “Sale” under Section 2 (29)(d) of the KVAT Act. Accordingly, point No. 1 is answered against the appellant.

63. Re. Point No. (ii): As far as point No (ii) is concerned, the contention of the Learned Counsel for appellant is, Section-6 of the Karnataka Value Added Tax Act 2003, speaks about the place of sale of goods and that, in the instant case, where the “right to use the goods'” and “transfer of right to use the goods” for any purpose has taken place outside the State, then, if only such goods are used within the State irrespective of the place shown in the contract of transfer of right to use the goods is made, then only such transaction would be covered under the scope of the Act. In the instant case, since the transfer of right to use the goods has not taken place within the State and since the goods are not used within the limits of State of Karnataka, the Act is not applicable to the transaction in question.

64. Sri. Ashok Harnahalli, Learned Advocate General has stated that the agreement, namely, the lease agreement has been executed in Karnataka State and therefore, the restriction Section-6(4) of the KVAT Act is not applicable to the facts of the present case, as the said Section applies to those transactions which are entered into outside the State, subject to terms and conditions mentioned in the said Section and the intention of the Legislature is to enlarge the scope of sale by means of a fiction. Therefore, he submits that the contention of the Learned Counsel for the appellant that in the instant case, although the agreement have been entered into in the State, since the goods are not within the State, inasmuch as, the right to use the goods is “use of space segment capacity” of the transponder of the satellite which is located thousands of KMs away cannot be accepted, as the said Section would be applicable only where the transaction is not entered into within the State of Karnataka. Since in the instant case, the transfer of “right to use the goods” has taken place within the State of Karnataka, no reliance can be placed on Section-6(4) of the Act is the submission on behalf of the State. He has further submitted that in view of advancement Science and Technology, a purposeful interpretation has to be given to Section-6 and at any rate, in the instant case, as the agreements are entered into within the State, the restriction in Section-6 (4) is not applicable, as the said Section proceeds on the premise that though the agreement of sale is entered into between the parties outside the State but have nexus to the State, inasmuch as, the goods are within the State at the time of the agreement or they were used within the State, in which situation by a fiction, the sale transaction would be subject to levy of sale tax.

65. Before answering this contention it is just and necessary for us to extract Section-6 of the KVAT Act which reads as follows:

“6. Place of sale of goods:

(1) The sale or purchase of goods, other than in the course of inter-state trade or commerce or in the course of import or export, shall be deemed, for the purposes of this Act, to have taken place in the State irrespective of the place where the contract of sale or purchase is made, if the goods are within the State.

(a) In the case of specific or ascertained goods, at the time the contract of sale or purchase is made; and

(b) In the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation.

(2) Where there is a single contract of sale or purchase of goods situated at more places than once, the provisions of Clause (a) shall apply as if there were separate contracts in respect of goods at each of such places.

(3) Notwithstanding anything contained in the Sales of Goods Act, 1930 (Central Act 3 of 1930), for the purpose of this Act, the transfer of property of goods (whether as goods or in some other form) involved in the execution of a works contract shall be deemed to have taken place in the State, if the goods are within the State at the time of such transfer, irrespective of the place where the agreement for works contract is made, whether the assent of the other party is prior or subsequent to such transfer.

(4) Notwithstanding anything contained in the Sale of Goods Act, 1930 (Central Act 3 of 1930), for the purpose of this Act, the transfer of the right to use any goods for any purpose (whether or not for a specified period) shall be deemed to have taken place in the State, if such goods are for use within the State irrespective of the place where the contract of transfer of the right to use the goods is made.”

66. The said Section has to be read in the context of Section-3 and Section-7 of the KVAT Act which is charging Section and deals with time and sale of goods respectively and the same reads as follows:

“3. Levy of Tax: (1) The tax shall be levied on every sale of goods in the State by a registered dealer or a dealer liable to be registered, in accordance with the provisions of this Act.

(2) The tax shall be levied and paid by every registered dealer or a dealer liable to be registered, on the sale of taxable goods to him, for use in the course of his business, by a person who is not registered under this Act.

7. Time of sale of goods: (1) Notwithstanding anything contained in the Sale of Goods Act, 1930 (Central Act 3 of 1930), for the purpose of this Act, and subject to sub-Section (2), the sale of goods shall be deemed to have taken place at the time of transfer of title or possession or incorporation of the goods in the course of execution of any works contract whether or not there is receipt of payment:

Provided that where a dealer issues a tax invoice in respect of such sale within fourteen days from the date of the sale, the sale shall be deemed to have taken place at the time the invoice is issued.

(2) Where, before the time applicable in sub-Section (1), the dealer selling the goods issues a tax invoice in respect of such sale or receives payment in respect of such sale, the sale shall, to the extent that it is covered by the invoice or payment, be deemed to have taken at the time the invoice is issued or the payment is received.

(3) The Commissioner may on an application of any dealer, exempt such dealer subject to such conditions as he may specify, from the time specified in sub-Section (1)”.

67. Sub-Section (1) of Section-6 of the KVAT Act is a deeming provision and it states that if the goods are within the State, then irrespective of the place where the contract of sale or purchase is made, it would be a deemed sale, provided that, the said sale is not in the course of inter-State trade or commerce or in the course of import or export (a) in case of specific or ascertained goods at the time the contract of sale or purchase is made and (b) in the case of un-ascertained or future goods at the time of their appropriation through the contract of sale or purchase by the seller or by the purchaser whether the assent of the other party is prior or subsequent to such appropriation. Sub-Section (1) of Section-6 of the Act, therefore, covers a situation where the sale or transfer of the goods may take place outside the State but where the goods are within the State. Sub-Section (2) of Section-6 of the KVAT Act clarifies that even if by single contract of sale or purchase of the goods situated at one or more place, then they would be separate contracts in respect of goods of each of such places.

68. Sub-Section (3) and (4) of Section-6 of the KVAT Act begin with non-obstante Clause. According to Section 6(3), as far as execution of works contract is concerned, notwithstanding anything contained under the Sales of Goods Act 1930, if the goods are within the State, at the time of transfer, the transaction would be a ‘deemed sale’ and even if the place where the agreement for works contract is made. Similarly, Section-6(4) of the KVAT Act with regard to transfer or right to use any goods for any purpose, notwithstanding anything contained in the Sale of Goods Act 1930, and irrespective of the place where the contract of the right to use the goods is made, the transaction would be a ‘deemed sale’, if such goods are used within the State. Section-6 of the Act is an enabling provision which has the purpose of enlarging the scope of the definition of “Sale” within the State irrespective of the place where the contract of sale or purchase or transfer of the right to use any goods for any purpose takes place outside the State. In the present case, we are concerned with only transfer of the right to use any goods for any purpose as contemplated under Section 6(4) of the Act.

69. After giving our anxious consideration to the above submissions, we sec considerable force in the said submission of the Learned Advocate General and consequently, we hold that Section-6 of the KVAT Act particularly, sub-Section (4) cannot come in the way of holding that the agreement entered into between the appellant and the Department of Space in the present case is outside the scope of provisions of Section 6 of the Act. So long as the sale is not in the course of inter-State trade or export or import, irrespective of the place where the transaction has taken place, Section-6 brings such transaction under the purview of KVAT Act by way of fiction. This would imply that where the sale has taken place within the State of Karnataka, it would not be necessary to advert to the fiction in Section-6, which has the object of including those sales which take place outside the State but are brought within the scope of Section-3 by a fiction. Where sales takes place within the state, Section-3 simplicitor would apply. It would be relevant to note that under Article-286 of the Constitution, where the sale or purchase of goods has taken place outside the State, such a transaction cannot be a subject matter of imposition of Sales Tax.

70. In the case of 20 Century Finance Corporation Limited & Another referred to supra, it was held that, by an appropriate legislation by a legal fiction can fix situs of sale, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, transferring the right to use goods is executed, it was held that said transaction of transfer of right to use the goods cannot be termed as contract of paramount as it is “deemed sale” within the meaning of legal fiction as enumerated under Article-366 (29A)(d) of the Constitution. The taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use.

71. Keeping in view the above dictum and the fiction which has been created in Section-6 of the KVAT Act and the facts of the present case, since the agreement has been entered into within the State of Karnataka and at the time of agreement, i.e, “transfer of right to use the goods” was concluded, in the instant case, the goods namely, “space segment capacity of the transponder” in a satellite was available for transfer of right, Section-6 of the Act does not hit the transaction in question. We reiterate that, the said provision enables different varieties of transaction to be brought within the scope of the KVAT Act and in our view, the same cannot curtail the present transaction from being brought within the purview of the KVAT Act. Accordingly, we answer point No. (ii) also against the appellant.

72. The respondent was therefore, fully justified in issuing the impugned proposition notices to the appellant who is liable to pay the tax on the ‘deemed sale’ in terms of KVAT, Act.

73. For the foregoing reasons, the writ appeals are disposed of in the above terms. Parties to bear their own costs.