INDIA BUSINESS WORLD - MARCH 2006
THE MONTH THAT WAS

STATES CANNOT IMPOSE SALES TAX ON TELECOM SERVICES

IN A landmark judgement, the Supreme Court said that states cannot impose sales tax on telecom services. In its judgement, the apex court said that the telecom services cannot be equated with goods. The judgement will have an implication to the tune of Rs 10,000 crore per annum on the sector. Sales tax varies from state to state, but in most of the states it is around 12%. If the operators had lost the case, the services would have been costlier by 12% as sales tax is passed on to the consumers.

 “The honourable Supreme Court has vindicated our stand that telecom services are not in the nature of sales of goods and therefore are not liable for any sales tax. The judgement is a very welcome one as it will help in growth of telecom services,” said S D Saxena, director (finance), BSNL.

The Bench, comprising Justice Ruma Pal, Justice AR Lakshmanan and Justice Dalveer Bhandari, said: “Goods do not include electromagnetic waves or signals.” However, the Bench said the handsets are liable for levy and cannot be kept away from the ambit of sales tax. “In telecom service, sale confines to sale of handsets only. Hence, transfer of right to use can be there only in handsets and not others.” The Court said a telecom service may be a composite contract only if a discernible sale is involved and maintained that “the value of services cannot be included in the meaning of goods”.