IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM MONDAY, THE 4TH OCTOBER 2010 / 12TH ASWINA 1932 WP(C).No. 23286 of 2010(I) -------------------------- PETITIONER : ------------------ BHARAT SANCHAR NIGAM LTD., KERALA CIRCLE, THIRUVANANTHAPURAM – 695033 REPRESENTED BY ITS CHIEF ACCOUNTS OFFICER (CA-I) R. VENKATESAN BY ADVS. SRI.S.ANIL KUMAR (TRIVANDRUM) SRI.K.S.HARIHARAN NAIR SRI.K.UMAMAHESWAR RESPONDENT(S): ------------------------ 1. ASSISTANT COMMISSIONER (ASSESSMENT), COMMERCIAL TAXES, SPECIAL CIRCLE, THIRUVANANTHAPURAM – 695035. 2. TEAM-I (FAST TRACK ASSESSMENT), COMMERCIAL TAXES, THIRUVANANTHAPURAM, REPRESENTED BY THE DY. COMMISSIONER, COMMERCIAL TAXES, THIRUVANANTHAPURAM – 695035. 3. THE COMMISSIONER OF COMMERCIAL TAXES, VIKAS BHAVAN P.O., THIRUVANANTHAPURAM – 695033. R1 TO R3 BY GOVERNMENT PLEADER SRI. V.K. SHAMSUDHEEN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 06/09/2010, THE COURT ON 04/10/2010 DELIVERED THE FOLLOWING: Mn C. K. ABDUL REHIM, J. =~=~=~=~=~=~=~=~=~=~=~=~=~=~=~=~= W.P.(C) No. 23286 of 2010 =~=~=~=~=~=~=~=~=~=~=~=~=~=~=~=~= Dated this the 4th day of October, 2010 JUDGMENT Challenge in this writ petition is against Exts.P8 and P9 orders of assessment finalized against the petitioner by the 1st respondent under the provisions of the Kerala General Sales Tax Act (for short KGST Act), pertaining to assessment years 2003-'04 and 2004-'05. 2. On an earlier occasion, assessments with respect to the said years were completed by the 2nd respondent, exercising powers under section 17D of the KGST Act. By Ext.P1 judgment this Court set aside those assessments and directed the 2nd respondent/competent authority to pass fresh orders, finding that mandatory procedures prescribed under section 17D of the KGST Act as laid down by this Court in Hindustan Petroleum Corporation Ltd. V. Asst. Commissioner,Commercial Taxes, Ernakulam (2009(4) KHC 819) were not complied with. Thereafter, steps were initiated by the 1st respondent to finalize the assessments W.P.(C) No. 23286/2010 2 afresh. Proposal notices, Exts.P2 & P3 under section 17(3) of the KGST Act were issued. The petitioner submitted Ext.P4 request before the 3rd respondent for issuing necessary directions to the assessing authority to refrain from raising any arbitrary and illegal demand against the petitioner and to complete the assessments in a judicious manner. The petitioner also submitted Exts.P5 and P6 before the 1st respondent requesting time for filing reply to Exts.P2 and P3. But without giving any reply the 1st respondent had completed the assessments and issued Exts.P8 and P9 orders, is the grievance of the petitioner. 3. There is an effective remedy of statutory appeal provided under the KGST Act against the impugned assessments. This writ petition is filed without resorting to such remedy. Under such circumstances the preliminary issue is as to whether there exists any cogent reason to entertain this writ petition. 4. The petitioner is a Government of India undertaking. The 2nd respondent conducted a sitting on W.P.(C) No. 23286/2010 3 28-5-2010 and as per the notification published, the petitioner was required to produce Books of accounts on that day. According to the petitioner, they are having net work of offices situated all over the State and accounts relating to each unit is being maintained at such offices. The petitioner being the major service provider in the State having about 58 lakhs number of land line telephone connections and more than 5 lakhs number of mobile connections, bills for the customers are being generated during every month, which will be nearly 30 lakhs in number. Apart from that, records relating to service provided to other organizations like Reliance, Airtel, etc. are also there. Therefore the entire accounts will be highly voluminous and it is not at all practicable to bring all such records maintained at all the units spread all over the State, for verification. When the above aspects were pointed out before the 2nd respondent and when it was pointed that the accounts are truly reflected in the audit report already submitted, the matter was assigned to the 1st respondent, W.P.(C) No. 23286/2010 4 and on that basis only Exts.P2 and P3 notices were issued. 5. According to the petitioner, the major issue in controversy for finalising the assessment was tax sought to be levied on income derived from other service providers for usage of petitioner's net work facility, commonly known as “inter-connection usage charges”. It was contended by the petitioner that there is no transfer of any goods as defined under Article 366 and what is being transferred is only a right to use the net work facility. Contention is that the income received as “inter-connection usage charges” will not come within the definition of 'turnover' or such transaction could not be treated as “deemed sale” as per provisions contained in the KGST Act. 6. In support of the above contentions the petitioner is relying on various decisions like Bharat Sanchar Nigam Ltd. V. Union of India and others ((2006) 14 KTR 115(SC)), the Deputy Commissioner of Sales Tax (Law) V. S. Bahuleyan ((1992) 1 KTR 137 (Ker.)), Bank of India V. Commercial Tax Officer, Central Section, Calcutta ((1987) W.P.(C) No. 23286/2010 5 67 STC 1999 (Cal.)) and State Bank of India V. State of Andhara Pradesh ((1988) 70 STC 215 (AP)) etc:. 7. Sri.S.Anilkumar, learned counsel appearing for the petitioner, had placed vehement arguments that since the issue involved in the assessment is purely a legal and constitutional question, it is not necessary for the petitioner to resort to the statutory remedy of appeal. He also contended that the assessments were finalized without affording proper opportunity to file reply and opportunity to substantiate contentions of the petitioner. Hence, the impugned orders are per se illegal and opposed to principles of natural justice, is the contention. 8. On a perusal of Exts.P8 and P9, it is evident that when the matter was posted for consideration before the 2nd respondent on 8-5-2010, the petitioner submitted explanations, narrating the difference between “inter- connection usage charges” and “inter-connection link charges”. It is further stated that, a subsequent date was fixed for hearing on the basis of promise made by the W.P.(C) No. 23286/2010 6 petitioner to produce all records relating to the relevant periods of assessment. But on that date also no records were produced. Under such circumstances, specific notice was issued by the 2nd respondent requesting the petitioner to produce details of receipts relating to specific transactions which are mentioned under Schedule 'N' and Schedule 'O', which reflected turnover to the tune of Rs.2,24,37,04,939/- and Rs.5,80,18,606/- respectively. It was also mentioned therein that there is a discrepancy between the total taxable turnover disclosed in the monthly returns and the annual return, but no reconciliation statement was seen filed along with the annual return. Further it was pointed out that the above said turnover was not seen disclosed in the audit report. Hence, through the notices the petitioner was intimated about the proposal to reject the return and to complete the assessment on a best judgment basis. It is mentioned in the impugned orders that on receipt of Exts.P2 and P3, the representative of the petitioner appeared before the 1st respondent and a hearing was W.P.(C) No. 23286/2010 7 conducted. The objections submitted as per Exts.P5 and P6 were also verified by the 1st respondent. 9. On a perusal of the objections submitted, it is revealed that the petitioner had mainly expressed their difficulty in producing the entire books of accounts. Further, the petitioner offered for verification of such records at offices of each secondary switching area. It is also noticed that in Exts.P5 and P6 a request was made to grant time till the 3rd respondent takes a decision on Ext.P4 representation. It is based on Exts.P5 and P6, that arguments were advanced that the petitioner was not provided with adequate opportunity to file detailed objections on the merits of the proposals. But it is revealed from Exts.P8 and P9 that the representative of the petitioner who appeared before the assessing authority had already advanced detailed arguments on the issue relating exigibility of tax on the income derived from other service providers. Placing reliance on a decision of the Tribunal reported in Fascal Ltd. V. CESAT (2007 (8) STT 317) the W.P.(C) No. 23286/2010 8 petitioner raised contention that providing of facility for other service providers will not come within the ambit of sale. But the assessing authority found that the petitioner is receiving charges from other service providers for providing usage of infrastructure facility of the petitioner and hence there is a sale of the said facility, which will come within the meaning of 'sale' as defined under the KGST Act. It is categorically found that the facility permitted for usage of the infrastructure owned by the petitioner, is a deemed sale for the purpose of the assessment under the KGST Act, because there is a transfer of right to use the goods established from the nature of transaction. The 2nd respondent also relied on a decision of the Karnataka High Court in Anthix Corporation V. Assistant Commissioner of Commercial Taxes, Bangalore ((2010) 29 VST 308 (Kar.)) in support of the above defence. 10. From the facts narrated in the impugned orders as described above, it is clear that the petitioner could able to raise all their contentions with respect to the issue W.P.(C) No. 23286/2010 9 involved in the assessments. It is clear that there was no denial of opportunity for production of any Books of Accounts as alleged. From Exts.P8 and P9 it is evident that after verifying the audit report and the connected statements, the assessing authority had requested only for clarifications pertaining to certain specific transactions, for which production of all basic accounts was not at all necessary. But in spite of the onus being on the petitioner to prove that the proposal is contrary to actual facts or figures, the petitioner had not produced any documents. 11. Under the above mentioned circumstances, it cannot be held that there was any patent denial of opportunity to the petitioner with respect to filing of objections or with respect to production of documents. On the other hand, it is evident that major issues involved was decided after taking note of all contentions raised by the petitioner. Learned counsel for the petitioner had pointed out a decision of this Court in M.S.Jewellery V. Assistant Commissioenr (Assessment) ((1994)2 KTR 389 (Ker.)) W.P.(C) No. 23286/2010 10 wherein it is held that when lengthy pre-assessment notices are issued raising various complicated issues which require detailed analysis, the assessing authority will not be justified in passing orders without affording an effective opportunity of personal hearing to the assessee. In such cases it will amount to violation of principles of natural justice and it will render such orders mala fide and void. He further placed reliance on another decision of this Court in C.K.Sunny V. Addl. Sales Tax Officer-I ((2004) 12 KTR 360 (Ker.)) to emphasise the need of compliance of natural justice and to afford opportunity of personal hearing. 12. On the facts of the case at hand, as stated above, I am of the view that there is no manifest denial of any effective opportunity. It is reflected from the impugned orders that the petitioner had raised all possible contentions before the assessing authority and he was given ample opportunity for production of documents. Hence, I am of the opinion that the impugned orders does not suffer from any non-compliance of principles of natural justice. W.P.(C) No. 23286/2010 11 13. Further argument of the petitioner is that the issue being a legal question, there is no necessity to exhaust the appellate remedy provided under the Statute. The main issue upon which there is controversy relates to exigibility of tax on the turnover of income derived as usage charge from other service providers. It seems that different view has been taken in various precedents by the High Court as well as the Tribunals. A threadbare analysis of the nature of the transactions as well as terms and conditions of the agreement with respect to providing such facility, are need to be considered. Under the scheme of the Statute, a hierarchy of authorities are provided, including the appellate Tribunal. Further, revisional power is also conferred on this Court from the decisions of the Tribunal. Hence, it is clear and evident that the controversial issue which depends on various questions of law as well as various aspects of facts and circumstances, can evaluated by such statutory authorities. Any interference by this Court in exercise of power under Article 226 of the Constitution of W.P.(C) No. 23286/2010 12 India may not be proper and justifiable, under such circumstances. Hence, I am of the considered opinion that the petitioner need be relegated to the appellate remedy available. 14. However, it is pertinent to note that the petitioner is a public sector undertaking, fully owned by the Central Government. The disputed tax liability mainly pertains to the turnover related to the inter-connection usage charges. The liability for payment of tax with respect to such turnover is in serious dispute. Hence, I am of the opinion that collection of the disputed tax amount can be restrained till a decision is taken by the appellate authority, provided the petitioner files appeals against Exts. P8 and P9 within a short time. 15. In the result, the writ petition is dismissed without prejudice to rights of the petitioner to approach the appellate authority challenging Exts.P8 and P9. It is made clear that if the petitioner files appeals before the appellate authority within a period of two weeks from today, the W.P.(C) No. 23286/2010 13 appellate authority concerned shall receive such appeals as one filed within time and shall proceed to consider and dispose of the same in accordance with law, after affording an opportunity of hearing to the petitioner, as early as possible at any rate within a period of three months from the date of receipt of such appeals. 16. It is further directed that the respondents shall keep in abeyance collection and recovery of tax in dispute till the appeals are disposed of, on condition of the petitioner furnishing security bond for the amount in dispute. It is made clear that the appellate authority should dispose of the appeals independently untrammelled by any of the observations contained herein. C. K. ABDUL REHIM, JUDGE. mn.