IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) FRIDAY THE SIXTH DAY OF FEBRUARY TWO THOUSAND AND NINE PRESENT THE HON'BLE MR JUSTICE GODA RAGHURAM And THE HON'BLE MR JUSTICE SANJAY KUMAR WRIT PETITION NO : 23578 of 2008 Between: Bharat Sanchar Nigam Limited, Rep. by its Chier Geneal Manager, (Telecom) A.P. Circle, Doorsanchar Bhavan, Nampally, Hyderabad. ..... PETITIONER AND 1 State of Andhra Pradesh, Rep. by its Principal Secretary, Revenue Department, Secretariat, Hyderabad. 2 The Deputy Commissioner (CT) Government of Andhra Pradesh, Abids Division, 1st Floor, Behind Hotel Sai Prakash Nampally Station Road, Hyderabad. .....RESPONDENT(S) Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to to issue a writ of Certiorari calling for the Records relating to the Orders in Proceedings Rc NO. C6/248/03 dt. 1-10-2008 and Rc No. C6/248/03 dt. 4-10-2008 under Sec. 33-C of the A>P. General Sales Tax Act /40(2) of the A.P. VAT Act, of the Deputy Commissioner (CT) Abids Division, Hyderabad the 2nd respondent herein and quash the same and direct the respondents to refund the amount of Rs. 14,52,29,260/- to the petitioner together with interest and pass such further or other orders Counsel for the Petitioner:MR.R.S.MURTHY Counsel for the Respondent No.: GP FOR COMMERCIAL TAX The Court made the following: THE HON’BLE SRI JUSTICE GODA RAGHURAM AND THE HON’BLE SRI JUSTICE SANJAY KUMAR W.P.NO. 23578 OF 2008 ORDER: Background facts: 1) The 2nd respondent passed an order of assessment dated 20.08.2003 for the assessment year 2001-02 pertaining to the petitioner and raised a demand for Rs. 42,86,81,120/-. The telephone rental charges billed by the petitioner during the year, in an amount of Rs.535,85,14,000 were brought to tax u/Sec. 5E of the a AP General Sales Tax Act 1967 (for short ‘the Act’). 2) For the earlier years 1995-96 and 1996-97 the State had levied sales tax on telephone rentals billed by the petitioner. The orders of assessment in this regard were challenged by the petitioner in W.P.Nos. 6742/96, 11826/97 and 25804/97. By the judgment dated 18.12.1998 – reported in 1999 (113) STC 2003, this court ruled that telephone rentals are not “goods” and thus not exigible to sales tax. Against the judgment the respondents herein preferred Civil Appeals Nos. 6323, 6324 and 6325 of 1999 before the Supreme Court. During the pendency of these appeals the Supreme Court in State of U.P. and another vs Union of India ( [1] ), declared that telephone rentals are ‘goods’ and exigible to sales tax. The judgment of this court [1999 (113) STC 2003] and the judgments of the Allahabad and the Punjab & Haryana High Courts to the contrary, were over-ruled. 3) The petitioner filed a writ under Art. 32 of the Constitution being W.P.No. 183 of 2003 before the Supreme Court challenging the action of the State Government in demanding sales tax on telephone rentals. Civil Appeals 6323 to 6325 of 1999 (filed by the State) were tagged on to W.P.No. 183/03 and other cases to be heard by a Larger Bench of 3 Judges to which the issue inter alia whether sales tax is levible on telephone rentals, was referred. 4) Consequent on the judgment of the Supreme Court in State of U.P. (1 supra), the 2nd respondent called upon the petitioner by a letter dated 26.6.2003 to furnish particulars of the amounts realized by it towards rentals of telephones during the years 1996-97 to 2002-03. The petitioner furnished the information on 1.8.2003. By orders dated 20.08.2003 the 2nd respondent passed assessment orders for the years 1997-98, 1998-99, 1999-2000, 2000-01, 2001-02. Aggrieved by the orders of assessment the petitioner preferred appears before the STAT, Hyderabad being: (i) TA No. 1643/2003 for the year 1997-1998 (ii) TA No. 1644/2003 for the year 1998-1999 (iii) TA No. 1645/2003 for the year 1999-2000 (iv) TA No. 1646/2003 for the year 2000-2001 (v) TA No. 1142/2007 for the year 2001-2002 5) No stay having been granted by the STAT in the 5 appeals above referred, the 2nd respondent directed the petitioner to pay the assessed tax. Thereafter a notice dated 22.6.2007 was issued u/Sec. 29 of the A.P. Value Added Tax Act 2005 (‘VAT Act’) to the State Bank of India and ICICI Bank branches (where the petitioner had accounts), directing them to pay the amounts held in the petitioner ‘s accounts in the banks. The ICICI Bank through a letter dated 30.06.2007 remitted an amount of Rs.14,52,29,260/- to the 2nd respondent, being the amount available in the petitioner’s account in the branch of the Bank. 6) The petitioner filed W.P.No. 14312/07 challenging the notice dated 22.6.2007 (issued u/Sec. 29 of the VAT Act), the consequent recovery and sought a direction for refund of Rs.14,52,29,260/-. By an interim order in this writ petition this court grant stay of further recovery pursuant to the Sec. 29 notice and directed the STAT to dispose of the appeals by the petitioner filed against the orders of assessment. 7) By the order dated 9.8.2007 the STAT allowed TA Nos. 1643 to 1646 of 2003 following the judgment of the Supreme Court in BSNL and Anr. vs Union of India and Ors ( [2] ) and set aside the orders of assessment. 8) The petitioner represented on 27.8.2008 to the 2nd respondent to refund the amount of Rs.14,52,29,260/-. 9) By another order dated 28.11.2007 the STAT allowed TA No. 1142/07, an appeal by the petitioner against the order of assessment for the year 2001-02. In view of the order of the STAT dated 28.11.2007, this court on 9.6.2008 disposed of W.P.No. 14312/07 enabling the petitioner to submit a representation before the authorities concerned for refund of the amount and directed the respondents to pass appropriate orders on the representation, in accordance with law. 10) By a representation dated 30.09.2008 the petitioner requested the 2nd respondent to refund the amount. The 2nd respondent however on 1.10.2008 passed an order (exercising power u/Sec. 33-C of the Act r/w Sec. 40(2) of the VAT Act), withholding refund of Rs.14,52,29,260/- until further orders on the ground that refund is likely to adversely affect the revenue. By another order dated 4.10.2008 the 2nd respondent purported to record supplemental reasons for those stated in the order dated 1.10.2008, in support of the conclusion to withhold the refund. The orders dated 1.10.2008 and 4.10.2008 are assailed in this writ petition. The provisions of Sec.33-C of the Act and Sec. 40(2) of the VAT Act, which are the asserted basis for the exercise of the powers by the 2nd respondent in passing the impugned orders, read: “33-C. Power to withhold refund in certain cases: Where an order giving rise to a refund to an assessee or licensee is the subject matter of an appeal or further proceedings, or where any other proceedings under this Act is pending, and the assessing or the licensing authority is of the opinion that the grant of the refund is likely to adversely affect the revenue, the assessing or the licensing authority may, with the previous approval of the Deputy Commissioner, withhold the refund till such time as the Deputy Commissioner may determine.” “40. Power to adjust, withhold refunds: (1) … … … (2) Where an order giving rise to a refund is the subject matter of an appeal or further proceedings, or where any other proceedings is pending, the authority prescribed is of the opinion that the grant of the refund is likely to adversely affect the revenue, the authority prescribed may, with the previous approval of the Deputy Commissioner, withhold the refund till such time as the Deputy Commissioner may determine.” The petitioner pleads that no TRC was filed by the State on 24.4.2008 but was filed on 28.4.2008 under SR No. 1298. The revision was returned by the Registry on 9.6.2008 but was not resubmitted/represented till the date of filing of this writ petition (29.10.2008). There was thus no proceedings pending as on 1.10.2008, the date of the initial order nor on 4.10.2008 the date on which supplemental reasons were recorded in support of the earlier order dated 1.10.2008. On this factual platform the petitioner contends that the provisions of either Sec.33-C of the Act or Sec.40(2) of the VAT Act justify withholding of the refund. In the order dated 1.10.2008 the 2nd respondent stated that the petitioner’s claim that the collections made by it towards rentals had no nexus to the cost of goods and they relate to services, is refuted by the findings revealed from TRAI’s Consultation Paper dated 8.7.2002 wherein at Para 3.5 relating to methodology for tariff determination it is stated that monthly rental is collected as per a formula based on capital cost i.e., value of the goods purchased by the assessee to recover the capital costs in its telecommunications business; that airtime charges are separately collected towards call charges and other services as revealed in Para 3.6 of the TRAI Paper dated 8.7.2002. The 2nd respondent concluded that rentals thus have nexus to goods and airtime charges to services; both being different and distinguishable. In the subsequent order (also impugned) dated 4.10.2008 the 2nd respondent reiterated reliance on the TRAI Paper dated 8.7.2002 and elaborated the reasons for the conclusion that the telephone rentals collected by the petitioner were liable to tax; canvassing the inaccuracy of the STAT order dated 28.11.2007 in TA No. 1142/07. The 2nd respondent filed a counter affidavit. In Para-4 of the counter it is admitted that TREVC SR No. 1298/08 (against the order of the STAT dated 28.11.2007 in TA No. 1142/07) was filed on 28.4.2008 and returned by the Registry of this court on 9.6.2008 for compliance with certain objections. It is admitted that the objections could not be immediately complied with and that the revision was represented on 30.10.2008 along with a petition to condone the delay of 69 days in representing. On the merits of the impugned orders the counter pleads that the answering respondent after going through the record and in view of the TRC being filed before the court, had formed an opinion that the refund of tax is likely to adversely affect the revenue and therefore an order was passed on 1.10.2008 to withhold the refund. After going through the petitioner’s representation dated 30.09.2008, the answering respondent passed a detailed order dated 4.10.2008, in continuation of the earlier order dated 1.10.2008. The 2nd respondent pleads that the order dated 1.10.2008 was passed after obtaining the permission of the Commissioner of Commercial Taxes. In the context of the rival facts pleaded and the contentions urged two issues arise for determination: (1) Whether the impugned orders constitute a rational exercise of power and discretion by the 2nd respondent qua the provisions of Sec. 33-C of the Act r/w Sec. 40(2) of the VAT Act; and (2) Whether on 1.10.2008 any appeal or further proceedings could be said to be pending before this court justifying even technically the exercise of power under the aforementioned provisions. If the answer to the 2nd issue is in the negative, the impugned orders would fail and it is not necessary to consider the first issue. We therefore propose to analyse the 2nd issue in the first instance. Whether an appeal or further proceedings was pending on 01.10.2008 ? On the admitted and demonstrable factual scenario the State filed TREVC (SR) No. 1298/08 on 28.04.2008 before this court against the order dated 28.11.2007 of the STAT, Hyderabad in TA No. 1142/07. The Registry of this court returned the papers in the revision to the respondents for compliance with certain objections. The matter was represented on 30.10.2008 along with an application seeking condonation of a delay of 69 days in representing the revision. Thus, neither on 1.10.2008 nor on 4.10.2008 was there a revision by the petitioner pending before this court. The revision was presented, as already stated on 24.4.2008, returned by the Registry on 9.6.2008 and the papers represented by the respondents on 30.10.2008 – represented long after the passing of the impugned orders dated 1.10.2008 and 4.10.2008. In Raj Kulkarni vs State of Bombay ( [3] ); Tirupati Balaji Developers (P) Ltd vs State of Bihar ([4]) and C.I.T. vs Shatrusailya Digvijay Singh Jadeja ([5]), the Supreme Court spelt out the principle that when a Section contemplated pendency of an appeal, what is required for its application is that an appeal should be pending and it is not necessary that the appeal should be valid or competent. Even an irregular and incompetent appeal if pending satisfied the statutory requirement, ruled the apex Court. In the facts of the present case however TREVC (SR) No. 1298/08 was returned with office objections on 9.6.2008 and was not represented till 30.10.2008. There was no legal obligation for the respondents to represent the revision. They could have decided not to present a revision after the Registry had returned the papers in the revision for compliance of office objections. Thus neither on 1.10.2008 nor on 4.10.2008 when the impugned orders u/Sec. 33-C of the Act r/w Sec. 40(2) of the VAT Act were passed, was there any appeal or other proceedings pending. The exercise of power u/ Sec. 33-C of the Act r/w Sec. 40(2) of the VAT Act is therefore unsustainable. The learned Senior Counsel Sri E.Manohar appearing for the petitioner canvassed the invalidity of the impugned order on merits as well, placing reliance on the judgment of the Supreme Court in Barium Chemicals Ltd vs Company Law Board (AIR 1967 SC 295) to contend that even in matters relating to subjective satisfaction i.e., the formation of an opinion, the order should disclose the application of mind leading to the formation of an objective opinion. The learned Senior Counsel also urged that no rational and relevant reason was recorded in the orders dated 1.10.2008 and 4.10.2008 to enable this Court to infer why the 2nd respondent considered that the refund would adversely affect the revenue. Since we have already concluded on the 2nd issue that as on 1.10.2008 and 4.10.2008 there was no appeal or other proceeding pending, the impugned orders cannot be sustained as an exercise relatable to the powers u/ Sec. 33-C of the Act r/w Sec. 40(2) of the VAT Act. In the circumstances it is not necessary to consider whether the impugned orders are invalid on merits as well for failing to record relevant and rational reasons for the exercise of discretion as to the withholding of the refund. This question is best considered in an appropriate case where the issue substantively presents itself for resolution. On the aforesaid analysis the order of the 2nd respondent in Proceedings Rc.No. C6/248/03 dated 01.10.2008 and Rc.No. C6/248/03, dated 04.10.2008 under Sec. 33-C of the A.P. General Sales Tax Act r/w Sec. 40(2) of the A.P. VAT Act are quashed. The writ petition is accordingly allowed. In the circumstances of the case, however, there shall be no order as to costs. Dt:06.02.2009 ---------------------------------- pvsn Justice G. Raghuram ----------------------------------- Justice Sanjay Kumar [1] 2003 (3) SCC 239 [2] 2006 (145) STC 91 [3] AIR 1954 SC 73 [4] (2004) 5 SCC 1 [5] (2005) 7 SCC 294