BHARAT SANCHAR NIGAM LTD. AND ANR. v. UNION OF INDIA AND ORS

Citation: [2006] 2 S.C.R. 823

Court: Supreme Court of India

Bench: RUMA PAL, AR. LAKSHMANAN, DALVEER BHANDARI

Case summary

BHARAT SANCHAR NIGAM LTD. AND ANR. v. UNION OF INDIA AND ORS.pdf

Judgment text

·~·. BHARAT SANCHAR NIGAM LTD. AND ANR. v. UNION OF INDIA AND ORS. MARCH 2, 2006 [RUMA PAL, DR. AR. LAKSHMANAN AND DALVEER BHANDARI, JJ. ) Constitution of India 1950-Articles 286, 366, (12) and (29A) and Schedule VII, List I Entry 92-C and List II Entry 54-Sale of Goods Act, 1930-Sections 2(7) and 4-Telegraph Act, 1885-Section 4.

Telephone Services-Sale Tax, Levy of by States-Nature of Transaction-Whether constitute sale of goods or service contract or a composite contract of service and sale-Meaning and scope of 'Goods' in telecommunication-Service providers are licensees under the Telegraph Act and provide telephone services to the subscribers-They filed writ petitions challenging imposition of sales tax by states on telephone services alleging that there is no sale ofgoods involved-States claim that transaction involve transfer of right to use goods and is a deemed sale under Articles 366 (29A)(d)-Allowing the petitions, held, a telephone service is nothing but a service-electromagnetic waves or radio frequency involved in telecommunication are not goods for the purpose of Article 366(29A)(d)- Goods in telecommunication are limited to the handsets supplied by the service provider-There may be transfer ofright to use the goods by giving a telephone connection-Nature of transaction involved in providing the telephone connection may be a composite contract ofservice and sale-It is possible for the state to tax the sale element provided there is a discernible sale and only to the extent relatable to such sale-The aspect theory would not apply to enable the value ofthe services to be included in the sale ofgoods or the price ofgoods in the value ofservice-Question whether SIM Card is 'goods' is left to be determined by the hsessing Authority.

Sale ofGoods-Deemed Sale-Levy ofSales Tax-Composite sale-service --; contracts divisible by Article 366(29A)-Scope of-Held, there are only three composite service-sale transactions named under clauses (b) (c) and (/) of Article 366(29A) where splitting ofsale and service is specifically permitted and sale element can be isolated and subjected to sales tax-Apartfrom these, there is no other service which has been permitted to be so split, unless it satisfies the dominant intention test. Sale ofGoods-'Sale and Goods '--Deemed Sale-Meaning andScope- Effect of insertion of Article 366(29A) by the 46th Amendment-Held, transactions which are deemed sales are limited to various sub-clauses of Article 366(29AJ-Al/ other transactions would have to qualijj; as 'sales' for the purposes oflevy ofsales tax-Article 366(29A) did not alter meaning of the word 'goods '-What are 'goods' in a sale transaction is a matter of contract and intention of the parties.

Telecommunication Services--Nature of-Service, Sale or of sale and service-Levy of sales tax and service tax·-Dominant intention test- Application ofArticle 366(29A)(d)-Held, a transaction for providing telephone services is not covered by Article 366(29A)(d) as there is no transfer ofright to use goods by the service provider to the subscriber-Reasons, object and scope of introduction of clauses (a) tot (f) to Article 366(29A) by the 46th Amendment discussed-Nature oftransaction involved in providing a telephone connection may be a composite contract ofsen·ice and sale--Sales tax can be imposed on such transaction ifit in truth represents two distinct and separate contracts and is discernible-Dominant nature test applicable to all transactions not specifically covered under Article 366(29AJ(A) to (/).

Telecommunication Services---Levy of Sales Tax by State-"Goods', Meaning and scope of-What constitute 'goods ' in telecommunication for the purpose ofimposition ofsales tax--Held, 'goods' for the purpose ofsales tax may be tangible or intangible provided it has the three attributes specified in Tata Consultancy case i. e. (i) its utility, (ii) capable ofbeing bought and sold and (iii) capable of being transmitted, transferred, delivered, stored and possessed-Goods must be deliverable-The electromagnetic waves or radio frequency do not faljil/ these attributes and are not goods for the purpose of Article 366(29A)(d)--Question whether the telephone system including the telephone exchange was goods or immovable property not determined- Question whether SIM cards supplied by service providers are 'goods' and liable to sales tax left to be determined by assessing authority-Dominant intention test to be applied.

Telecommunication Service-Composite Contract ofSale and service- Levy of sales tax or service tax-Valuation of-Aspect theory-Scope and application-Held, aspect theory deals with legislative competence ofCentre and States-It does not allow State to entrench upon the Union List and tax BHARAT SANCHAR NIGAM LTD. v. U. 0. 1. 825 services by including the cost ofservice in the value ofthe goods-Similarly ~~ Centre cannot include the value of goods in the cost of the service. -Res judicata-Constitution of India-Articles 32, 226-Doctrine of res judicata whether applicable to writ petitions-Held, yes.

Civil Procedure Code, 1908, Section I I-Constitution ofIndia, Article 141-Doctrine of Res judicata-lnapplicability in tax cases to assessment orders for subsequent years as each assessment year furnishes a fresh cause of action-However, earlier pronouncement has precedent value and where facts and law in a subsequent assessment year are the same, no authority can ,; generally be permitted to take a different view-A court ofsuperior strength or jurisdiction can overrule or reverse the earlier decision. Article 32, 226, 14, 19(J)(g)-Writ petition raising question as to legislative competence of states to levy sales tax on telecommunication services-Held, is maintainable as this question can not be raised or decided by the assessing authority-Ifstate is incompetent to levy such tax, it would l. result in violation ofArticles 14 and /9(J)(g). The principal issue that arose in this batch of cases is the nature of the transaction by which mobile phone connections are enjoyed.

Is it a sale or is it a service or is it both? If it is a sale then the States are legislatively competent to levy sales tax on the transaction under Entry 54 List II of the Seventh Schedule to the Constitution. If it is a service then the Central Government alone can levy service tax under Entry 97 of List I (or Entry 92C of List I after 2003). And if the nature of the transaction partakes of the character of both sale and service, whether both legislative authorities could levy their separate tax . discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and imposing tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29A) continues to be - did the parties have in mind or intend separate rights arising out of the sale of goods. If there was no such intention there is no sale even if the contract could be disintegrated.

The test for deciding whether a contract falls into one category or the other is to as what is 'the substance of the contract'. The Court will, for the want of a better phrase, call this the dominant nature test. After the 46th Amendment, the sale element of those contracts which are covered by the six sub-clauses BHARAT SANCHAR NIGAM LTD. v. U. 0. 1. 827 ,, of clause (29A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying. [851-C-F; 852-F-G) Rainbow Colour Lab v. State of M. P. , [2000) 2 SCC 385 and C. K. Jidheesh v. Union ofIndia, (2005) 8 SCALE 784, dissented from. Associated Cement Company Ltd. v. Commissioner ofCustoms, [2001) 4 sec 593, followed. J 4. 1. What are the "goods" in a sale transaction, therefore, remains primarily a matter ofcontract and intention. The seller and such purchaser would have to be ad idem as to the subject matter of sale or purchase.

The Court would have to arrive at the conclusion as to what the parties had intended when they entered into a particular transaction of sale, as being the subject matter of sale or purchase. In arriving at a conclusion the Court would have to approach the matter from the point of view of a reasonable person of average intelligence. (852-H; 853-A) 4. 2. Article 366 (12) has defined the words "goods" for the purpose of the Constitution as including "all materials, commodities, and articles". The word "goods" has also been defined in Section 2(7) of the Sales of Goods Act, 1930 as meaning "every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale". (853-B-C] 4. 3. In Tata Consultancy Services v.

State ofAndhra Pradesh for the purposes of levy of sales tax, it was held that "goods" may be a tangible property or an intangible one. It would become goods provided it has the attributes therefore having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of being transmitted, transferred, delivered, stored and possessed. " This is the correct approach to the question as to what are "goods" for the purposes ofsales tax. [854-D-Fl Anraj v. Government of Tamil Nadu, (1986) 1 SCC 414; Vikas Sales Corporation v. Commissioner of Commercial Tax, (1996) 4 SCC 733 and Sunrise Associates v. Government ofNCT ofNew Delhi, (2000) IO SCC 420, referred to. r Associated Cement Company Ltd. v. Commissioner ofCustoms, (20011 4 SCC 593 and Tata Consultancy Services v. State ofAndhra Pradesh, [20051 j, 1 sec 308, followed. 5. 1. It is clear, electromagnetic waves are neither abstracted nor are they consumed in the sense that 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. The signals are generated by the subscribers themselves. In telecommunication what is transmitted is the message by means of the telegraph. No part of the telegraph itself is transferable or deliverable to the subscribers. (856-D-Ef David Gilles and Roger Marshal, Telecommunication Law; Referred to. 5. 2. A subscriber to a telephorne service could not reasonably be taken to have intended to purchase or obtain any right to use electromagnetic waves or radio frequencies when a telephone connection is given. Nor does i the subscriber intend to use any portion of the wiring, the cable, the satellite, the telephone exchange etc.

At the most the concept of the sale in a subscriber's mind would be limited to the handset that may have been purchased for the purposes of getting a telephone connection. As far as the subscriber is concerned, no right to the use of any other goods, incorporeal or corporeal, is given to him or her with the telephone connection. It would, therefore, appear that an electro-magnetic wave {or radio frequency), does not fulfill the parameters applied by the Supreme Court in Tata Consultancy for ddermining whether they are goods, right to use of which would be a sale for the purpose of Article 366{29A) {d). Hence, the electromagnetic waves are not 'goods' within the meaning of the word either in Article 366(12) or in the State Legislations. lt is not in the circumstances necessary for us to determine whether the telephone exchange was not goods but immovable property as contended by some of the petitioners. (856-F-G; 856-H; 857-A; 858-E-F] State of U. P. v.

Union ofIndia, (2003] 3 sec 239, overruled. CST v. M. P. Electricity Board, [1969] l SCC 200 and State ofA. P. v. ..... NTPC. ]2002] 5 SCC 203 and Mckinley Telephone Co. v. Comber/and Telephone Co. , 152 Wis 359, distinguished. 5. 3. The essence of the right under Article 366 (29A) (d) is that it SHARATSANCHARNIGAM LTD v. U. 0. 1. 829 relates to user of goods. It may be that the actual delivery of the goods is not . 1.. necessary for effecting the transfer ofthe right to use the goods but the goods must be available at the time of transfer must be deliverable and delivered at some stage. It is assumed, at the time of execution of any agreement to transfer the right to use, that the goods are available and deliverable. If the goods, or what is claimed to be goods by tlJe respondents, are not deliverable at all by the service providers to the subscribers, the question of the right to use those goods, would not arise.

Providing access or telephone connection does not put the subscriber in possession of the electromagnetic waves any more than ) a toll collector puts a road or bridge into the possession of the toll payer by lifting a toll gate. Ofcourse the toll payer will use the road or bridge in one sense. But the distinction with a sale of good is that the user would be of the thing or goods delivered. The delivery may not be simultaneous with the transfer of the right to use. But the goods must be in existence and deliverable when the right is sought to be transferred. Therefore whether goods are i~corporeal or corporeal, tangible or intangible, they must be deliverable. [860-B-C; G-H; 861-A-B) 20th Century Finance Corp. Ltd. v. State ofMaharashtra, [2000] 6 SCC 12, explained. State ofA. P. v. Rashtriya Jspat Nigam Ltd. , (2003] 3 SCC 214 and Aggarwal Bros. v. State ofHaryana, [1999] 9 SCC 182, referred to. 5. 4.

It is not possible for this Court to opine finally on the issue whether SIM card is "goods". What a SIM card represents is ultimately a question of fact as has been correctly submitted by the States. In determining the issue, however the Assessing Authorities will have to keep in mind the following principles : if the SIM card is not sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sale, it would be open to the Sales Tax Authorities to levy sales tax thereon. There is insufficient material on the basis of which this Court can reach a decision.

However if the sale of a SIM card is merely incidental to the service being provided and only facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax. The High Court in Escotel case, ought not to have finally determined the issue. In any event, the High Court erred in including the cost of the service in the •' or.... (para 4 page 315) But in the case of Agrawal Brothers v. State of Haryana and Anr. •. [1999] 9 sec 182 when the assessee had hired shuttering to favour of contractors to use it in the course of construction of buildings it was fouqd that possession of the shuttering materials was transferred by the assessee to the customers for their use and therefore, there was a deemed sale within the . meaning of sub-clause (d) of Clause 29-A of Article 366. What is noteworthy is that in both the cases there were goods in existence which were delivered to the contractors for their use.

In one case there was no intention to transfer the right to use while in the other there W! lS. ,__ But if there are no deliverable goods in existence as in this case, there ~. is no transfer of user at all. Providing access or telephone connection does not put the subscriber in possession of the electromagnetic waves any more than a toll collector puts a road or bridge into the possession of the toll payer by lifting a toll gate. Of course the toll payer will use the road or bridge in BHARATSANCHARNIGAMLTDv. U. 0. 1. [RUMA PAL,J. ] 861 . •••. ',, i:r· one sense, But the distinction with a sale of goods is that th~ user would'be of the thing or goods delivered. The delivery may not be simultaneous with the transfer of the right to use. But the goods must be in existence and deliverable when the right_ is sought to be transferred. Therefore whether goods are incorpllteal or corporeal, tangible or intangible, they must be ~eliverable. To the extent that the decision in State of U. P. v.

Union of India held otherwise, it was, in our humble opinion erroneous. It has been held in Builders Association' of India v. Union of India (1989) 2 SCC 645 that the clauses in Article 366 (29A) do not amount to separate entry in List II of the 7th Schedule to the Constitution enabling the States to levy tax on sales and purchase independent of Entry 54 thereof. (see also Larsen & Toubro Ltd v. Union of India, (1993] 1 SCC 365, 383). Article 366 (29A) as introduced by the 46th Amendment not being equivalent to a separate entry in List II is subject to the same limitations as Entry 54 of that List.

At the time of amending Article 366, Article 286 was also amended by"the introduction of clause (3) which reads as:- "(3) Any law of a State shall, in so far as it imposes, or authorizes the imposition of:- (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub_-clause (d) of clause (29A) of article 366, be subjected to such restrictions and conditions in regard to the system oflevy, rates and other incidents of the tax as Parliament may by law specify. " -I Therefore the deemed sales included in Entry 54 List II would also be subject to the limitations of Art. 286, Art. 366(29-A).

Being aware ofthe dangers of allowing the residuary powers Parliament under Entry 97 of List I to swamp the legislative entries in the State list, we have interpreted Entry 54, List II together with Article 366 (29A) without -- whittling down the interpretation by referring to the residuary provision. Having completed the exercise, we now tum our attention to the latter. In 1994, service tax was introduced by Parliament under Chapter V of ' the Finance Act, 1994 \Vith reference to its residuary power under Entry 97 ~ . - List I of the Seventh Schedule to the Constitution. Under the 1994 Act, 'taxable services' which were subject to levy of service tax were defined. Several different services were included in the definition. Section 65(16)(b) included service provided to a subscriber by the telegraph authority in relation to a telephone connection wit~ effect from the com! ,pg into force of the 1994 . ~ as a taxable service.

Under Section 66, tax was imposed at the rate of five percent of the value of the taxable services provided to any person by the person responsible for collecting the service tax. The value of the taxable service in relation to a telephone connection provided to the subscribers, was ~: to be the gross total amount received by the telegraph authority from the subscribers. The 1994 Act was amended from time to time by extending the meaning of taxable service. We are concerned with two amendments, one made in 2002 and the other in 2003. By Section I49(90)(b) of the Finance Act, 2002, service to a subscriber by a telephone authority was continued as a taxable service. "Telegraph" was defined in Section 149(92) as having the same meaning assigned to it in clause (I) of Section 3 ofthe Indian Telegraph Act, 1885.

"Telegraph authority" was defined incorporating the definition of the phrase Section 3(6) of the 1885 Act and included "a person who has been granted a licence under the first proviso in Section 4(1) of that Act. The liability of service providers to service tax was continued under Section 159(105)(110) (b) and (111) of the Finance Act, 2003. The definition of subscriber was added in sub section (I 04) as meaning "a person to whom any service of a telephone connection or a facsimile (Fax) or a leased circuit or a pager or a telegraph or telex has been provided by a telegraph authority". Finally in 2003, List I of the Seventh Schedule to the Constitution was amended by including taxes on service under Entry 92C. By this time there were about 100 taxable services including the service of a telephone connection. The question is - is the sale element is each of these several services and in particular the service of a telephone connection taxable by the . - States? As we have said Art.

366(29A) has no doubt served to extend the meaning of the word 'sale' to the extent stated but no further. We cannot presume that the Constitutional Amendment was loosely drawn and must proceed on the basis that the parameters of 'sale' were carefully defined. But having said that, it is sufficient for the purposes of this judgment to find, as we do, that a telephone service is nothing but a service. There is no sales element apart from the obvious one relating to the hand set if any. That and any other accessory supplied by the service provider in our opinion remair - BHARAT SANCHARNIGAM LTDv. U. 0. 1. [RUMA PAL, J. ] 863 . Jt to be taxed under the State.... Sales Tax Laws. We have given the reasons earlier why we have reached this conclusion. This brings us to the decision of the Kerala High Court in Escotel.

In that case Escotel was admittedly engaged in selling cellular telephone instruments, SIM cards and other accessories and was also paying Central Sales Tax and Sales Tax under the Kerala General Sales Tax Act, 1963 as applicable. The question was one of the valuation of these goods. State Sales Tax Authorities had sought to include the activation charges in the cost of the SIM card. It is contended by Escotel that the activation was part of the service onwhich service tax was being paid and could not be included within the purview of,. the sale.. T~e l "If the words 'sale of goods' have to be interpreted in their legal " sense, that sense can only be what it has in 'the law relating to sale of goods,'' Since this judgment has been elaborately considered in the main judgment, I am not reproducing the_~erdict of this Court occurring at page nos. 41'3, 425, 426 & 427. The same Constitution Bench in Mithan Lal v. The State ofDelhi and ..... Ailr.

, [1959) SCR 445 at 451 ruled that ')/ ··:j "It would, therefore, be competent to Parliament to impose tax on the supply. of materials in. building contracts and to impose it under the name of sales tax, as. has been d()ne by the Parliament of the ,Commonwealth of Australia or by the-Legislatures of the American States. " ENACTING HISTORY: . As to the meaning of 'enacting history', we can usefully refer to page \ no. 520 of the Fourth Edition of Francis Bennion Statutory Interpretation. ' "The enacting history of an Act is the surrounding corpus of public knowledge relative to its introduction into Parliament as a Bill, subsequent progress through and ultimate passing by, Parliament. In particular it is the extrinsic material assumed to be within the contemplation of Parliament when -it passed the Act. A text constituting an item of its enacting history may or may not be expressly mentioned . in the Act. If inspected, it is unlikely to be ~~If-explanatory.

On the contrary it will probably require skilled evaluation. " The Statement of Objects and Reasons appended to the Constitution -_, (Forty-sixth Amendment) Bill 1981 is part of enacting history. The Statement of Objects and Reasons for the 46th Amendment is, inter alia;-as follows: "By a series of subsequent decisions, the Supreme Court has, on the basis of the decision in Gannon Dunkerley's case held various other transactions which resemble, in subs~ance, transaction by way of sales, to be --not liable to sales tax. As a result of these decisions, a transaction, in order to be subject to the levy of sales tax under entry 92A of the Union List or entry 54 of the State List, should have the following ingredients, namely, Q - J. parties competent to contract, mutual assent and transfer of property in goods from one of the parties to the contract to the other party thereto for a price. This position has resulted in scope for avoidance of tax in various ways.

An example of this is the practice of inter-State consignment transfers, i. e. transfer of goods from head office of a principal in one State to a branch or agent in another State or vice versa or transfer of goods on consignment account, to avoid the payment of sales tax on inter-State sales under the Central Sales Tax Act. While in the case of a works contract, if the contract, treats the sale of material separately from the cost of the labour, the sale of materials would be taxable but in the case of an indivisible works contract, it is not possible to levy sales tax on the transfer of property in the goods involved in the execution of such contract as it has been held that there is no sale of the materials as such and the property in them does not pass as movables. " The Parliament had to intervene as the power to levy tax on goods involved in works contract should appropriately be vested in the State legislatures as was pointed out in Gannon and Dunkerly & Co.

, the passages quoted hereinabove. There were 5 transactions in which, following the principles laid down in Gann. n,_Dunkerly & Co. relating to works contract, this Court ruled that those transactions are not exigiable to sales tax under various State enactments. The Parliament, therefore, in exercise of its constituent power, by 46th Amendment, introduced Article 366 (29A). The Statement of Objects and Reasons has fully set out the circumstances under which 46th Amendment was necessitated. The Amendment introduced fiction by which six instances oftransactions were treated as deemed sale of goods and that the said definition as to . deemed sales will have to be read in every provision of the Constitution wherever the phrase 'tax on sale or purchase of goods' occurs. This definition changed the law declared in the ruling in Gannon Dunkerly & Co. only with regard to those transactions of deemed sales. In other respects, law declared by this Court is not neutralized.

Each one of the sub-clauses of Article 366(29A) introduced by the 46th Amendment was a result of ruling of this Court which was sought to be neutralized or modified. Sub clause (a) is the outcome of New India Sugar Mills v. Commnr. OfSales Tax 14 STC 316 = [1963] Suppl. 2 SCR 459 and Vishnu Agencies v. Commissioner ofSales tax AIR (1978) SC 449. Sub clause (b) is the result of Gannon Dunerly & Co. , BHARATSANCHARNIGAMLTDv. U. 0. 1. [LAKSHMANAN,J. ] 869 [1959] SCR 379. Sub clause (c) is the result of K. L. Johar and Company v. C. T. O. , [1965] 2 SCR 112. Sub clause (d) is consequent to A. V. Meiyyappan v. CIT 20 STC 115 (Madras High Court). Sub clause (e) is the result of Jt. Commercial Tax Officer v. YMIA, [1970] I SCC 462. Sub clause (t) is the result of Northern India Caters (India) Ltd. v. Lt. Governor ofDelhi [1978] 4 SCC 36 and State ofH. P. v. Associated Hotels ofIndia Ltd. , 29 STC 474 = 1912 (I) sec 472.

In the background ofthe above, the history prevailing at the time of the 46th Amendment and pre-enacting history as seen in the Statement of Objects and Reasons, Article 366 (29A) has to be interpreted. Each fiction by which those six transactions which are not otherwise sales are deemed to be sales independently operates only in that sub clause. While the true scope of the amendment may be appreciated by overall reading ofthe entirety of Article 366 (29A), deemed sale under each particular sub clause has to be determined only within the parameters of the provisions in that sub clause. One sub clause cannot be projected into another sub clause and fiction upon fiction is not permissible. As to the interpretation of fiction, particularly in the sales tax legislation, the principle has been authoritatively laid down in the Bengal Immunity Company Ltd. v. State ofBihar and Ors. , [1955] 2 SCR 603 at 647.

"The operative provisions of the several parts of Article 286, namely, clause {l){a), clause {l)(b), clause (2) and clause (3) are manifestly · intended to deal with different topics and, therefore, one cannot be projected or read into another. " (S. R. Das, J. )" We can also see page nos. 720 and 721 (P. N. Bhagwati, J. ) --1 NATURE OF TRANSACTION IN THE PRESENT CASE: The contract between the telecom service provider and the subscriber is merely to receive, transmit and deliver messages of the subscriber through a complex system of fibre optics, satellite and cables. Briefly, the subscriber originates/generates his voice message through the handset. The transmitter in the handset converts the voice into radio waves within the frequency band allotted to the Petitioners. The radio waves are transmitted to the switching apparatus in the local exchange and thereafter after verifying the authenticity of the subscriber; the message is transmitted 870 SUPREME-. COURT REPORTS [2006] 2 S. C.

R. to the telephone exchange of the called party and then to the nearest Base Transceiver Station (BTS). The BTS transmits the signal to the receiver apparatus of the called subscriber, which converts the signals into voice, which the subscriber can hear. The modem legislature makes laws to govern a society, which is fastmoving. It is aware of the changing concepts of the emerging times. The law adapts itself to social, economic, political, scientific and other revolutionary changes. Traditionally, a contract for carriage of goods or passengers is by roadways, railways, airways and waterways. This is associated with carriage of tangible goods. Such a carrier has no right over the goods of the customer and does not effect transfer of right to use any goods used by the carrier for goods. On this analogy, the Petitioners carry messages. They are only carriers and have neither property in the message nor effects any transfer to the .

~ubscriber~ The advancement of technology should be so absorbed in the interpretation that this method ofcarriage ofmessage should also be understood as. carriage . of goods and not a transfer of a right to use goods, if any. The licence clearly manifests that it is one for providing telecommunication service and not for supply of any goods or transfer of right to use any goods. It expressly prohibits transfer or assignment. The integrity of licence cannot be broken into pieces nor can the telecommunication service rendered by them be so mutilated. Not only this position flows from the t~~s. of contract, this also flows from Section 4 of the Indian Telegraph Act which provides for grant of licence on such conditions and in consideration of such payments as it thinks fit, to any person "to establish, maintain or work at telegraph". The integrity of establishing, maintaining and working is not to be mutilated. .

- Clause 9 clearly interdicts the licensee provided that licensee will not assign or transfer his rights in any manner whatsoever under the licence to third party. It is impossible to contend that the right to use goods, assuming without conceding that they are goods, which are essential for the rendition of service can never be a transaction or transfer of right to use goods. Nor can the contract between subscribers and licensee viz. service provider be interpreted as involving transfer of right to use goods: Gannon Dunkerly declared that a transaction of sale of goods has to be under a contract i. e. it is consensual. A. BHARATSANCHARNIGAMLTDv. U. O. L [LAKSHMANAN,J. ] 871 Section 4 ofthe Telegraph Act maintains the integrity of subject-matter of the licence viz. , "establish, maintain or work ·a telegraph". Therefore, the transaction of service is composite one riot capable of disintegrated. Except in sub-clause (a) in all other sub clauses the transactions are contractual.

There is no scope for importing any doctrine of statutory agency of the service provider. Except in the case of sub clause (a) where the transfer otherwise than in pursuance of contract of property in any goods is deemed to be sale in each one of the other sub clauses the transaction is consensual. The contrast between sub Article (a) and all other sub clauses clearly manifests that the transaction involved in the present dispute are contractual. The fiction operates to deem what is hot otherwise a sale of goods as a sale of goods i. e. even the transfer of a right to use goods is deemed to be a sale of the goods. It is not possible to interpret the contract between the service provider and the subscriber that the consensus- was to mutilate the integrity of contract as a transfer of right to use goods and rendering service. Such a mutilation is not possible except in the case of deemed sale falling under sub clause (b).

Nor can the service element be disregarded and the entirety of the transaction be treated as a sale of goods (even when it is assumed that there is any goods \ at all involved) except when it falls under sub clause (f). This will also result in an anomaly of the entire payment by the subscriber to the service provider being for alleged transfer of a right to use goods and no payment at all for service. The licence granted by the Central Government fixes the tariff rates and all are for services. Sale of Goods Act, comprehends two elements, one is a sale and the other is delivery of goods. 20th Century Finance Corporation Limited v. State ofMaharashtra, [2000] 6 SCC i2 at 44, ruled that " (c) where the goods are available for the transfer of right to use the ---J - \ 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.

(d) In cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods. " It is, therefore, unnecessary to deal with the question of delivery of possession which is related only to situs and not to subject-matter of taxation ... , which is a transfer of right to use goods. In the present case, as no goods element are involved, the transaction is purely one of service. There is no transfer of right to use the goods at all. I am, therefore, of the view that the imposition of sales tax on any facilities of the telecommunication services is untenable in law. ORDER Leave granted in the special leave petitions. Civil Appeals are disposed of in terms of the judgment delivered by us today in W. P. (C) No. 183/2003 etc. titled-Bharat Sanchar Nigam Ltd v. Union of India and Ors. , Contempt Petn. No. 365/&. , :.

• WP(C) No. 183103. Contempt petition is dismissed. K. G. Writ Petition and Civil Appeals disposed of Contempt petition dismissed. I -