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Supreme Court move to untie phone tax knot

New Delhi, April 21: The Supreme Court today issued notices to all states, Union territories, the Centre and Trai on a petition filed by Bharat Sanchar Nigam (BSNL) challenging the levy of a 12.5 per cent sales tax by six states Uttar Pradesh, Tamil Nadu, Punjab, Karnataka, Madhya Pradesh and Delhi from April 1, which comes over and above the 8 per cent service tax imposed by the Centre.

A division bench comprising Justice K. G. Balakrishnan and P. Venkatrama Reddi issued the notices after hearing arguments by Harish Salve, senior counsel for BSNL, who contended that the public was being made to pay an additional sales tax of about Rs 576 crore a year over and above the service tax of Rs 1,122 crore being charged by the Centre.

The states, which have been scouting about for ways to make up the revenue loss that they expect to suffer when VAT comes into effect from June 1, have hit upon the telephone tax as a major revenue-earning measure.

BSNL, the country's largest telephone service provider, is contesting the levy on behalf of its 36 million landline customers. It wants to stop the trend being set by these six states which the others may follow. That explains why the notices have gone out to all states and Union territories.

The telephone tax slapped by the states amounts to double taxation for the same phone service provided by BSNL, the counsel argued.

The bench admitted the petition for hearing and the states and the Centre, including the Telecom Regulatory Authority of India (Trai), will now have to justify the extra tax.

BSNL sought a stay on the current recovery of sales tax imposed by the state governments.

Salve told the court that the sales tax currently levied and to be recovered by all the state governments amounted to Rs 2,560 crore. He argued that it would be difficult to increase the teledensity in India, a major programme of a welfare state especially when the governments had set a target of providing at least 15 telephones per 100 people compared with the existing level of three per 100.

BSNL contended that it has been providing telecom services to the people and was charging them on that count alone and there was no transfer of goods to the consumers warranting the imposition of sales tax.

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