The Telegraph
Since 1st March, 1999
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Supreme Court stays sales tax on phone bills

New Delhi, Sept. 25: The Supreme Court today issued an interim stay order restraining all state governments from collecting sales tax on all telecom services.

A division bench of justices S. Rajendra Babu and A. R. Lakshmanan, which issued the interim stay order, also referred to a larger bench the issue on whether the state governments are entitled to levy sales tax on services provided by the telecom companies.

Both the orders — the stay and the referral to a larger bench — came on a petition by Bharat Sanchar Nigam Ltd (BSNL) challenging the state governments’ right to levy sales tax on its services.

The BSNL was joined by almost all other telecom companies like Escotel, Reliance, and the Tatas, who also challenged the power of state governments to levy sales tax on the services provided by them.

The judges made it clear that no state government should adopt coercive methods like attaching the properties of the companies or taking any other action till the petition was disposed off by a larger bench.

In a short order, the bench said, “Stay of coercive action for recovery except with regard to completed assessment subject to any statutory remedy. Place the matter before a larger bench.”

This means the companies would become liable to sales tax where the assessment has already been completed but the collection of the tax would be subject to “statutory remedy”.

BSNL’s senior counsel Harish Salve pointed out that the states were not given the freedom to recover whatever they have assessed and that the companies had the right to challenge the assessment.

Telecom companies contended that they were already paying service tax to the central government and that states could not impose another levy as it would amount to “double taxation”. Another legal quibble is over whether the provision of telecom services amounts to sales.

Meanwhile, communications and information technology minister Arun Shourie told reporters, after a meeting of the group of ministers (GoM) on telecom, “Telephone services are not a commodity and, therefore, sales tax should not be levied on it.”

Shourie said the GoM on telecom agreed that this decision should be communicated to the cabinet and then be placed “before the broader bench of Supreme Court that is seized of this issue.”

Commenting on the sales tax issue, Sunil Bharti Mittal, group chairman and managing director of Bharti, said, “We have always maintained such a tax is unwarranted.”

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