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Before
going into "why this ruling" and "what
next" questions, let us get it a few things clear.
One, the law on sales-tax, as far it relates to the matter
in issue, is not unique. Therefore, if getting a telephone
connection is a "sale" in Uttar Pradesh, it is a
sale in all other States in the country too. Two, it is
not a sale from tomorrow, because the Supreme Court's
ruling is only an interpretation of a law that has been
there, in most States in the country, ever since 1984.
Three, the fact that there was no specific rate of tax
prescribed for this particular "sale"
transaction does not deter the States from collecting the
above tax, because most States have had a residual entry
in their sales-tax statutes which can slap tax on all such
goods or sales which are not specifically provided for.
The
genesis of the ruling in question is a clause in sales-tax
laws that relates to "transfer of right to use any
goods for any purpose". Those familiar with the
history of sales-tax know that this clause was inserted in
the Constitution in 1982 to impose sales-tax on lease
transactions, as an anti-avoidance measure, since de-facto
sale transactions of goods were being camouflaged as lease
transactions. Obviously therefore, the intent of this
clause was to relate to only such "transfer of right
to use goods" as is substantively a sale. The idea of
the Constitution amendment, clearly, was not to enhance
the scope of sales-tax by bringing in new items of levy,
but was anti-avoidance.
However,
States have tried to give a very wide interpretation to
the largely open-ended words "transfer of right to
use any goods for any purpose". Courts, including the
Apex court, in several recent rulings, has given a very
wide interpretation to the words "goods" - and
if this broad meaning is superimposed into "transfer
of right to use any goods for any purpose", we have
opened up completely new vistas in sales-tax.
For
example, in the instant case, the Supreme Court held that
providing of a telephone connection by the Telephones is a
"transfer of right to use goods", since a
telephone connection is goods. No matter whether the
instrument is provided by the Telephones or by the
customer himself - it is the connection which is
"goods", and not the box.
It
was also brought to the notice of the Hon'ble Court that
provision of telephony services is already being
considered as a "service" for the purpose of
imposition of service tax, but the Court was not convinced
as to the invalidity of imposition of sales-tax on the
same transaction.
So,
what next? If provision of a telephone connection is a
sale, so would be the case, ex hypothesi, in case of
provision of electric connections. Provision of an ad
space in a printed newspaper might also be transfer of
right to use goods. How about provision of space in a
train, or a seat in a flight?
It
is very essential for the lawmakers to intervene and
define the borders of distinction between sales and
services. The nation would be pushed into an utter chaos
if we fail to do so. We have a fragmented system where
both the Center and States impose taxes on commodities as
well as services. That is what makes this distinction all
the more significant, and what can be a more appropriate
time for this than now, when the whole country is destined
to move into a new system of taxation of commodities.
The
Constitution (95th Amendment) Bill proposes transfer of
service tax collections to the States. In other words,
service tax would continue to be collected by the Center,
but transferred to the States. It service tax is
ultimately to be absorbed by the States, why not allow the
States to tax services, instead of the Center? If that was
to be done, we would eliminate competing and overlapping
claims of the States and the Center on something like
Telephones altogether.
14/06/2003
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