The Hindu Business Line : `Welcome relief for telecom industry, subscribers'

The Apex court has provided the required directional clarity on the vexed issue of double taxation of the same revenues by the Central and the State Governments by holding that the principle of mutual exclusivity would apply to all composite contracts whereby the States cannot tax the income attributable to services and the Centre cannot tax the value attributable to goods."

The telecom industry was reeling under the threat of double taxation as the telecom revenues were sought to be taxed by both the service tax authorities (as service income) and by the sales tax authorities (as lease income).

The judgment has imparted certainty to the issue by holding that telecom revenues are in the nature of service income and hence chargeable to only the service tax.

The decision of the Apex Court is a welcome relief not only to the telecom industry but also to telecom subscribers at large.

The States' revenues should not be affected in real terms as even before this decision the demands issued by the State sales tax authorities were stayed by many High Courts and the demand notices were issued by the authorities more to save time bar. The decision of the Apex Court has clearly laid down the rule that in respect of composite contracts the States cannot entrench upon the Union list and tax services by including the cost of such service in the value of the goods.

Similarly the Centre cannot include the value of goods in the cost of the service and subject them to service tax. The aforesaid principle of mutual exclusivity is expected to be applied by the courts with reference to all composite contracts where the States may be seeking to tax services indirectly. The verdict stands the test of sound logic and is based on the principles of equity. In our view the States may not find plausible grounds to challenge this verdict. The judgment lays down the principle that the same revenue cannot be subject to multiple taxes by different taxing authorities by holding them as service income and income from sale of goods.

As we move on to the GST regime, there would be an integration of the State and federal taxes to a single GST that would be applied on the sale of goods/services. As the GST regime supports a single tax be it the sale of goods or services, the principles enunciated by the Apex court judgment would have already been taken care of.

(R Muralidharan, Principal Consultant, PricewaterhouseCoopers, New Delhi)

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