By TIOL News Service

CHANDIGARH, APR 13, 2015: THE issue before the HC is - Whether VAT can be levied on activation of SIM cards when it is already held by the Supreme Court that the same cannot be treated as a transaction of sale. NO is the answer.

Facts of the case

The assessee is a telecom service provider and as a part of its business, activates SIM cards. The State of Haryana collected VAT from the assessee on the premise that activation of SIM cards is a sale. The assessee approached the State of Haryana for refund of the amount of VAT but as no action was taken in the matter, and thereafter it filed civil writ petition in which the High Court directed the Government to decide the assessee's representation for refund. The representation was dismissed on the ground that the assessee did not challenge its liability before the AO and now when the assessment order is final, no refund can be granted since there is no provision for refund under the Haryana VAT Act. Aggrieved, the assessee has filed this writ petition pleading for issuance of a writ of mandamus to the Government of Haryana to refund the tax amount.

The counsel of the assessee contended that the levy of VAT on activation of SIM cards was without any statutory force and illegal, in light of the Supreme Court judgment in Bharat Sanchar Nigam Limited and another vs Union of India and others, and in the case of the assessee in Idea Mobile Communication Ltd. v. C.C.E. & C., Cochin, where it was clearly held that activation of SIM card is a service and not a sale. The counsel of the Government contended that the tax amount so collected from the assessee under protest must be refunded to the assessee.

The Counsel for the State of Haryana contended that the assessment orders have become final and therefore, the assessee cannot pray for issuance of a writ to quash the assessment orders and or direct refund of the amount voluntarily deposited by the assessee. It was further submitted that the assessee deposited VAT in accordance with the interpretation of the law prevalent on the date of passing of the assessment orders and in the absence of any plea raised at the time of assessment about its exigibility to tax, cannot seek quashing of assessment orders or refund. It was also submitted that Section 20 of the VAT Act, which confers the power of refund does not apply to the present case and as the Haryana VAT Act does not contain any provision that allows the Government to refund the amounts deposited by the assessee.

Having heard the parties, the High Court held that,

Statutory source for levy of tax

++ the question whether activation of SIM cards is a service or a sale came up for consideration before a larger Bench of the Supreme Court in Bharat Sanchar Nigam Limited and another and was answered by holding that activation of SIM cards is a 'service' and not a 'sale'. The petitioner is, therefore, liable to pay service tax on the activation of SIM cards and not VAT. The Union of India has, consequently, raised a demand for service tax for the period during which the petitioner paid VAT;

++ the State of Haryana does not deny that in Bharat Sanchar Nigam Limited, the Supreme Court has held that activation of SIM cards is a service and not a sale. The State of Haryana also does not deny that the collection of VAT on activation of SIM cards is not relatable to any statutory provision. As postulated by Article 265 of the Constitution of India a tax shall not be levied except by authority of law i.e., a tax shall be valid only if it is relatable to statutory power emanating from a statute. The collection of VAT on the sale of SIM cards, not being relatable to any statutory provision, must be held to be without authority of law and as a consequence non-est;

Writ petition seeking refund

++ a bare perusal of Section 20 of the Haryana Value Added Tax Act, 2003, reveals that it does not provide for refund of tax in the scenario, obtaining in the present case. Thus, the question that remains is whether after having held that the State of Haryana is not statutorily empowered to collect and levy VAT on the activation of SIM cards and the VAT Act does not permit refund in a situation as obtaining in the present case, may a writ be issued to direct the State to refund the tax and or to quash assessment orders, or is this court devoid of power to adopt such a course?;

++ as a general rule, a high prerogative writ, shall not issue where a statute prescribes a complete procedure for redressal of grievances. But this general rule must admit to certain exceptions, particularly where the collection of tax is without authority of law. A court, in such a situation, must rise above these inherent impediments and ensure that the State does not levy or appropriate tax without authority of law and if so collected is called upon to refund the amount or deposited. We draw support for our opinion from a judgment of the Supreme Court in U.P. Pollution Control Board and others v. Kanoria Industrial Ltd. and another;

++ it is one thing to say that the High Court has no power under Article 226 of the Constitution to issue a writ of mandamus for making refund of the money illegally collected. It is yet another thing to say that such power can be exercised sparingly depending on facts and circumstances of each case. For instance, in the cases on hand where facts are not in dispute, collection of money as cess was itself without the authority of law; no case of undue enrichment was made out and the amount of cess was paid under protest; the writ petitions were filed within a reasonable time from the date of the declaration that the law under which tax/cess was collected was unconstitutional. There is no good reason to deny a relief of refund to the citizens in such cases on the principles of public interest and equity in the light of the cases cited above. However, it must not be understood that in all cases where collection of cess, levy or tax is held to be unconstitutional or invalid, the refund should necessarily follow. We wish to add that even in cases where collection of cess, levy or tax is held to be unconstitutional or invalid, refund is not an automatic consequence but may be refused on several grounds depending on facts and circumstances of a given case;

++ our opinion as to the exercise of power under Article 226 of the Constitution of India having been fortified by judgments of the Supreme Court in U.P. Pollution Control Board and others, Saraswati Sugar Mills, Solonah Tea Co. Ltd., Shree Baidyanath Ayurved (P) Ltd. and by a Division Bench judgment in Fizz Dinks P. Ltd. v. State of Haryana and others, we find no reason to accept the arguments addressed by the State of Haryana, that a writ cannot or should not issue to direct refund of a tax levied, collected and retained, without authority of law;

No writ petition upon assessment order

++ a point raised by the State of Haryana, that we must deal with is that as the assessment orders persist and the statute does not empower the State to order refund, a direction to that effect cannot be issued under Article 226 of the Constitution of India. The submission disregards the fact that the levy, the collection and retention of VAT by the State of Haryana, is without authority of law. The levy and collection of tax, pursuant to assessment orders dated 22.2.2006, 26.3.2008 and 22.2.2006 not being relatable to a statutory power emanating from a Statute and, therefore, violative of Article 264 of the Constitution of India and a nullity. The mere fact that orders have been passed levying and collecting tax would not confer legitimacy, on the acts of the State of Haryana in seeking to retain the amount of tax collected and retained, without authority of law. The State of Haryana would have been justified in raising such a plea if the judgment in Bharat Sanchar Nigam Limited had been held to be prospective. A perusal of the aforesaid judgment reveals that the declaration of law is not prospective and like all general declarations of law, would be deemed to apply from the inception of the statute. The judgment having clearly held that VAT cannot be collected on activation of SIM cards, the assessment orders levying and collecting VAT, are from their inception a nullity and, therefore, the levy and collection of VAT is without authority of law and violative of Article 265 of the Constitution of India.

(See 2015-TIOL-896-HC-P&H-VAT)