NEW DELHI: The Supreme Court on Thursday held that States could not levy sales tax on telecom services. A three-judge Bench comprising Justice Ruma Pal, Justice A. R. Lakshmanan and Justice Dalveer Bhandari held that the imposition of sales tax on any facility provided by telecom service operators was legally untenable.

The Court said electromagnetic waves and radio frequencies could not be termed as goods, and hence were not liable to be taxed. "It is clear, electromagnetic waves are neither abstracted nor consumed in the sense that they are not extinguished by the user. They are not delivered, stored or possessed. Nor are they marketable...No part of the telegraph itself is transferable or deliverable to the subscribers," the Bench held.

It held that the nature of transactions was composite and it was possible to tax the handset, the only sale element. Vis-à-vis the SIM card, the Bench left it to be determined by Sales Tax Authorities. On a petition filed by the Bharat Sanchar Nigam Ltd, regarding whether provision of telephone connections involved inter-state sales, the Bench remained quiet.

The judgment was passed in a number of appeals against various high court orders that took different views on this question. In 1995, the Uttar Pradesh Government said the department of telecom (the telecom services of the DoT have now been separated into Bharat Sanchar Nigam Ltd) would have to pay sales tax on the revenue it earned since this was also taxable under the UP Sales Tax Act.

The DoT/BSNL challenged this on the ground that since a service tax was being levied, the transaction was not liable to sales tax.

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