1 30.3.2011 C.O. 3630 of 2009 Mr. <NAME> ....for the petitioner Mr. <NAME> Mr. <NAME> Mr. <NAME> Mr. <NAME> ....for the opposite party This revisional application under Article 227 of the Constitution of India, presented before this <ORG> on November 24, 2010, is a classic example of how an occupier (the petitioner herein) of a flat has been fighting tooth and nail to remain in possession thereof despite having floundered in previous rounds of litigation. The petitioner instituted Title Suit No.76 of 1985 seeking a decree for declaration that he is a monthly tenant under the defendant no.1 (the opposite party herein) in respect of the flat (the suit property) as well as permanent injunction restraining the defendant no.1 from disturbing his peaceful possession and enjoyment of tenancy right in respect thereof. The suit was dismissed on January 31, 1989. The petitioner, feeling aggrieved thereby, preferred Title Appeal No.156 of 1989. The appeal was dismissed by judgment and decree dated January 11, 1990, and the judgment and decree of the trial <ORG> stood affirmed. A second appeal was preferred by him before this <ORG>, registered as S.A. No.523 of 1991. By judgment and order dated September 23, 2003, the second appeal was also dismissed. 2 Soon thereafter, the opposite party instituted a suit against the petitioner, being Title Suit No.102 of 2004, for recovery of possession of the selfsame suit property that was the subject matter of the earlier suit by and between the parties on the ground that the petitioner is a trespasser, as well as for damages. The suit filed by the opposite party was decreed on April 18, 2006. The petitioner, being the judgment-debtor, unsuccessfully carried the judgment and decree in appeal (Title Appeal No.102 of 2004). By judgment and order dated January 18, 2007, the appeal was dismissed, and the judgment and decree of the trial <ORG> stood affirmed. The opposite party thereafter put the decree into execution by initiating proceedings, registered as Title Execution Case No.13/2006. The petitioner did not sit idle all these years. In May, 2005, he had filed a review petition praying for review of the order dated September 23, 2003 whereby his second appeal was dismissed by this <ORG>. However, apart from filing the said application, he did not follow it up and the review application is still stated to be pending. The petitioner, after dismissal of Title Appeal No.102 of 2004, had also filed a second appeal before this <ORG>, registered as S.A. No.903 of 2007. However, the said appeal is yet to be admitted under Order XLI Rule 11 of the Code and, therefore, there is no question of stay. Without pressing either the application for review or the second appeal, the petitioner filed Misc. Case No.11 of 2007 against the opposite party under Order XXI Rules 97-101 of the Code read with Section 151 thereof. By 3 an order dated July 24, 2007, the Misc. Case was dismissed and no appeal having been filed thereagainst, the order attained finality. To give shape to his indomitable desire to procrastinate proceedings, the petitioner now applied under Section 47 of the Code read with Section 151 thereof in connection with Title Execution Case No.13/2006, giving rise to Misc. Case No.308 of 2008. It was claimed in the petition under Section 47 of the Code that the suit property had not been appropriately described in the schedule of the plaint and, therefore, the decree that was passed is not executable. The petition under Section 47 of the Code came up for consideration before the executing <ORG> on June 7, 2008. The petitioner prayed for adjournment, which was declined. An order was issued by the executing <ORG> directing execution of the writ of delivery of possession within June 30, 2008. On consideration of a separate petition filed by the opposite party, the <ORG> granted liberty to the bailiff to break open the padlock of the suit property, if necessary, for the purpose of execution of the decree. On June 13, 2008, at about 11.00 a.m., the writ of delivery of possession was executed and possession of the suit property was restored in favour of the opposite party. On the same day, the petitioner filed a revisional application before this <ORG>, being C.O. No.1913 of 2008. Upon ex-parte hearing, a learned Judge of this <ORG> was pleased to stay execution of the decree till June 20, 2008. 4 The executing <ORG> on being informed of the order passed by this <ORG> on June 13, 2008, a separate order was passed on June 16, 2008 recalling the writ. It is not in dispute that as a consequence thereof, the opposite party redelivered possession in favour of the petitioner. C.O. 1913 of 2008 thereafter came up for final hearing on May 14, 2009. The selfsame learned Judge who had stayed execution on June 13, 2008 was apprised of the history of the case. His Lordship by a detailed order of even date disposed of the revisional application with an observation that the petition under Section 47 of the Code filed by the petitioner ought to be disposed of within one month without granting any adjournment to any of the parties. It is noteworthy that while the opposite party was put in possession of the suit property upon dispossession of the petitioner in pursuance of execution of the writ for delivery of possession, the petitioner did not raise any grievance that the opposite party was given possession of a property which was not the suit property and/or that possession of the property that was redelivered to him in pursuance of the order of the executing <ORG> dated June 16, 2008, is not the suit property which was hitherto before being occupied by him. The executing <ORG> thereafter proceeded to consider the petition under Section 47 of the Code. The petitioner did not participate in the proceedings for reasons best known to him. Ultimately by an order dated June 25, 2009, the petition under Section 47 of the Code was rejected. This order is under challenge in the present revisional application. 5 I have heard Mr. <NAME>, learned advocate appearing for the petitioner and Mr. <NAME>, learned senior advocate for the opposite party. The narrative of facts, as aforesaid, is ample manifestation of the conduct of the petitioner as noticed at the commencement of this order. Mr. <NAME> is correct in his contention that being a licensee in respect of the suit property, as claimed by the opposite party, or a tenant as claimed by him, the petitioner ought to know which property is the subject matter of the two suits. Reliance placed by him on the decision of <ORG> reported in XXIII CWN 77 ( <CITATION> .) appears to be apt. It was ruled therein that the notices to quit, issued under the Transfer of Property Act , though not strictly accurate or consistent in the statements embodied in them may still be good and effective in law. The test of their sufficiency is not what they would mean to a stranger ignorant of all the facts and circumstances touching the holding to which they purport to refer but what they would mean to tenants presumably conversant with all those facts and circumstances. They are to be construed not with a desire to find faults in them which would render them defective, but to be construed ut res magis valeat quam pereat. Applying the principle here, it is too late in the day for the petitioner to voice a grievance that the suit property not having been properly described in the plaint, the decree is a nullity and not executable. In its decision reported in AIR 1970 SC 1475 ( <CITATION> ), the Supreme <ORG> was considering the 6 scope of objection under Section 47 of the Code in relation to the executability of a decree and it was laid down that only such a decree can be the subject- matter of objection which is a nullity, and not a decree that is erroneous either in law or on facts. Hon'ble <NAME>, J. (as His Lordship then was), speaking for himself and on behalf of Hon'ble <NAME> and Hon'ble <NAME>, JJ.

(as Their Lordships then were), laid down the law which runs thus:

"6. A court executing a decree cannot go behind the decree between the parties or their representatives it must take the decree according to its tenor, and cannot entertain any objection that the decree was incorrect in law or on facts. Until it is set aside by an appropriate proceeding in appeal or revision, a decree even if it be erroneous is still binding between the parties.

7. When a decree which is a nullity, for instance, where it is passed without bringing the legal representatives on the record of a person who was dead at the date of the decree, or against a ruling prince without a certificate, is sought to be executed an objection in that behalf may be raised in a proceeding for execution. Again, when the decree is made by a court which has no inherent jurisdiction to make it, objection as to its validity may be raised in an execution proceeding if the objection appears on the face of the record: where the objection as to the jurisdiction of the court to pass the decree does not appear on the face of the record and requires examination of the questions raised and decided at the trial or which could have been but have not been raised, the executing court will have no jurisdiction to entertain an objection as to the validity of the decree even on the ground of absence of jurisdiction."

As noticed above, after suffering the appellate decree decree passed in Title Appeal No.102 of 2004, the petitioner did not leave any stone unturned to pursue all the remedies the Code provided to him, albeit unsuccessfully. With the dismissal of the first appeal, the remedy open to him was to take recourse to Section 100 of the Code. Although second appeal was filed, the petitioner did not risk taking steps for admission thereof under Order XLI Rule 11 of the Code, lest it is also dismissed. Like a drowning man latching on to the last straw, he did what was expected of him. The Section 47 petition was presented before the executing <ORG> after Misc Case No.11 of 2007 was dismissed, wherein a factual issue was raised in respect of improper description of the suit property. It was not the plea of the petitioner that the trial <ORG> lacked inherent jurisdiction to decide the contentious issues and, therefore, the decree passed by it was a nullity and thus not executable. It was open to the petitioner to set up a plea before the trial <ORG> as well as the superior <ORG>s that the suit property has been inappropriately described and, therefore, no decree for eviction could have been passed against him at the instance of the decree-holder/opposite party. Such contention does not appear to have been raised. That the suit property has not been appropriately described is of little consequence now. The executing <ORG> has rightly observed that reopening of this issue would amount to going behind the decree, which is impermissible in law.

In this connection, it would be pertinent to refer to a decision reported in AIR 1993 Orissa 251 ( <CITATION> ). Hon'ble <NAME>, C.J. (as His Lordship then was) while considering a somewhat similar plea, had the occasion to observe that the plea of the judgment-debtors in their petition under Section 47 of the Code that the property had vested in <ORG> was not really available on the principle of constructive res judicata. Relevant extract from the decision reads as under :

"*****This point was thus not taken not only before the trial <ORG>, but in the first appellate <ORG> as well as before this <ORG> in Civil Revision No.252 of 1974. To allow this point to be taken for the first time in the executing <ORG> could almost be a travesty of justice and would give a very long scope to judgment-debtors who after failing at all levels during trial put up pleas of non-executability which was very much available at the time of trial, which would be totally against larger interest of the society, because a litigation fought to the end at the trial stage would be set at naught by taking pleas available earlier and not taken either knowingly or even unknowingly. If constructive res judicata were not to be applied in such a case, very few decrees would attain finality and decrees would remain paper tigers, which cannot be allowed to happen."

I am convinced that the petitioner has been successful in prolonging litigation and thereby remaining in unlawful possession of the suit property. The decree that the opposite party has obtained cannot be allowed to be defeated at the execution stage by going behind the decree. There is no worthy reason to upset the order of the executing <ORG>.

The application stands dismissed. The petitioner shall bear costs of proceedings assessed at Rs. 50,000/-, to be paid to the opposite party within a month from date.

At this stage, a certificate is prayed for by Mr. <NAME> for leave to file appeal before <ORG>. I do not consider that any substantial question of law of general importance is involved deserving a certificate. The prayer stands refused.

Urgent photostat certified copy of the order, if applied for, be given to the parties at an early date.

(DIPANKAR DATTA, J.)


CASE NO.: Writ Petition (civil) 183 of 2003 PETITIONER: <ORG> & Anr. RESPONDENT: <ORG>. DATE OF JUDGMENT: 02/03/2006 BENCH: <NAME> & <NAME> JUDGMENT:

J U D G M E N T WITH CA.N.2408/2002,3329-30/02 WP (C) NOS.227,223, 372, 450/03,468/05 C.A.Nos.5337-38/01,4278-88/02, WP.(C) No.144-45/04 WP (C) No.149/04, 162/05, CA Nos.6323-25/99, 2517- 18/04, 3086/04, 2471/05 RUMA PAL, J.

The principal question to be decided in these matters is the nature of the transaction by which mobile phone connections are enjoyed. Is it a sale or is it a service or is it both? If it is a sale then the States are legislatively competent to levy sales tax on the transaction under Entry 54 List II of the Seventh Schedule to the Constitution. If it is a service then <ORG> alone can levy service tax under Entry 97 of List I (or Entry 92C of List I after 2003). And if the nature of the transaction partakes of the character of both sale and service, then the moot question would be whether both legislative authorities could levy their separate taxes together or only one of them. The contenders are the service providers on the one hand and the States on the other. It is the case of the service providers (who are for the purposes of convenience referred to in this judgment as "petitioners" irrespective of the capacity in which they are arraigned in the several matters before us) that there is no sale transaction involved and that the attempt of the several States to levy tax on the provision of mobile phone facilities by them to subscribers was constitutionally incompetent. It is their case that the transaction in question was merely a service and that <ORG> alone was competent to levy tax thereon. They are supported in their stand by <ORG>.

The States' (who are correspondingly referred to as "the respondents") contention is that the transaction was a deemed sale under Article 366 (29A)(d) of the Constitution read with the charging sections in their various sales tax enactments and therefore they are competent to levy sales tax on the transactions. These are the contentions which are only briefly indicated at this stage to introduce the circumstances under which the issue has been raised before us.

<ORG> of Allahabad , Andhra Pradesh , and Punjab & Haryana all held that there was no sale of goods under the State Sales Tax Act s justifying the levy of sales tax on rentals charged by service providers to its subscribers. All three decisions were overruled by this Court in <CITATION> (2003) 3 SCC

239. In the meanwhile <ORG> took a different view from the view expressed by the High Courts of Allahabad, Andhra Pradesh and Punjab & Haryana in <CITATION> (2002) 126 STC 475 (Ker.) The Division Bench of <ORG> considered a situation where <ORG> sought to include the value of activation charges in the sale price of the SIM (Subscribers Identification Module) Card on the sale of which sales tax was admittedly payable and had been paid. At the same time <ORG> sought to include the cost of the SIM Card in the service tax which was also admittedly payable and had been paid by the service provider for the service of activation of the SIM Card. <ORG> held that the transaction of sale of a SIM Card included its activation and that therefore the activation charges formed part of the consideration and could be subjected to sales tax under the Kerala General Sales Tax Act. At the same time the selling of the SIM Card and the process of activation were both services provided by <ORG> to the subscribers and fell within the definition of taxable services as defined in sections 65(72)(b) of the Finance Act, 1994. In other words <ORG> answered all three questions framed by us in the opening paragraph of this judgment, in the affirmative and in favour of the <ORG>.

The service providers who were the writ petitioners before <ORG> have questioned the correctness of the decision in appeals filed by them which are also disposed of by this judgment. Most of the other petitioners have however approached this Court by way of writ petitions under Article 32. When the Civil Appeals and writ petitions were listed before two learned Judges, an order was passed on 25th September, 2003 referring the matter to a larger Bench as the "nature of the questions raised is important".

The State respondents have raised a preliminary objection and contended that the plea of <ORG> and the other petitioners including <ORG> is barred by res judicata because the issue has been decided by this Court inter partes in <CITATION> :  .

The plea has been resisted by the petitioners on three grounds viz., (i) that the issue of the legislative competence of States to impose sales tax under Entry 54 of List II on transactions which are purely rendition of services, was not raised in that case. (ii) that the decision was without jurisdiction because of Article 131 of the Constitution, and

(iii) that every assessment year gave rise to a fresh cause of action. According to the petitioners in any event the decision requires reconsideration.

<CITATION> . the two learned Judges of this Court had construed the definition of 'business', 'dealer', 'goods' and 'sale' under Sections 2(aa) ,

(c), (d) and (h) of the U.P. Trade Tax Act respectively to come to the conclusion that the <ORG> was a 'dealer' under the U.P. Act . This Court also held that a telephone communication and other accessories which gave access to the telephone exchange with or without instruments were 'goods' and that transferring the right to use the telephone instrument/apparatus and the whole system fell within the extended meaning of "sale" under clause (h) of Section 2 of the U.P. Act.

A consideration of the correctness of this conclusion would arise only if we reject the preliminary objection of the State of U.P. that we are precluded from reopening the issues so concluded by reason of the principles of res judicata. Several decisions have been cited in support of their contention.

In <ORG>, Vs. <ORG> 1962 (1) SCR 10 tax was claimed in respect of coal by the respondents therein. Notices of demand were sent to the appellant. The validity of these notices was challenged by the appellant by filing a writ petition before this Court. The writ petition was dismissed and it was held that the notices served on the appellant were valid. Notices of demand were again served on the appellant in respect of a subsequent period. The appellant filed another writ petition this time before <ORG>, challenging the validity of these notices. <ORG> held that the appellant's claims were barred by res judicata by reason of the earlier decision of this Court. Challenging the decision of <ORG> the appellants approached this Court under Article

136. In <ORG>, Vs. Janapada Sabha (1963) Supp.1 SCR 172 (referred to hereafter as <ORG>)), the issue was whether the doctrine of res judicata applied to writ petitions filed under Article 226 or to petitions under Article 32. The Court noted that the judicial view was that even petitions filed under Article 32 were subject to the general principle of res judicata. The Court then considered whether the principle would apply to tax cases when the earlier decision was in respect of a different period and said:- "In a sense, the liability to pay tax from year to year is a separate and distinct liability; it is based on a different cause of action from year to year, and if any points of fact or law are considered in determining the liability for a given year, they can generally be deemed to have been considered and decided in a collateral and incidental way."

After considering various earlier authorities on the issue, it was held that:-

"If for instance, the validity of a taxing statute is impeached by an assessee who is called upon to pay a tax for a particular year and the matter is taken to <ORG> or brought before this <ORG> and it is held that the taxing statute is valid, it may not be easy to hold that the decision on this basic and material issue would not operate as res judicata against the assessee for a subsequent year. That, however, is a matter on which it is unnecessary for us to pronounce a definite opinion in the present case. In this connection, it would be relevant to add that even if a direct decision of this <ORG> on a point of law does not operate as res judicata in a dispute for a subsequent year, such a decision would, under Art. 141 , have a binding effect not only on the parties to it, but also on all courts in India as a precedent in which the law is declared by this <ORG>. The question about the applicability of res judicata to such a decision would thus be a matter of merely academic significance". (Emphasis ours) After refraining from expressing any final opinion on the applicability of res judicata to assessment orders for successive years, the <ORG> was quite unequivocal in expressing an opinion on the applicability of the principles of constructive res judicata.

"In our opinion, constructive res judicata which is a special and artificial form of res judicata enacted by S. 11 of the Civil Procedure Code should not generally be applied to writ petitions filed under Art.32 or Art.226. We would be reluctant to apply this principle to the present appeals all the more because we are dealing with cases where the impugned tax liability is for different years".

It was held that in any event:

".the appellants cannot be precluded from raising the new contentions on which their challenge against the validity of the notices is based".

The question in M/s. <NAME> Vs. Commissioner of Income Tax 1992(1) SCC 659 (also cited by the State of U.P.) was whether the <ORG> was bound by an earlier decision in respect of an earlier assessment year that the income derived by the <NAME>, a religious institution, was entitled to exemption under Sections 11 and 12 of the Income Tax Act, 1961. The Court said:-

" We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year, unless there was any material change justifying the <ORG> to take a different view of the matter".

Amalgamated Coalfields case No.2 (supra) was distinguished in the case of <NAME> Vs. Sales Tax Officer 1965 (1) SCR 86 in which the challenge was to assessment proceedings under the Madhya Bharat Sales Tax Act, 1950. The writ petition was dismissed by <ORG>. The special leave petition was also dismissed. The same order of assessment was challenged by filing a second writ petition before <ORG>. This was also dismissed by <ORG>. The question, before this Court was whether it was open to the appellant to challenge the validity of the same order of assessment twice by two consecutive writ petitions under Article 226. The Court acknowledged that in regard to the orders of assessment for different years, the position may be different and said:-

"Even if the said orders are passed under the same provisions of law, it may theoretically be open to the party to contend that the liability being recurring from year to year, the cause of action is not the same; and so, even if a citizen's petition challenging the order of assessment passed against him for one year is rejected, it may be open to him to challenge a similar assessment order passed for the next year. In that case, the court may ultimately adopt the same view which had been adopted on the earlier occasion; but if a new ground is urged, the court may have to consider it on the merits, because, strictly speaking the principle of res judicata may not apply to such a case. That, in fact, is the effect of the decision of this Court in the <CITATION> (1963) Supp.1 SCR.172..In our opinion, the said general observations must be read in the light of the important fact that the order which was challenged in the second writ petition was in relation to a different period and not for the same period as was covered by the earlier petition."

But as far as a challenge to the same assessment order is concerned, it was held:-

"that if constructive res judicata is not applied to such proceedings a party can file as many writ petitions as he likes and take one or two points every time. That clearly is opposed to considerations of public policy on which res judicata is based and would mean harassment and hardship to the opponent. Besides, if such a course is allowed to be adopted, the doctrine of finality of judgments pronounced by this Court would also be materially affected. We are, therefore, satisfied that the second writ petition filed by the appellant in the present case is barred by constructive res judicata".

<CITATION>  considered whether this Court can set aside its earlier decision inter partes under Article 32. In paragraph 14, the Court said:

"On the analysis of the ratio laid down in the aforementioned cases, we reaffirm our considered view that a final judgment/order passed by this Court cannot be assailed in an application under Article 32 of the Constitution of India by an aggrieved person, whether he was a party to the case or not.

Nevertheless, we think that a petitioner is entitled to relief ex debito justitiae if he establishes (1) violation of the principles of natural justice in that he was not a party to the lis but the judgment adversely affected his interests or, if he was a party to the lis, he was not served with notice of the proceedings and the matter proceeded as if he had notice, and (2) where in the proceedings a learned Judge failed to disclose his connection with the subject-matter or the parties giving scope for an apprehension of bias and the judgment adversely affects the petitioner".

To a similar effect is the case of <CITATION> (1993) Supp. 4 SCC 693 where the appellants had intervened in earlier proceedings. After the controversy was decided in those proceedings the appellants sought to reagitate the same issues in respect of the same matter contending that they had no opportunity of being heard. The submission was rejected and it was held that the second round was impermissible.

The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar <ORG> from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The <ORG> will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why <ORG> have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a coordinate bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a bench of superior strength or in some cases to a bench of superior jurisdiction.

In our opinion, the preliminary objection raised by the <ORG> of U.P. therefore, rests on a faulty premise. The contention of the petitioners/appellants in these matters is not that the decision in <CITATION> (supra) for that assessment year should be set aside, but that it should be overruled as an authority or precedent. Therefore, the decisions in <CITATION> (supra) and in <CITATION> (supra) are not germane. A decision can be set aside in the same lis on a prayer for review or an application for recall or Under Art. 32 in the peculiar circumstances mentioned in <CITATION> . As we have said overruling of a decision takes place in a subsequent lis where the precedential value of the decision is called in question. No one can dispute that in our judicial system it is open to a Court of superior jurisdiction or strength before which a decision of a Bench of lower strength is cited as an authority, to overrule it. This overruling would not operate to upset the binding nature of the decision on the parties to an earlier lis in that lis, for whom the principle of res judicata would continue to operate. But in tax cases relating to a subsequent year involving the same issue as an earlier year, the court can differ from the view expressed if the case is distinguishable or per incuriam. The decision in <CITATION> related to the year 1988. Admittedly, the present dispute relates to a subsequent period. Here a coordinate Bench has referred the matter to a Larger Bench. This Bench being of superior strength, we can, if we so find, declare that the earlier decision does not represent the law. None of the decisions cited by the <ORG> of U.P. are authorities for the proposition that we cannot, in the circumstances of this case, do so. This preliminary objection of the <ORG> of U.P. is therefore rejected. Coming now to the merits of the case, the petitioners contended that the service providers are licencees under Section 4 of the Telegraph Act, 1885 and provide 'telecommunication services' as provided under Section 2(k) under the Telecom Regulatory Authority of India Act , 1997. Service tax is imposed on them under the Finance Act , 1994 on the basis of the tariff realised from the subscribers. They further contended that in providing such service there is in fact no 'sales' effected by the service providers and that the <ORG>s do not have the legislative competence to impose sales tax on the rendition of telecommunication services. Article 366 (29A) which extended the definition of 'sale' in the Constitution did not apply to the transaction in question. Clause (d) of Article 366(29-A) relied upon by the respondents contemplates a transfer of a legal right to use goods. According to the petitioners there is no transfer of any legal right by the service providers nor any delivery of any goods which may be covered under the Telegraph Act , 1885 as the same is barred and prohibited in terms of the licence granted to service providers under Section 4 of that Act. It is submitted without a delivery of goods, there could be no transfer of any right to use those goods as contemplated under Article 366(29-A)(d). It is the petitioners' case that the decision in <ORG> (supra) was erroneous not only because it held that the telephone connection and all other accessories which gives access to the telephone exchange with or without instruments are goods but also because there was in fact no transfer of any of these equipment to a subscriber. The predominant element and intention in the transaction was one of service and not of sale. It is submitted that taxing telecommunication services as a deemed sale under Entry 54 of List II would be violative of Article 286 of the Constitution as the same involves connecting subscribers throughout the territories of India without any regard to <ORG> boundaries. On the interpretation of Article 366(29A) it was submitted that the fiction in one clause could not be read in to the other. It is said that the disintegration of composite transactions has to be specifically enabled by the Constitution and that it was not within the competence of <ORG> legislation to divide a composite transaction otherwise. It is also submitted that the language of clause

(d) was distinct from the language used in clause (b) of Clause 29A of Article 366. Our attention was drawn to the absence of the use of the word "involved" in the former sub clause. It is emphasized that there must be goods of which the right to transfer is covered by sub clause (d) of clause 29A of Article 366. It is contended that there was no transfer of any right to use any goods and the parties never intended for such transfer. It is submitted that the court should apply the standard of the ordinary man for deciding whether the transaction in question was a contract for service or for transfer of a right to use deemed goods. The obligation of the service provider is merely to transmit voice and the subscriber was not interested in stipulating as to how the voice/data is to be conveyed to the other end. It is for the service provider to choose the medium as it thinks fit. The SIM card was not goods it merely enables activation.

According to the petitioners prior to the 46th amendment composite contracts were not exigible to States sales tax under Entry 54, List II. The legal fiction created in Article 366(29A) provided for specific composite contracts to be subjected to sales tax. Therefore, even after the 46th amendment other transactions had been held not to be sales. Reliance has been placed on the <CITATION> , <CITATION>  and <CITATION> . It was contended in addition that the restrictions regarding the States inability to tax interstate sales would continue to apply. Furthermore, the activity of providing the connection involved the use of instruments embedded to the earth or attached to what is embedded in the earth and therefore was immoveable property and outside the scope of sales tax. Thus there were no goods nor any transfer of any goods involved in the activity.

It is pointed out that none of the States could contend that telecommunication was not a service. It was submitted that the service did not allow for transfer of right to use goods. There was no transfer of control or equipments at any stage. It is submitted that what the service providers provide was a means of communication and what was transferred was the sounds of the message or signals which were generated by the subscribers themselves. It is further submitted that the SIM card was merely an identification device for granting access and was a means to access services.

The service providers in the appeal from the decision of <ORG> have submitted that <ORG> had not appreciated the facts . The service providers had imported the SIM cards and sold them to franchises who then sold them to the subscribers. It is submitted that the authorities had wrongly proceeded on the basis that there was a sale of SIM cards by the service providers to the subscribers. It is pointed out that the sale was factually and legally distinct from the activity of giving the connection or activation of the SIM cards. The decision of the <ORG> has also been impugned on the ground that it overlooked inter alia questions of competence raised by the petitioners, the explanation to the definition of turnover as well as the ratio of <NAME> and misapplied the aspect theory.

As we have noted earlier, <ORG> has supported the service providers and contended that the transaction in question was only "service".

It has been argued on behalf of the State of Uttar Pradesh that the writ petition had been filed by <ORG> challenging Sections 2(h) and 3F of the U.P. Trade Tax Act, 1948. The challenge was expressly given up and therefore the petition was not maintainable. It was also submitted that there were different factual scenarios as a result of which the possible outcome of a particular assessment could not be predicted and it was not appropriate to intervene under Article 32. According to the State, no fundamental right was allegedly infringed. It is contended that <ORG> has the exclusive monopoly over "telegraphs" under the Telegraph Act , 1985. A "telegraph" as defined in that Act would cover the transactions in question. In granting permission to the service providers by the issue of licence, there was transfer of the right to use the telegraph which right was further given to the subscribers in a transaction which would be covered by Article 366(29A)(d). On the interpretation of Article 366(29A) it has been submitted that prior to the introduction of 92C in List I, the residuary entry could not be relied upon in view of the specific entry in Entry 54 of List II. It has been submitted inter alia that delivery of the goods was not necessary for the purpose of transferring the right to use and this had been held in the decision of this Court in 20th <CITATION> . It is submitted that in any event different aspects of a given transaction can fall within the legislative competence of two legislatures and both would have the power to tax that aspect. It is submitted that the question whether the goods were moveable or immoveable property as well as the question whether the tax was being levied on inter state sales or not were all matters of assessment and that the judgment in <CITATION> should be affirmed. In addition, it has been submitted for the respondents that the expression "telephone" and "telephony" do not necessarily include the factor of service. A subscriber makes use of the telephone system as a matter of right and is capable of asserting that right even against the <ORG>. The subscriber's right to use his telephone line is to the exclusion of every other person and to that extent the right of the <ORG>/service providers stands denuded. The right is based on contract and is in addition to the right to the service provided by the service providers. The SIM Card operates as key for access to the telephone system or network and symbolizes the right of participation by a subscriber in the telephone system. These are two distinct transactions, one as the transferree of the legal right to use the telephone and the other of a contract of service. These are two different aspects, each attracting a different tax. Service is only one of the purposes for which the transfer or deemed sale is made by the <ORG>. The <ORG> may among other rights also allow the licencee to give telephone connection as its agent or act as a service provider for the establishment, maintenance and working of the telephone system. The use of the words "any goods" in sub-clause (d) of (29A) of Article 366 according to the respondents showed that the goods need not necessarily have been transferred by the transferor. No delivery was in fact required under sub-clause (d). It is further emphasised that sub-clause (d) also use the words "for any purpose". This could include the purpose of service. In any event, it is submitted, the meaning and scope of sub-clause (d) in Article 366 (29A) cannot be limited on account of the fact that a transaction may have been described as a service in any legislative enactment or contract or licence. Similarly, the expression "goods" had a very wide and comprehensive meaning and assuming delivery is necessary would include the entire telephone system as well as telephone appliances, instruments, materials, towers, exchanges, etc. The means, namely the electrical or electro magnetic means of energy will also form parts of the goods. It is further submitted that whether in any particular case the telephone system included machines or apparatus fixed to the ground was a question of fact to be decided in an individual case during the assessment proceedings. Countering the submission that the sales would be inter state sales, it is submitted that the situs of the taxable event under the Sales Tax Act would be where the transfer of the right takes place between the service providers and the subscribers. This was also a question which would vary from case to case and would have to be ultimately factually decided by an assessment authority. According to the respondents, apart from the transfer aspect of the transaction being isolated as an independent taxable event from the aspect of service, ultimately the question whether there was any splitting up of a composite transaction was also to be determined during assessment proceedings.

It was submitted that the mere fact that the <ORG> was levying tax on certain taxable services could not be used to deny the State's powers to tax the objects/provisions in the service. Therefore, the State's powers must be read harmoniously with the <ORG>'s power and it is only when such reconciliation is impossible that the primacy should be given to the non obstante clause under Article 248(1). Alternatively it was submitted that the theory of aspect would apply so that what was service in one aspect was a sale in the other. It was also submitted that because in sub- clauses (b) and (f) of Clause (29A) of Article 366 the tax on a component in a transaction of works is permissible, it cannot be assumed that in sub-clause (d) tax could not be imposed on an element of the sale component of that transaction. The sub-clause has no words or limitations and must be read as broadly as the language permitted. It was submitted that the test of dominant object of a composite works contract was no longer relevant after the 46th Constitutional Amendment. It was submitted that the service providers transfer the right to use radio frequency channel to a subscriber for a specific duration and thus have effected a deemed sale of goods under Article 366 (29A)

(d).

These broadly speaking are the respective contentions and in our opinion, the issues which arise for consideration in these matters are:-

A) what are "goods" in telecommunication for the purposes of Article 366 (29A)(d)?

B) is there any transfer of any right to use any goods by providing access or telephone connection by the telephone service provider to a subscriber ?

C) is the nature of the transaction involved in providing telephone connection a composite contract of service and sale? If so, is it possible for the States to tax the sale element?

D) If the providing of a telephone connection involves sale is such sale an inter state one?

E) Would the "aspect theory" be applicable to the transaction enabling the States to levy sales tax on the same transaction in respect of which <ORG> levies service tax.

Before taking up the issues for decision seriatim, it is necessary for us to deal with the two further preliminary objections raised by the respondents on the merits. Regarding the first of such objections that the writ petitions have become infructuous - it may be true that in relation to the U.P. Trade Tax Act,1948, the challenge to Section 2(h) and 3F which have basically re-produced Article 366(29A) has not been pressed by the petitioners. What has been argued however, is for a construction of Article 366(29A) particularly, clause (d) thereof. That construction, if accepted by the <ORG>, would be sufficient to grant the petitioners the relief claimed. The issue of interpretation of Article 366(29A) is, therefore, a live one. The second objection was that the writ petitions under Article 32 were not maintainable. The writ petitions raised questions relating to the competence of the States to levy sales tax on telecommunication service. This is not an issue which could have been raised and decided by the assessing authorities. If the State Legislatures are incompetent to levy the tax, it would not only be an arbitrary exercise of power by the State authorities in violation of Article 14 , it would also constitute an unreasonable restriction upon the right of the service providers to carry on trade under Article 19(1)(g). ( <CITATION> 1955 (2) SCR 603; <CITATION> 1954 SCR 1122.) We are consequently unable to accept either of these contentions of the respondents. To answer the questions formulated by us, it is necessary to delve briefly into the legal history of Art. 366 (29A). Prior to the 46th Amendment, composite contracts such as works contracts, hire-purchase contacts and catering contracts were not assessable as contracts for sale of goods. The locus classicus holding the field was <CITATION> 353 (SC). There this <ORG> held that the words "sale of goods" in Entry 48 of List II, Schedule VII to the Government of India Act, 1935 did not cover the sale sought to be taxed by <ORG> under the Madras General Sales Tax Act, 1939. The classical concept of sale was held to apply to the entry in the legislative list in that there had to be three essential components to constitute a transaction of sale-- namely, (i) an agreement to transfer title (ii) supported by consideration, and (iii) an actual transfer of title in the goods. In the absence of any one of these elements it was held that there was no sale. Therefore, a contract under which a contractor agreed to set up a building would not be a contract for sale. It was one contract, entire and indivisible and there was no separate agreement for sale of goods justifying the levy of sales tax by the provincial legislatures. "Under the law, therefore, there cannot be an agreement relating to one kind of property and a sale as regards another". Parties could have provided for two independent agreements, one relating to the labour and work involved in the execution of the work and erection of the building and the second relating to the sale of the material used in the building in which case the latter would be an agreement to sell and the supply of materials thereunder, a sale. Where there was no such separation, the contract was a composite one. It was not classifiable as a sale. The <ORG> accepted the submission of the assessee that the expression "sale of goods" was, at the time when the Government of India Act, 1935 was enacted, a term of well recognized legal import in the general law relating to sale of goods and must be interpreted in Entry 48 in List II of Schedule VII of the 1935 Act as having the same meaning as in the Sale of Goods Act , 1930. According to this decision if the words "sale of goods" have to be interpreted in their legal sense, that sense can only be what it has in the law relating to sale of goods. To use the language of the <ORG>:

" To sum up, the expression "sale of goods" in Entry 48 is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In a building contract which is, as in the present case, one, entire and indivisible

- and that is its norm, there is no sale of goods, and it is not within the competence of <ORG> under Entry 48 to impose a tax on the supply of the materials used in such a contract treating it as a sale".

Following the ratio in Gannon Dunkerley, that "sale" in Entry 48 must be construed as having the same meaning which it has in the Sale of Goods Act , 1930, this <ORG> as well as the High <ORG>s held that several composite transactions in which there was an element of sale were not liable to sales tax.

Thus in the <CITATION> .  the question was whether the meals served at hotels to the residents were subject to sales tax. The Court held that if the difference is not distinct, the <ORG> would not be entitled to split up the contract, estimate approximately the charges for such materials and treat them as chargeable on the mere ground that the transaction involved transfer of goods, whose value must have been taken into consideration while fixing charges for the service.

In 1967 <ORG> in <CITATION> . (1967) XX STC 115 had to consider a situation where <ORG> had held that though the transaction was described as a lease for 49 years, the assessee had effected a sale of the negative print of a picture for a consideration and therefore the transaction was liable to sales tax under the Madras General Sales Tax Act, 1959. The Court set aside the demand holding that the transaction did not connote a sale at all and it was therefore not liable to sales tax. The problem relating to the power of States to levy tax on the sale of goods was then referred to <ORG> by <ORG>. <ORG> submitted its report in 1974 on a consideration of the scope of the levy of sales tax by State Governments in respect of works contracts, hire purchase transactions and also the transfer of controlled commodities by virtue of statutory orders. <ORG> noted that these transactions resembled sales in substance and suggested three drafting devices for conferring the power of taxing these transactions on the States viz.

(a) amending State List, entry 54, or

(b) adding a fresh entry in the State List, or

(c) inserting in article 366 a wide definition of "sale" so as to include works contracts.

The <ORG> preferred the last alternative. Recommendation (c) of the Law <ORG> to amend Article 366 by expanding the definition of sale to include the transactions negatived by <ORG>, was accepted by the Government. The Constitution (46th Amendment) Bill 1981, which was subsequently enacted as the Constitution 46th Amendment Act 1982 set out the background in which the amendment to Article 366 (29A) of the Constitution was amended. Having noted the various decisions of <ORG> as well as of the High <ORG> excluding certain transactions from the scope of sale for the purpose of levy of sales tax, it was said that the position had resulted in scope for avoidance of tax in various ways. In the circumstances, it was considered desirable to put the matter beyond any doubt. Article 366 was therefore amended by inserting a definition of "tax on the sale or purchase of goods" in Clause (29A). The definition reads: "[(29-A) "tax on the sale or purchase of goods" includes

(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;

(b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

(c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments;

(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

(e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;

(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;

Clause (a) covers a situation where the consensual element is lacking. This normally takes place in an involuntary sale. Clause (b) covers cases relating to works contracts. This was the particular fact situation which the <ORG> was faced with in Gannon Dunkerley and which the <ORG> had held was not a sale. The effect in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley was directly overcome. Clause (c) deals with hire purchase where the title to the goods is not transferred. Yet by fiction of law, it is treated as a sale. Similarly the title to the goods under Clause (d) remains with the transferor who only transfers the right to use the goods to the purchaser. In other words, contrary to <NAME> decision a lease of a negative print of a picture would be a sale. Clause (e) covers cases which in law may not have amounted to sale because the member of an incorporated association would have in a sense begun both the supplier and the recipient of the supply of goods. Now such transactions are deemed sales. Clause (f) pertains to contracts which had been held not to amount to sale in <CITATION> . (supra). That decision has by this clause been effectively legislatively invalidated. All the clauses of Article 366 (29A) serve to bring transactions where one or more of the essential ingredients of a sale as defined in the Sale of Goods Act 1930 are absent, within the ambit of purchase and sales for the purposes of levy of sales tax. To this extent only is the principle enunciated in Gannon Dunkerly limited. The amendment especially allows specific composite contracts viz. works contracts (Clause (b)), hire purchase contracts (Clause (c)), catering contracts (Clause (e)) by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax.

<NAME> survived the 46th Constitutional Amendment in two respects. First with regard to the definition of 'sale' for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Art.366(29A) operate. By introducing separate categories of 'deemed sales', the meaning of the word 'goods' was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery etc. would continue to be defined according to known legal connotations. This does not mean that the content of the concepts remain static. Courts must move with the times. But the 46th Amendment does not give a licence for example to assume that a transaction is a sale and then to look around for what could be the goods. The word "goods" has not been altered by the 46th Amendment. That ingredient of a sale continues to have the same definition. The second respect in which <NAME> has survived is with reference to the dominant nature test to be applied to a composite transaction not covered by Article 366(29A). Transactions which are mutant sales are limited to the clauses of Article 366(29A). All other transactions would have to qualify as sales within the meaning of Sales of Goods Act 1930 for the purpose of levy of sales tax. Of all the different kinds of composite transactions the drafters of the 46th Amendment chose three specific situations, a works contract, a hire purchase contract and a catering contract to bring within the fiction of a deemed sale. Of these three, the first and third involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been Constitutionally permitted in clauses (b) and (g) of Clause 29A of Art. 366 , there is no other service which has been permitted to be so split. For example the clauses of Art. 366(29A) do not cover hospital services. Therefore, if during the treatment of a patient in a hospital, he or she is given a pill, can the sales tax authorities tax the transaction as a sale? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. The reason why these services do not involve a sale for the purposes of Entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in <NAME>'s case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A ), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the <ORG> would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29A) continues to be - did the parties have in mind or intend separate rights arising out of the sale of goods. If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is 'the substance of the contract . We will, for the want of a better phrase, call this the dominant nature test.

<CITATION> . , the question involved was whether the job rendered by the photographer in taking photographs, developing and printing films would amount to a "work contract" as contemplated under Article 366 (29A) (b) of the Constitution read with Section 2(n) of the M.P. General Sales Tax Act for the purpose of levy of sales tax on the business turnover of the photographers. The Court answered the questions in the negative because, according to the Court:-

" Prior to the amendment of Article 366 , in view of the judgment of this Court in <CITATION> .

(Madras) Ltd. (1958) 9 STC 353: AIR 1958 SC 560 the <ORG>s could not levy sales tax on sale of goods involved in a works contract because the contract was indivisible. All that has happened in law after the 46th Amendment and the judgment of this Court in Builders' case (1989) 2 SCC 645 is that it is now open to the <ORG>s to divide the works contract into two separate contracts by a legal fiction: (i) contract for sale of goods involved in the said works contract, and (ii) for supply of labour and service. This division of contract under the amended law can be made only if the works contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer in property takes place as an incident of contract of service..What is pertinent to ascertain in this connection is what was the dominant intention of the contractOn facts as we have noticed that the work done by the photographer which as held by this Court in STO vs. <NAME> (1977) 1 SCC 634 is only in the nature of a service contract not involving any sale of goods, we are of the opinion that the stand taken by the respondent <ORG> cannot be sustained".

This conclusion was doubted in <ORG> Vs. Commissioner of Customs (2001) 4 SCC 593 saying :-

"The conclusion arrived at in Rainbow Colour Lab case [(2000) 2 SCC 385)], in our opinion, runs counter to the express provision contained in Article 366(29-A) as also of the <ORG> decision of this Court in <CITATION> ".

We agree. After the 46th Amendment, the sale element of those contracts which are covered by the six sub-clauses of clause (29A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying. Therefore when in 2005, <CITATION> (2005) 8 SCALE 784 held that the aforesaid observations in <ORG> (supra) were merely obiter and that <ORG> (supra) was still good law, it was not correct. It is necessary to note that <ORG> did not say that in all cases of composite transactions the 46th Amendment would apply. What are the "goods" in a sales transaction, therefore, remains primarily a matter of contract and intention. The seller and such purchaser would have to be ad idem as to the subject matter of sale or purchase. The <ORG> would have to arrive at the conclusion as to what the parties had intended when they entered into a particular transaction of sale, as being the subject matter of sale or purchase. In arriving at a conclusion the <ORG> would have to approach the matter from the point of view of a reasonable person of average intelligence.

Article 366(12) has defined the word "goods" for the purpose of the Constitution as including "all materials, commodities, and articles". The word "goods" has also been defined in Section 2(7) of the Sales of Goods Act, 1930 as meaning "every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale." The U.P. Trade Tax defines "goods" as meaning:

"every kind or class of movable property and includes all material commodities and articles involved in the execution of a works contract, and growing crops, grass, trees and things attached to or fastened to anything permanently attached to the earth which under the contract of sale are agreed to be severed but does not include actionable claims, stocks, shares, securities or postal stationery sold by <ORG>.' The <ORG> Sales Tax legislations have, subject to minor variations, adopted substantially a similar definition of "goods" for the purpose of their Sales Tax Act s. There have been several decisions of this Court on the interpretation of the word 'goods' in the context of different <ORG> sales tax enactments. One of the such decisions was the case of <CITATION>  in which the question was whether sale of a lottery ticket was a sale of goods for the purpose of Entry 54 of List II. This Court held that the sale of a lottery ticket confers on the purchaser thereof two rights, (a) right to participate in the draw and, (b) a right to claim a prize contingent upon his being successful in the draw. It was held that the first was a right "in praesenti" and the second a contingent right. It was concluded that of these two rights the right to participate in a draw was "goods" for the purpose of levying sales tax. The decision was followed by a Bench of three Judges in the case of <CITATION>  to hold that REP licences/Exim scrips were goods on the sale of which sales tax could be levied. Both the decisions were doubted in the case of <CITATION>  In that case, the Court formed a prima facie opinion that the decision in Anraj required re-consideration on the view that the only right of the purchaser of a lottery ticket is to take a chance of winning the prize and that there was no good reason to split the transaction of the sale of a lottery ticket into the acquisition of (i) the right to participate in the lottery draw and (ii) right to win the prize depending on chance. The judgment in that decision is awaited. For the time being, we will assume that an incorporeal right is 'goods', In fact the question whether 'goods' for the purpose of sales tax may be intangible or incorporeal need not detain us. In <ORG> Vs. Commissioner of Customs (2001)4 SCC 593, the value of drawings was added to their cost since they contained and formed part of the technical know-how which was part of a technical collaboration between the importer of the drawings and their exporter. It was recognized knowledge in the abstract may not come within the definition of 'goods' in Section 2(22) of the Customs Act.

This view was adopted in <ORG> Vs. State of Andhra Pradesh (supra) for the purposes of levy of sales tax on computer software. It was held:- "A "goods" may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of being transmitted, transferred, delivered, stored and possessed. If a software whether customized or non-

customised satisfies these attributes, the same would be goods".

This in our opinion, is the correct approach to the question as to what are "goods" for the purposes of sales tax. We respectfully adopt the same.

The <ORG> respondents in their submissions had initially differed as to what constituted 'goods' in telecommunication. Ultimately, the consensus among the respondents appeared to be that the "goods" element in telecommunication were the electromagnetic waves by which data generated by the subscriber was transmitted to the desired destination. The inspiration for the argument has been derived from the provisions of the Indian Telegraph Act , 1885 which defines telegraph as meaning: "telegraph' means any appliance, instrument, material or apparatus used or capable of use for transmission or reception of signs, signals, writings, images and sound or intelligence of any nature by wire, visual or other electro-magnetic emissions, Radio waves or Hertzian waves, galvanic, electric or magnetic means.;

Explanation.  "Radio waves" or "Hertzian waves" means electro magnetic waves of frequencies, lower than 3,000 giga-cycles per sound propagated in space without artificial guide."

What is also important are the definitions of the words 'message' and 'telegraph line' in the 1885 Act which read: "message" means any communication sent by telegraph, or given to a telegraph officer to be sent by telegraph or to be delivered.

"telegraph line" means a wire or wires used for the purpose of a telegraph, with any casing, coating, tube or pipe enclosing the same, and any appliances and apparatus connected therewith for the purpose of fixing or insulating the same.

Section 4 of the 1885 Act gives exclusive privilege in respect of telecommunication and the power to grant licences to <ORG>. Pursuant to such power, licences have been granted to service providers. According to the service providers in terms of their licence no further transfer of the rights to use the telegraph could be affected by them. Therefore, what was provided was a service by the utilization of the telegraph licenced to the service providers for the benefit of the subscribers. We will proceed on the basis that incorporeal rights may be goods for the purposes of levying sales tax. Assuming it to be so, the question is whether these electro magnetic waves can fulfill the criteria laid down in <ORG> for goods. In our opinion the question must be answered in the negative. Electromagnetic waves have been described in Telecommunications Law : David Gilles & <NAME>: Butterworths:-

"1.14. Electromagnetic waves travel through free space from one point to another but can be channeled through waveguides which may be metallic cables, optical fibres or even simple tubes. All electromagnetic waves are susceptible to interference from one another and unrelated electrical energy can distort or destroy the information they carry. To reduce these problems they have been organized within the spectrum into bands of frequencies or wavelengths for the transmission of particular types of services and information"

The process of sending a signal is as follows:-

"Data is superimposed on a carrier current or wave by means of a process called modulation. Signal modulation can be done in either of two main ways: analog and digital. In recent years, digital modulation has been getting more common, while analog modulation methods have been used less and less. There are still plenty of analog signals around, however, and they will probably never become totally extinct. Except for DC signals such as telegraph and baseband, all signal carriers have a definable frequency or frequencies. Signals also have a property called wavelength, which is inversely proportional to the frequency".(Encyclopedia of Technology Terms of Techmedia) It is clear, electromagnetic waves are neither abstracted nor are they consumed in the sense that they are not extinguished by their user. They are not delivered, stored or possessed. Nor are they marketable. They are merely the medium of communication. What is transmitted is not an electromagnetic wave but the signal through such means. The signals are generated by the subscribers themselves. In telecommunication what is transmitted is the message by means of the telegraph. No part of the telegraph itself is transferable or deliverable to the subscribers.

The second reason is more basic. A subscriber to a telephone service could not reasonably be taken to have intended to purchase or obtain any right to use electromagnetic waves or radio frequencies when a telephone connection is given. Nor does the subscriber intend to use any portion of the wiring, the cable, the satellite, the telephone exchange etc. At the most the concept of the sale in a subscriber's mind would be limited to the handset that may have been purchased for the purposes of getting a telephone connection. As far as the subscriber is concerned, no right to the use of any other goods, incorporeal or corporeal, is given to him or her with the telephone connection.

We cannot anticipate what may be achieved by scientific and technological advances in future. No one has argued that at present electromagnetic waves are abstractable or are capable of delivery. It would, therefore, appear that an electro-magnetic wave (or radio frequency as contended by one of the counsel for the respondents), does not fulfill the parameters applied by <ORG> in <ORG> for determining whether they are goods, right to use of which would be a sale for the purpose of Article 366(29-A)(d).

The learned Judges in <ORG> (supra) held that "telephone instruments and other appliances including wiring, cable etc. are "undoubtedly "goods" within the definition of the word in Section 2(d) of the U.P. Act". It was also held a telephone exchange being housed in immovable properties would make no difference because a tangible object like electricity which is generated in projects and transmitted through sub-stations housed in building has been held in CST V. M.P. Electricity Board  and State of A.P. V. National Thermal Power Corpn. Ltd.  to be goods. Had the learned Judges limited their observations to the telephone instruments we could have had no quarrel with the opinion stated. But they have in a subsequent portion of their judgment clarified that there a telephone connection along with all other accessories to the telephone exchange with or without instruments are goods within the meaning of Section 2(d) of the U.P. Act. The essence of the 'goods' therefore, according to the learned Judges, lay in the entire system. To arrive at this conclusion, the reliance on the two cited judgments was inapposite. It was the sale and purchase of electricity which was being considered in those cases. The goods was the electrical energy. What the customers were being charged for was not the medium that was being used to transfer the electricity, but the electrical energy itself. In the case of telecommunications on the other hand, if the decision in <CITATION> and the respondent's submission are correct, the customers are not to be charged for what is being transferred through the medium but the use of the medium itself. Additionally in the <CITATION> (supra), the issue before <ORG> was not whether electricity was goods for the purposes of sales tax but the situs of the sale of electricity.

The learned Judges also in <ORG> Vs. <ORG> drew support from the decision of <ORG> (USA) in <CITATION> . 152 Wis 359: 140 NW 39: 1913 Wisc Lexis 77 which had held that the furnishing of the telephone services might be classed as the supplying of a commodity constituting a subject of commerce. The decision in <ORG>, even if it were to be held of persuasive value, is not really relevant. That was a case where two competing telephone companies contracted that one should confine its business to the city and the other to rural lines out of the city. The rural company had the option to buy the rural lines of the other. Two questions fell for consideration. The first question was whether the contract was specifically enforceable. This question was also answered in the affirmative. The second question was whether the contract was in violation of the anti-trust laws. This was answered in the affirmative. It was in that context that the <ORG> opined that: "It is obvious that the statute is directed against contracts which are violative of the public policy of the state respecting restraints of trade and competition in the supply of any commodity in general use constituting a subject of commerce. The furnishing of telephone services may be classed within the general terms of the statute as the supplying of a commodity constituting a subject of commerce."

Apart from the fact that the context was wholly different, the question whether a telephone service was "goods" or not was not really in issue. Incidentally, the decision in <ORG> has been distinguished in several subsequent decisions of the United States. [See <ORG> Vs. <ORG> 72 F.2d 761 (1934). <ORG> Vs. <ORG> 369 F 2d 268 (1966), <ORG> V. <ORG> 295 F.2d 375 (1961)] For the reasons stated by us earlier we hold that the electromagnetic waves are not 'goods' within the meaning of the word either in Art. 366(12) or in the State Legislations. It is not in the circumstances necessary for us to determine whether the telephone system including the telephone exchange was not goods but immoveable property as contended by some of the petitioners.

In the State of U.P. Vs. Union of India (supra) it was also held:-

"Handing over of possession is not sine qua non of completing the transfer of the right to use any goods, as was held by a Constitution Bench of this Court in 20th <CITATION> .

Once <ORG> connects the telephone line of the assigned number of the subscriber to the area exchange, access to other telephones is established. There cannot be denial of the fact that giving such an access would complete the transfer of the right to use the goods".

With respect, the decision in 20th Century Finance Corporation Limited Vs. State of Maharashtra, cannot be cited as authority for the proposition that delivery of possession of the goods is not a necessary concomitant for completing a transaction of sale for the purposes of Article 366 (29A) (d) of the Constitution. In that decision the <ORG> had to determine where the taxable event for the purposes of sales tax took place in the context of sub-clause (d) of Article 366 (29A). Some States had levied tax on the transfer of the right to use goods on the location of goods at the time of their use irrespective of the place where the agreement for such transfer of right to use such goods was made. Other States levied tax upon delivery of the goods in the State pursuant to agreements of transfer while some other States levied tax on deemed sales on the premise that the agreement for transfer of the right to use had been executed within that State (vide paragraph 2 of the judgment as reported). This <ORG> upheld the third view namely merely that the transfer of the right to use took place where the agreements were executed. In these circumstances the <ORG> said that:-

"No authority of this Court has been shown on behalf of respondents that there would be no completed transfer of right to use goods unless the goods are delivered. Thus, the delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods. We are, therefore, of the view that where the goods are in existence, the taxable event on the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is executed. Thus, where goods to be transferred are available and a written contract, is executed between the parties, it is at that point situs of taxable event on the transfer of right to use goods would occur and situs of sale of such a transaction would be the place where the contract is executed.

(emphasis ours) In determining the situs of the transfer of the right to use the goods, the <ORG> did not say that delivery of the goods was inessential for the purposes of completing the transfer of the right to use. The emphasized portions in the quoted passage evidences that the goods must be available when the transfer of the right to use the goods take place. The <ORG> also recognized that for oral contracts the situs of the transfer may be where the goods are delivered (see para 26 of the judgment) In our opinion, the essence of the right under Article 366 (29A) (d) is that it relates to user of goods. It may be that the actual delivery of the goods is not necessary for effecting the transfer of the right to use the goods but the goods must be available at the time of transfer must be deliverable and delivered at some stage. It is assumed, at the time of execution of any agreement to transfer the right to use, that the goods are available and deliverable. If the goods, or what is claimed to be goods by the respondents, are not deliverable at all by the service providers to the subscribers, the question of the right to use those goods, would not arise.

In State of of Andhra Pradesh and Anr. Vs. <ORG> (2003) 3 SCC 214, it was claimed by <ORG> that the transaction by which the owner of certain machinery had made them available to the contractors was a sale. The Court rejected the submission saying that:-

"the transaction did not involve transfer of right to use the machinery in favour of contractors. The effective control of the machinery even while the machinery was in use of the contractor was that of the respondent Company; the contractor was not free to make use of the machinery for the works other than the project work of the respondent or .(para 4 page 315) But in the case of Agrawal Brothers Vs. State of Haryana and Anr. (1999) 9 SCC 182 when the assessee had hired shuttering to favour of contractors to use it in the course of construction of buildings it was found that possession of the shuttering materials was transferred by the assessee to the customers for their use and therefore, there was a deemed sale within the meaning of sub-clause

(d) of Clause 29-A of Article 366. What is noteworthy is that in both the cases there were goods in existence which were delivered to the contractors for their use. In one case there was no intention to transfer the right to use while in the other there was.

But if there are no deliverable goods in existence as in this case, there is no transfer of user at all. Providing access or telephone connection does not put the subscriber in possession of the electromagnetic waves any more than a toll collector puts a road or bridge into the possession of the toll payer by lifting a toll gate. Ofcourse the toll payer will use the road or bridge in one sense. But the distinction with a sale of goods is that the user would be of the thing or goods delivered. The delivery may not be simultaneous with the transfer of the right to use. But the goods must be in existence and deliverable when the right is sought to be transferred.

Therefore whether goods are incorporeal or corporeal, tangible or intangible, they must be deliverable. To the extent that the decision in State of U.P. Vs. <ORG> held otherwise, it was, in our humble opinion erroneous. It has been held in <ORG> (1989) 2 SCC 645 that the clauses in Article 366 (29A) do not amount to a separate entry in List II of the 7th Schedule to the Constitution enabling the States to levy tax on sales and purchase independent of Entry 54 thereof.(see also <ORG> Vs. <ORG> , 383). Article 366 (29A) as introduced by the 46th Amendment not being equivalent to a separate entry in List II is subject to the same limitations as Entry 54 of that List. At the time of amending Article 366 , Article 286 was also amended by the introduction of clause (3) which reads as:-

"(3) Any law of a State shall, in so far as it imposes, or authorizes the imposition of:-

(a) a tax on the sale or purchase of goods declared by <ORG> by law to be of special importance in inter-State trade or commerce;

(b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause

(b), sub-clause (c) or sub-clause (d) of clause (29A) of article 366 , be subjected to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as <ORG> may by law specify."

Therefore the deemed sales included in Entry 54 List II would also be subject to the limitations of Art. 286 , Art. 366(29-A).

Being aware of the dangers of allowing the residuary powers <ORG> under Entry 97 of List I to swamp the legislative entries in the <ORG> list, we have interpreted Entry 54, List II together with Article 366 (29A) without whittling down the interpretation by referring to the residuary provision. Having completed the exercise, we now turn our attention to the latter.

In 1994, service tax was introduced by <ORG> under Chapter V of the Finance Act, 1994 with reference to its residuary power under Entry 97 List I of the Seventh Schedule to the Constitution. Under the 1994 Act, 'taxable services' which were subject to levy of service tax were defined. Several different services were included in the definition. Section 65(16)(b) included service provided to a subscriber by the telegraph authority in relation to a telephone connection with effect from the coming into force of the 1994 as a taxable service. Under Section 66 , tax was imposed at the rate of five percent of the value of the taxable services provided to any person by the person responsible for collecting the service tax. The value of the taxable service in relation to a telephone connection provided to the subscribers, was to be the gross total amount received by the telegraph authority from the subscribers. The 1994 Act was amended from time to time by extending the meaning of taxable service. We are concerned with two amendments, one made in 2002 and the other in 2003. By Section 149(90)(b) of the Finance Act, 2002, service to a subscriber by a telephone authority was continued as a taxable service. "Telegraph" was defined in Section 149(92) as having the same meaning assigned to it in clause (1) of Section 3 of the Indian Telegraph Act, 1885. "Telegraph authority" was defined incorporating the definition of the phrase Section 3(6) of the 1885 Act and included "a person who has been granted a licence under the first proviso in Section 4(1) of that Act. The liability of service providers to service tax was continued under Section 159(105)(110) (b) and (111) of the Finance Act , 2003. The definition of subscriber was added in sub section (104) as meaning "a person to whom any service of a telephone connection or a facsimile (Fax) or a leased circuit or a pager or a telegraph or telex has been provided by a telegraph authority". Finally in 2003, List II of the Seventh Schedule to the Constitution was amended by including taxes on service under Entry 92C. By this time there were about 100 taxable services including the service of a telephone connection. The question is - is the sale element is each of these several services and in particular the service of a telephone connection taxable by the States? As we have said Art. 366(29A) has no doubt served to extend the meaning of the word 'sale' to the extent stated but no further. We cannot presume that the Constitutional Amendment was loosely drawn and must proceed on the basis that the parameters of 'sale' were carefully defined. But having said that, it is sufficient for the purposes of this judgment to find, as we do, that a telephone service is nothing but a service. There is no sales element apart from the obvious one relating to the hand set if any. That and any other accessory supplied by the service provider in our opinion remain to be taxed under the State Sales Tax Laws. We have given the reasons earlier why we have reached this conclusion.

This brings us to the decision of <ORG> in Escotel.

In that case <ORG> was admittedly engaged in selling cellular telephone instruments, SIM cards and other accessories and was also paying Central <ORG> and <ORG> under the Kerala General <ORG> Act, 1963 as applicable. The question was one of the valuation of these goods. <ORG> had sought to include the activation charges in the cost of the SIM card. It is contended by <ORG> that the activation was part of the service on which service tax was being paid and could not be included within the purview of the sale. <ORG> also dealt with the case of <ORG>, a service provider. According to <ORG>, it did not sell cellular telephones. As far as SIM cards were concerned, it was submitted that they had no sale value. A SIM card merely represented a means of the access and identified the subscribers. This was part of the service of a telephone connection. The Court rejected this submission finding that the SIM card was "goods" within the definition of the word in the <ORG> <ORG> Act . It is not possible for this Court to opine finally on the issue. What a SIM card represents is ultimately a question of fact as has been correctly submitted by the <ORG>. In determining the issue, however <ORG> will have to keep in mind the following principles: If the SIM Card is not sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sale, it would be open to <ORG> to levy sales tax thereon. There is insufficient material on the basis of which we can reach a decision. However we emphasise that if the sale of a SIM card is merely incidental to the service being provided and only facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax. In our opinion <ORG> ought not to have finally determined the issue. In any event, <ORG> erred in including the cost of the service in the value of the SIM card by relying on the aspects doctrine. That doctrine merely deals with legislative competence. As has been succinctly stated in <ORG> Vs. <ORG> - "subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power. They might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects". No one denies the legislative competence of <ORG> to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction. This does not however allow <ORG> to entrench upon the <ORG> list and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Art. 366(29A ), the value of the goods involved in the execution of the whole transaction cannot be assessed to <ORG>. As was said in <ORG> Vs. <ORG>(supra):-

"The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of materials involved in the execution of the works contract only can be included in the value of the goods".

For the same reason the <ORG> cannot include the value of the SIM cards, if they are found ultimately to be goods, in the cost of the service. As was held by us in Gujarat <ORG> Vs. <ORG> (2005) 4 SCC 214,228.

"This mutual exclusivity which has been reflected in Article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking, a liberal interpretation must be given to taxing entries, this would not bring within its purview a tax on subject- matter which a fair reading of the entry does not cover. If in substance, the statute is not referable to a field given to the <ORG>, the <ORG> will not by any principle of interpretation allow a statute not covered by it to intrude upon this field."

We will therefore have to allow the appeals filed by <ORG> in Civil Appeal Nos. 3329-30 of 2002 and <NAME> in Civil Appeal No.2408 of 2002 and remand the matter to the <ORG> concerned for determination of the issue relating to SIM Cards in the light of the observations contained in this judgment.

As far as the question whether providing of a telephone connection involves interstate sales, now that it has been clarified that electromagnetic waves or radio frequencies are not goods, the issue is really academic. For the reasons aforesaid, we answer the questions formulated by us earlier in the following manner: A) Goods do not include electromagnetic waves or radio frequencies for the purpose of Article 366(29A)(d). The goods in telecommunication are limited to the handsets supplied by the service provider. As far as the SIM cards are concerned, the issue is left for determination by <ORG>.

B) There may be a transfer of right to use goods as defined in answer to the previous question by giving a telephone connection.

C) The nature of the transaction involved in providing the telephone connection may be a composite contract of service and sale. It is possible for the <ORG> to tax the sale element provided there is a discernible sale and only to the extent relatable to such sale.

D) The issue is left unanswered.

E) The aspect theory would not apply to enable the value of the services to be included in the sale of goods or the price of goods in the value of the service.

The writ petitions and appeals are disposed of accordingly. No order as to costs.

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.1404 OF 2006 (Arising out of SLP(C) No. 6301 of 2004) Asstt. Commissioner, Trade Tax & Ors. .Appellants Versus General Manager, B.S.N.L. .Respondent WITH CA Nos.1403/06,1405/06,1406/06,1407/06,1408-1418/2006, CA.No.1420/06,1421/06,1422-1424/06,1425/06 @ SLP Nos.5447/2003 15442-44/05, 15451-62/05,15464/05,17281/05,17286-88/05,22569/05 With Contempt Petn.No.365/04 in WP(C) No.183/03, O R D E R Ruma Pal , Dr. AR Lakshmanan & <NAME> Leave granted in the special leave petitions.

Civil Appeals are disposed of in terms of the judgment delivered by us today in W.P. (C) No. 183/2003 etc. etc. titled  <CITATION> .

Contempt Petn.No.365/04 in WP(C) No.183/03, Contempt petition is dismissed.