Special Correspondent

Commercial Tax Department serves notice on Airtel

  • Firms accused of evading tax on sale of `light energy'
  • Loss to State exchequer estimated at Rs. 1,200 crore

    Bangalore: The Commercial Tax Department has served a notice on Airtel, owned by Bharti Televentures Ltd., seeking payment of Rs. 24.18 crore as tax, interest and penalty for the sale of `light energy' to its customers for providing broadband through optical fibre cables (OFC).

    The department has been investigating alleged tax evasion by OFC broadband providers, both in the public and private sectors, for selling light energy to customers. "While the assessment on Airtel was completed and a notice issued to it for alleged tax evasion during the year 2005-06, no assessment has been concluded on other OFC broadband providers," A.K. Chitaguppi, Deputy Commissioner of Commercial Taxes, said. Other OFC broadband providers facing tax evasion charges are public sector BSNL and private sector VSNL, Reliance, Tata Teleservices and Sify.

    The Commercial Tax Department has estimated a loss of Rs. 1,200 crore to the State exchequer in this regard since OFC broadband providers have been operating in the State for several years.

    Mr. Chitaguppi said that OFC operates on light energy, which is artificially created by the OFC providers and sold to customers for the purpose of data transmission and information, on the OFC broadband line. Without such energy, data or information cannot be transmitted.

    "Whoever sells light energy is liable to pay VAT as it comes under the category of goods, and hence its sale constitutes taxable turnover attracting VAT at 12.5 per cent," he said.

    Bharti Televentures had approached the Karnataka High Court seeking to quash the demand notice, but failed to get a stay when the case was heard by Justice Shantanu Goudar on September 1. The judge rejected Bharti's plea seeking issue of an injunction against any initiatives from the Commercial Tax Department on the recovery of the tax.

    Bharti Televentures had contended in the High Court that re-assessment orders passed by State tax officials and the issue of demand notice was not valid as the disputed activity fell under the provision of service tax levied by the Union Government and did not attract VAT. The High Court is expected to take up the case for hearing again in the next few days.

    `Business venture'

    The Commercial Tax Department has argued that the OFC broadband operators are running a business venture after investing thousands of crores to put in place a state-of-the-art set-up to artificially generate light energy and supply it to its customers for their data transmission work. The characteristics of the light energy constitute a moveable property, which has to be categorised as `goods' as per the norms laid down by the Supreme Court. "In the process of data transmission, other than light energy, no other elements are involved and the customers are paying for the same. This proves that light energy constitutes goods, which is liable for levy of tax. Therefore, the State has every legal competence and jurisdiction to tax it," the department has contended.

    It has taken serious note of the non-payment of taxes by the broadband service providers. "Reporting a turnover and then claiming exemption is one thing. But some of the OFC operators don't even report their turnovers," Mr. Chitaguppi alleged.