VSNL not liable to tax for services: SC

The Supreme Court today restrained the Central and state governments from raising demand or collecting any local sales tax on telecommunications services provided by VSNL to its subscribers.

The order was passed on a writ petition moved by VSNL before a bench headed by Justice Ruma Pal, challenging the constitutionality of the levy of sales tax or VAT on the various services provided by it. Some of the services involved are provision for Internet services through dial-up, broadband or leased line.

According to VSNL, some states are seeking to levy tax contending that Internet falls under the category of "goods", following an SC judgment two years ago in a case between the UP government and the Centre. The court had interpreted that use of servers, cable, fixed immovable machinery and other properties amounted to sale.

VSNL further argued that it had not collected tax from any consumer in the past for the services. Therefore, it was wrong on the part of the state governments to collect arrears for the period.

It is contended that the states have no power under the Constitution to demand tax on services and such demand is violative of Articles 366(29A)0 and 286 of the Constitution.