Broadband ISPs taxed for "generating light energy"

Suresh Ramasubramanian ops.lists at
Tue Oct 10 14:28:13 UTC 2006

.. because they provide internet over fiber optic cables, which work by sending
pulses of light down the cable to push packets ..

So they get slapped with tax + penalties of INR 241.8 million.


Broadband providers accused of tax evasion

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

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

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