STATE OF UTTAR PRADESH AND ANR. ETC. ETC. versus UNION OF INDIA AND ANR. ETC. ETC.

Citation: [2003] 1 S.C.R. 785 · Decided: 04-02-2003 · Supreme Court of India · Bench: S.S.M. QUADRI · Disposal: Appeal(s) allowed

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Judgment (excerpt)

STATE OF UTTAR PRADESH AND ANR. ETC. ETC. 
A 
v. 
UNION OF INDIA AND ANR. ETC. ETC. 
FEBRUARY 4, 2003 
[SYED SHAH MOHAMMED QUADRI AND K.G. 
B 
BALAKRISHNAN,JJ.] 
U.P. Trade Tax Act, 1948-Section 2(aa), (c), (d), (h) and section 3, 3-
F (as amended by U.P. Act 31of1995)-Rentals collected by Department of 
Telecommunication (DoT) from subscribers of telephone-Assessibility to tax- C 
Held, rentals assessable to tax since DoT is dealer as defined in Section 2(c), 
it collects rentals for supply of transfer of use of telephone connection which 
is a service, supply of telephone satisfies the requirement of transfer the right 
to use the goods within the meaning of sale in Section 2(h) and it also receives 
consideration-Constitution of India, 1950-Article 366 clause 29-A. 
D 
Words and Phrases: 
Meaning of-Term 'goods' in the context of Section 2(d) of the U.P. 
Trade Tax Act, 1948. 
The question which arose for consideration in these appeals was 
whether the rentals collected by the Department of Telecommunications 
(DoT) from the subscribers of telephone in the State could be assessed to 
tax under the Uttar Pradesh Trade Tax Act, 1948. 
E 
Appellant-State contended that High Court erred in holding that F 
DoT is not a 'dealer' within the meaning of the Act; that section 3-F 
applies to work contracts only and not to the rental charges collected by 
DoT, and that there is no legislative competence in the State to levy trade 
tax as the Parliament authorized imposition of service tax under the 
Finance Act 1994 on the use of the telephone service by the subscribers; G 
that by U.P. Act 31 of 1995 sub-clauses (vii) and (viii) to section 2 (c) of 
the U.P. Act were added in the definition of the term 'dealer' to remove 
difficulties in the assessment of tax in the transaction relating to transfer 
of a right to use any goods; that addition of sub-clause (viii) in the 
definition of 'dealer' did not mean that prior to 1995, in various 
785 
H 
786 
SUPREME COURT REPORTS 
[2003] I S.C.R. 
A Ordinances and the U.P. Act, having regard to the extended definition of 
'sale' did not include a person or a government 'transferring the right to 
use any goods' within the meaning of 'dealer'; that if 'DoT', whether in 
the courst> of business or otherwise, transferred a right to use any goods, 
it was covered by the definition of 'dealer' even before the 1995 
B amendment inserted sub-clause (viii) in Section 2(c) and that position 
continued even thereafter; that in supplying instruments, accompaniments 
and the telephone connection to a subscriber, the DoT is transferring the 
rights to use those goods; that providing a telephone to a subscriber was 
a service, and 'transfer of the right to use the instrument, appliances and 
the whole exchange system was involved; and that in a composite contract, 
C the dominant object test will have to be applied. 
Respondents-DoT contended that the DoT would not fall within the 
definition of 'dealer' un.der the U.P. Act; that the activity of providing 
telephone service is not 'the fransfer of right to use the goods' so as to 
attract liability under the U.P. Act; that in a contract providing telephone 
D by the DoT the service and sale-transfer of the right to use the goods-
are so inter-twined that the rentals cannot be attributed to one or the 
other part and, therefore, such a composite contract cannot be dissected 
so as to attribute one part of the rentals to service and the other part to 
the transfer of the right to use the goods and accordingly assess that part 
E of rentals to tax; that as there was no such provision to tax service in 
sub-clause (d) of clause 29-A no tax could be levied by the State; and that 
it is providing a service which does not involve transfer of a right to use 
any goods and that by the Finance Act, 1997, Parliament has imposed 
service tax, as such the State cannot levy any tax under the Act. 
· p 
Intervenor contended that the contract of the subscribers with the 
DoT for installation of telephone was an indivisible contract for providing 
~ 
service which cannot be split into two separate contracts- one for transfer 
of the right to use any goods and the other for the service provided; that 
under the Indian Telegraph Act, 1885 and the Rules no agreement can be 
spelt out to transfer the right to use any goods by the DoT to the 
G subscriber; that supply of goods, if any, was incidental to the performance 
of contract of service; and that the instrument 

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