Karnataka High Court Upholds Sales Tax on Set-Top Boxes

In a crucial verdict, the Karnataka High Court has upheld the imposition of sales tax on set-top boxes (STBs) provided by cable service operators. The ruling states that STBs qualify as ‘goods’ under the Karnataka Value Added Tax (KVAT) Act, bringing them under the ambit of taxation.

Petitioners’ Arguments

Cable service providers challenged the tax with the argument that the STBs are merely tools for receiving signals and do not function independently. They claimed that since the cable operators hold ownership, no ‘sale’ occurs. Moreover, they argued that the subscription fees were charged for activation services, not for using the STBs.

Karnataka High Court’s Stand

The Karnataka High Court dismissed the above claims, ruling that STBs are a type of movable property and fulfill the definition of ‘goods’ under the KVAT Act. The Court further emphasized that the subscribers possess exclusive control over the STBs, therefore, making the transfer a taxable sale. The court also rejected the argument saying that both VAT and service tax on the same transaction amount to double taxation.

Retrospective Tax Notification Upheld

Petitioners opposed the retrospective application of a 2021 government notification under the Karnataka Goods and Services Tax (KGST) Act and argued that it lacked statutory support. However, the Court ruled that the notification was valid and aligned with the legislature’s intent, asserting continuity in tax enforcement.

What would be the Implications of the Judgement?

This ruling reinforces the state authorities to levy tax on set-top boxes and also clarifies the taxation rules for cable service providers. Service providers may need to adject their pricing structure to adhere to tax obligations. The subscribers should also be informed that part of their service charges also includes the tax for set-top boxes.

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