Diesel used in Telecom Towers Taxable under UP VAT if Source Not Proven: Allahabad HC Dismisses Vodafone’s Revisions [Read Order]

The Allahabad High Court has dismissed sales tax revisions and upheld the levy of value added tax on diesel used in diesel generator sets for telecom towers, holding that where the assessee fails to establish that such diesel was purchased from registered dealers and had already suffered tax, the liability under the Uttar Pradesh Value Added Tax Act (UP VAT), 2008 is validly attracted.

M/s Vodafone South Limited, the Revisionist is engaged in providing mobile telecommunication services. For uninterrupted network services, it installed mobile towers at various locations, each supported by diesel generator sets to ensure continuous power supply.

For operation and maintenance of these generator sets, Vodafone entered into agreements with third-party service providers, who were responsible for maintaining the equipment and ensuring timely refuelling with diesel.

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

During the A.Y. 2008-09, the Assessing Authority initiated proceedings under the Uttar Pradesh Value Added Tax Act, 2008 (UP VAT Act)., treating the diesel consumed in running these generator sets as taxable purchases made by Vodafone from unregistered dealers. VAT and entry tax were levied on the ground that Vodafone failed to furnish evidence showing that the diesel had been purchased from registered dealers and had already suffered tax.

The Commercial Tax Tribunal, Meerut, in second appeal, upheld the assessment order, leading to the present revisions before the High Court.

The Revisionist, represented by Atul Gupta, contended that it was not engaged in the purchase or sale of diesel. It argued that diesel is a controlled commodity and, at the relevant time, was manufactured or imported only by public sector undertakings.

Accordingly, diesel was merely consumed by service providers in the course of rendering maintenance services, and such consumption could not be equated with a sale of diesel to Vodafone under the UP VAT Act, 2008.

He further argued that no material existed to invoke tax liability under Section 4 read with Schedule IV of the Uttar Pradesh Value Added Tax Act, 2008, and that the orders of the authorities were non-speaking and violative of principles of natural justice.

The Single Bench of Justice Piyush Agrawal held that Vodafone was required to discharge the burden of proving that the diesel used in running the generator sets had been purchased from registered dealers and had already suffered tax under the UP VAT Act, 2008.

The Court observed that mere reliance on contractual arrangements with service providers could not substitute for documentary evidence such as bills or invoices showing tax-paid purchases.

Since Vodafone failed to produce any cogent material at any stage of the proceedings to establish that the diesel had already been taxed, the levy of value added tax was found to be lawful. The Court further clarified that in regular assessment proceedings, the onus lies on the assessee, unlike reassessment proceedings where the burden may shift to the revenue.

Finding no perversity or violation of natural justice in the impugned orders, the High Court dismissed the revisions and answered all questions of law in favour of the revenue.