Karnataka High Court Upholds Sales Tax on Set-Top Boxes

Karnataka High Court Rules on Set-Top Box Taxation

In a significant verdict, the Karnataka High Court has upheld the imposition of sales tax on set-top boxes (STBs) provided by cable service operators. The ruling affirms that STBs qualify as “goods” under the Karnataka Value Added Tax (KVAT) Act, making them subject to taxation.

Petitioners’ Arguments Against the Tax

Cable service providers challenged the tax, arguing that STBs are merely tools for receiving signals and do not function independently. They claimed that since ownership remains with cable operators, no “sale” occurs. Additionally, they contended that subscription fees were charged for activation services, not for using the STBs.

Karnataka High Court’s Stand on KVAT Act

The Karnataka High Court dismissed these claims, ruling that STBs are movable property and fit the definition of “goods” under the KVAT Act. The Court stated that subscribers exercise exclusive control over the STBs, making the transfer a taxable sale. It also rejected the argument 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, arguing it lacked statutory backing. However, the Court ruled that the notification was valid and aligned with the legislature’s intent, ensuring continuity in tax enforcement.

Implications of the Judgment

This ruling reinforces the state’s authority to tax set-top boxes and clarifies taxation rules for cable service providers. With the Karnataka High Court siding with the Revenue, service providers may need to adjust their pricing models to comply with tax obligations. Subscribers should also be aware that part of their service charges includes the tax component for set-top boxes.

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J.V. Malavika Lakshmi

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