The Bench clarified, however, that sale of instruments such as modems and handsets, which do not include service element, are taxable.

It ruled that messages carried by electro-magnetic waves could not be called goods. It also rejected the imposition of sales tax on sharing of infrastructure saying that there was deemed sales and the sharing was incidental; hence, it should not be taxed.

The telecom companies moved the High Court after the state''s Commercial Tax Department issued notices to them seeking tax on the services.

The Bench said the services offered by them are not in physical form before they are marketed.

Raghavan Ramabadran, counsel for Airtel said recharge coupon is not a product but a receipt to the consumer for the services offered and hence, cannot be taxed.

The High Court earlier gave stay on the issue instructing the service providers to pay one-third of the tax demand raised by the tax department.

In 2008, it had issued a tax notice to Airtel demanding that the company pay more than Rs 25 crore as tax on recharge coupons and SIM cards and other services.

Source: MSN India, India,  dated 09/09/2011