2009 (9) TMI 879 - HC - VAT and Sales Tax

Court rules transaction not a sale under Article 366(29A)(d) due to retained control. Contracts for services, not goods.

Commissioner, VAT, Trade and Taxes Department Versus International Travel House Ltd.

The court held that the transaction did not constitute a sale under Article 366(29A)(d) as the respondent retained effective control and possession of the ... Applicability of the DVAT Act to the transaction of hiring of Maruti Omni cabs by the respondent to a company, M/s. New Delhi Power Limited (hereafter 'the NDPL') Held that:- The present appeal is not entitled to succeed because neither the transactions in question are sale of goods as envisaged in article 366(29A)(d) nor can the composite contracts be split up by taking from it the value of the goods for the purposes of taxing the same under the DVAT Act. Issues Involved:1. Whether the transaction in question is a 'sale' within the meaning of Article 366(29A)(d)Rs.2. Whether the contracts in question are contracts for services and hence not assessable to tax under the DVAT ActRs.Issue-wise Detailed Analysis:1. Whether the transaction in question is a 'sale' within the meaning of Article 366(29A)(d)Rs.The court examined the nature of the transaction between the respondent and NDPL, which involved the hiring of Maruti Omni cabs. The appellant argued that the transaction constituted a sale because there was a transfer of the right to use the goods for valuable consideration. They contended that effective control and possession of the cabs were with NDPL, meeting the requirements of Article 366(29A)(d).However, the respondent countered that effective control and possession of the cabs remained with them, as the vehicles were driven by their drivers, and all necessary licenses and permissions were in the respondent's name. The court referred to the Supreme Court's decision in Bharat Sanchar Nigam Ltd. v. Union of India, which provided the test for determining whether a transaction is a sale. The court concluded that the transaction did not constitute a sale because the respondent retained effective control and possession of the cabs, failing to meet the criteria outlined in Bharat Sanchar Nigam Ltd.2. Whether the contracts in question are contracts for services and hence not assessable to tax under the DVAT ActRs.The court analyzed whether the transaction could be taxed under the DVAT Act, given that it included elements of both goods and services. The appellant argued that the presence of goods in the transaction allowed for taxation under the DVAT Act. They cited the measure of tax being 100% of the contract value, asserting that the inclusion of services did not change the nature of the tax.The respondent argued that the transaction was primarily for services and was already subject to service tax under the Finance Act, 1994. They contended that the DVAT Act could not apply as it would conflict with the central legislation governing service tax.The court referred extensively to the Bharat Sanchar Nigam Ltd. decision, which emphasized that composite contracts involving both goods and services could not be artificially severed to tax the goods component separately. The court noted that the contract in question did not specify separate values for goods and services, indicating the parties' intention for it to be treated as a single, inseverable contract for services.The court concluded that the DVAT Act could not be applied to tax the entire transaction value as a sale of goods. The contract was deemed a composite contract for services, and taxing it under the DVAT Act would lead to overlapping taxation, which must be avoided. The court also referenced the Supreme Court's decision in Godfrey Phillips India Ltd. v. State of U.P., which stressed the need for clarity and precision in taxing entries to avoid conflicts between state and central legislation.Conclusion:The court held that the transaction in question did not constitute a sale under Article 366(29A)(d) and that the contracts were primarily for services, not assessable to tax under the DVAT Act. The appeal was dismissed, with each party bearing its own costs.