Composite contract taxation: interim VAT recovery stayed where the transaction required appellate adjudication and consistent treatment was needed.

A composite franchise-service arrangement raised the question whether receipts already subjected to service tax could be split into separate sale and service elements for VAT recovery. The writ court noted that the Tax Board had granted complete stay in a similar matter and stressed consistency in interim orders where comparable facts exist. It also reiterated that a composite contract should not be bifurcated for taxation unless separate and distinct contracts are shown. The refusal of interim protection was set aside, the appeals were to be decided expeditiously, and recovery remained in abeyance on furnishing solvent security.

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Issues: Whether the Tax Board was justified in refusing interim protection against recovery of the VAT demand and in declining to follow its own earlier stay order in a similar matter involving a composite franchise-service arrangement.

Analysis: The challenge arose in the context of a composite transaction in which the petitioner asserted that the receipts were for services already subjected to service tax and that the authorities could not bifurcate the arrangement into sale and service for VAT purposes. The writ court noticed that the Tax Board had granted complete stay in a similar case and that the present dispute raised a substantial question as to the nature of the transaction requiring adjudication by the appellate authority. Emphasis was placed on the need for consistency in interim orders in similar cases and on the principle that a composite contract cannot be split for taxation unless separate and distinct contracts are shown.

Conclusion: The refusal of interim relief was not sustained. The order of the Tax Board was set aside and the appellate authority was directed to decide the appeals expeditiously, with recovery kept in abeyance on furnishing solvent security as directed.

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