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Issues: Whether the contract for directional drilling and supply of specialised machinery with personnel amounted to a transfer of right to use goods exigible to value added tax under the Tripura Value Added Tax Act, 2004.
Analysis: The constitutional and statutory framework permits States to tax only those transactions that amount to a sale or deemed sale, including a transfer of the right to use goods under Article 366(29A)(d) of the Constitution of India and the relevant provisions of the Tripura Value Added Tax Act and Rules. The governing authorities on the point make it clear that the taxable event is the transfer of the right to use goods, and that in a composite contract the service element cannot be taxed by the State merely because equipment is also supplied. On reading the contract as a whole, the arrangement was found to be substantially one for specialised services, with highly technical personnel, supervision, and operational control forming its core, and the machinery being only part of that service structure. The contract was not found to be readily severable into distinct sale and service components with exactitude.
Conclusion: The transaction was held not to amount to a transfer of right to use goods and was not exigible to value added tax. The finding was in favour of the assessee.
Ratio Decidendi: Where a contract is, in substance, a specialised service arrangement and the service and deemed-sale components are not clearly severable, the State cannot levy value added tax by treating the contract as a transfer of the right to use goods.
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