BOOT arrangement treated as a service contract, not a sale of goods, so VAT deduction on equipment payments failed.

Under a BOOT arrangement, VAT/TDS could not be levied on amounts payable where the supplier retained control and possession of the equipment during the contract term, remained responsible for operation, maintenance and upgradation, and transferred the system only at the end for nominal consideration. On those facts, there was no present transfer of title or transfer of the right to use goods, so the transaction was characterised as a service arrangement rather than a sale of goods or works contract. The sale element required for VAT was absent, and the deduction of tax at source from the CAPEX portion of the quarterly charges was held unlawful.

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Issues: Whether tax at source could be deducted under the Meghalaya Value Added Tax Act, 2003 from amounts payable under the BOOT arrangement for the MSWAN project, on the footing that the transaction involved sale of goods or transfer of the right to use goods, or whether it was a service arrangement not attracting such levy.

Analysis: The agreement showed that during the contractual period the petitioner retained control and possession of the equipment, remained responsible for operation, maintenance and upgradation, and was to transfer the system only at the end of the term for a nominal consideration. On those terms, there was neither present transfer of title nor transfer of possession amounting to a sale or transfer of the right to use goods. The transaction was held to be one for rendering services under a composite BOOT arrangement, and the sale element necessary to attract tax under the constitutional concept of tax on sale or purchase of goods was absent. The Court also applied the distinction between a composite contract and a works contract and noted that the dominant intention and discernible sale tests were not satisfied on the facts.

Conclusion: The deduction of tax at source from the CAPEX portion of the quarterly guaranteed revenue charges was illegal, and the petitioners were held not liable to pay VAT on the equipment until transfer under the agreement.

Final Conclusion: The writ petition succeeded and the impugned tax deduction direction was set aside to the extent it treated the BOOT-based service arrangement as taxable sale of goods.

Ratio Decidendi: Where, under a BOOT agreement, the supplier retains control and possession of the equipment during the contractual term and no present transfer of title or right to use goods is established, the transaction does not constitute a taxable sale or transfer of goods for VAT purposes.

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