Supreme Court: Pest control materials in contract deemed sale, taxable under VAT Act

The Supreme Court overturned the High Court's decision and ruled in favor of the State, holding that the materials used in a contract for pest control treatment constituted a deemed sale under Article 366(29A)(b) of the Constitution, thereby subjecting them to tax under the Gujarat Value Added Tax Act, 2003. The Court relied on precedents from Larsen and Toubro Limited and Kone Elevator India Private Limited cases to determine that the goods, even in a different form, were deemed to be sold in the contract.

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Issues:
1. Whether materials used in a contract for pest control treatment amount to a deemed sale under Article 366(29A)(b) of the Constitution for tax under the Gujarat Value Added Tax Act, 2003.

Analysis:
The main issue in this case is whether the materials used in a contract for pest control treatment would be considered a deemed sale under Article 366(29A)(b) of the Constitution, making them subject to tax under the Gujarat Value Added Tax Act, 2003. The High Court had ruled in favor of the Assessee, leading to an appeal by the State. The contract involved the provision of pest control services by the contractor to the consumer, Reliance Petroleum Limited, using chemicals procured and supplied by the contractor. Notably, there was no trace of the goods/materials used in the contract during its execution.

The Supreme Court referred to a previous judgment in Larsen and Toubro Limited case, where it was held that the expression "goods (whether as goods or in some other form)" in Article 366(29A)(b) of the Constitution expands the definition of goods to include goods in various forms. The Court emphasized that goods in some other form encompass items that have ceased to be chattels or movables and have become attached or embedded to immovable property. Additionally, the Court cited the Kone Elevator India Private Limited case, which supported the position taken in Larsen and Toubro Limited regarding the dominant nature of the contract test.

Based on the legal precedents set in Larsen and Toubro Limited and Kone Elevator India Private Limited cases, the Supreme Court disagreed with the High Court's decision that there was no deemed sale of goods in the contract. The Court set aside the High Court's order and allowed the appeal filed by the State, indicating that the materials used in the pest control contract would indeed be considered a deemed sale for tax purposes under the Gujarat Value Added Tax Act, 2003.

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