Works contract classification for computerisation project affirmed where assets passed on commissioning and operation continued after go-live.

A BOMT arrangement for computerisation, operation and maintenance of the Motor Vehicles Department was treated as a works contract because the contractor was required to build the infrastructure, install and commission hardware and software, provide connectivity and consumables, and then operate and maintain the system. Property in the deployed assets was to pass to the department on completion or termination, and the transfer was found to occur when the system went live and became fully operational at the department's disposal. Continuing maintenance obligations did not preserve title or reduce the arrangement to a mere right to use goods; the transfer of goods was therefore treated as a deemed sale on accretion.

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Issues: Whether the BOMT arrangement for computerisation, operation and maintenance of the Motor Vehicles Department was a works contract or a right to use goods.

Analysis: The contract required the assessee to build the infrastructure, install and commission the hardware and software, provide connectivity and consumables, and operate and maintain the system for three years. The relevant clause provided that all assets deployed at the MVD offices would become the property of the MVD on completion or termination of the contract. The transfer was found to occur when the system went live and the fully operational computerised system was placed at the disposal of the MVD. The continuing obligations of operation and maintenance did not preserve title in the assessee or create a mere right to use. The arrangement satisfied the essential characteristics of a works contract, and the transfer of goods was treated as a deemed sale on accretion of goods.

Conclusion: The contract was held to be a works contract and not a right to use goods, and the clarification order was upheld.

Ratio Decidendi: Where a contract involves construction, installation and commissioning followed by operation and maintenance, and property in the goods passes on accretion or when the system becomes operational, the transaction is a works contract and not a mere right to use goods.

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