Launch vessel hiring for bridge construction deemed service contract under Section 65(105)(zzzzj) Finance Act 1994

The Gauhati HC ruled that contracts for hiring launch vessels for bridge construction constituted service contracts under Section 65(105)(zzzzj) of the Finance Act, 1994, not transfer of right to use goods under Article 366(29A) of the Constitution or sale under Section 2(43) of the Assam VAT Act, 2003. The court found that petitioners retained complete control over vessels, provided crew, paid for fuel and maintenance, and bore all liabilities. Since Railways had only permissive use without facing legal consequences, the transaction was purely service-based. The impugned order was set aside, earlier clarifications restored, and respondents directed to process refund applications.

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Issues Involved:
1. Whether the transactions related to the hiring of launch vehicles for the Bogibeel Bridge Project constitute a 'sale' u/s 2(43) of the Assam Value Added Tax Act, 2003 or a 'service' u/s 65(105)(zzzzj) of the Finance Act, 1994.

Summary:

Issue 1: Whether the transactions constitute a 'sale' or a 'service':
The High Court analyzed whether the hiring of two launch vehicles for the Bogibeel Bridge Project falls under 'sale' as per Section 2(43) of the Assam Value Added Tax Act, 2003 or 'service' as per Section 65(105)(zzzzj) of the Finance Act, 1994. The petitioners entered into agreements on 08.06.2009 and 04.07.2012 with the Northeast Frontier Railway to supply launch vehicles. The Service Tax Department demanded service tax, while the Finance and Taxation Department of Assam deducted VAT. The Commissioner of Taxes clarified on 06.06.2015 and 28.08.2015 that VAT was not applicable, categorizing the contracts as service contracts.

The Court referenced the Supreme Court's judgment in Bharat Sanchar Nigam Ltd. vs. Union of India, which delineates the attributes for a transaction to be considered a transfer of the right to use goods. The Court noted that the petitioners retained control over the launch vehicles, provided crew members, and were responsible for maintenance and legal consequences, indicating a service rather than a transfer of the right to use.

Court's Analysis:
The Court examined the terms of the contracts, noting that the petitioners could replace the launch vessels if needed and were responsible for all operational aspects, including fuel and crew. The Court found that the contracts did not satisfy the attributes of a transfer of the right to use goods as outlined in Bharat Sanchar Nigam Ltd. and subsequent judgments.

Conclusion:
The Court concluded that the contracts in question are service contracts and not transactions for the transfer of the right to use goods. Consequently, the impugned order dated 03.04.2017 was set aside, and the clarifications dated 06.06.2015 and 28.08.2015 were restored. The respondents were directed to process the petitioners' refund application based on these clarifications.

Order:
The writ petition was allowed, and the respondents were instructed to act on the clarification orders and process the refund application promptly. No costs were awarded.

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