TaxTMI 
TaxTMI 
TaxTMI 
2009 (9) TMI 879
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the respondent to a company, M/s. New Delhi Power Limited (hereafter "the NDPL"). 2. Two issues arise for determination by this court: (a) Whether the transaction in question is "sale" within the meaning of the expression in article 366(29A)(d)? (b) Whether the contracts in question are contracts for services and hence not assessable to tax under the DVAT Act? Putting it differently, is the appellant entitled to impose tax on the transaction in question because it contains an aspect/element of sale of goods and it makes no difference if services also are included in the transaction? 3. Both the parties have extensively relied upon the decision of the Supreme Court in the case of Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 VST 95; [2006] 145 STC 91; [2006] 3 SCC 1. They have also relied upon certain other judgments as discussed hereinafter. 4. Before we proceed to answer the issues arising, it will be necessary to give a gist of the contract between the respondent and M/s. NDPL for hiring of Maruti Omni cabs by the former to the latter. The appellant has referred to the said contract and its terms in para 11 of the appeal and which para reads as under: "11. That t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rrier to carry an aluminium/fibre glass ladder. 16. Driver should look after the security of the ladder on the carrier and also ensure safe removal and loading. 17. Two vehicles will not be fitted with rear seat and the rear should be fitted at our cost of clamps for safe keeping of test equipment. 18. The colour of the Omnis should be white and should either be painted or stickers fixed as per corporate logo scheme enclosed. Period of contract: From May 1, 2003 to March 31, 2004 extendable up to March 31, 2005 by mutual consent. 1. Estimated total contract value: Rs. 56 lacs (Fifty six lacs) 2. Taxes, duties and delivery: Service tax extra as applicable. All taxes deductible at source (TDS) as per concerned authorities, and at the rates specified, shall be deducted by NDPL from your invoices and TDS certificate/s shall be issued. 3. Price-variation clause: The unit price contracted shall normally be firm during the period of the contract. However, variation for price may be permitted for fuel price variation as per the following formula: Difference to be paid/deducted based on (difference (increase/ decrease) price at the beginning of three monthly period commenc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er this contract and shall produce the same for verification at any time as and when required. You will also issue photo ID cards to the personnel working under this contract, which shall be duly endorsed by our security officer at site. 6. In the event of your not being in a position to provide services specified under this contract or any part thereof for any reason whatsoever, the NDPL will make alternative arrangements at market rates and the cost difference shall be adjusted against you pending/subsequent bills. A copy of the said agreement is enclosed and marked as annexure III." 5. Mr. Parag Tripathi, the learned Additional Solicitor-General, who appeared for the appellant has raised basically the following contentions: (i) A reference to the clauses of the contract aforesaid shows that the terms thereof satisfy the requirement of sale as specified in article 366(29A)(d) inasmuch as according to him there is a transfer of the right to use the goods for valuable consideration. In furtherance of his submission, the learned ASG has further elaborated that since the effective control and possession of the cabs which have been given on hire are with NDPL, it can be said th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....006] 145 STC 91 (SC); [2006] 3 SCC 1 with respect to the test of determination whether the transaction in question is a sale or not, we propose to straightway refer to the relevant paragraphs of the said judgment including those laying down the test for determining whether a transaction is a sale of goods or not. We may also state that though it has not been argued by the respondent on the basis of Bharat Sanchar Nigam Ltd.'s case [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 3 SCC 1 that the transaction in question cannot be assessable to the tax under the DVAT Act because the contract in question is not severable, but we find that Bharat Sanchar Nigam Ltd.'s case [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 3 SCC 1 directly and specifically determines this very issue and, therefore, this would be relevant to determine the second issue which has been urged by both the parties. 8. We take up firstly the second contention of the parties, viz., whether the transaction in question is one of services or of sale of goods. Further, if the transaction in question contains both the components of a sale of goods and services also, whether such a transaction can only ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T, SCC). (ii) Except the specific contracts so provided under article 366(29A) no other contracts can be artificially severed to tax the sale element with respect to goods as comprised in such composite contracts. Therefore, where the contracts are composite contracts, including therein both aspects of sale of goods and services, such contracts which are other than those specified in article 366(29A)(b) and (f), then such other contracts not falling within such sub-clauses of article 366(29A) cannot be split up taxing the sale element in the goods component thereof and which was only possible if the parties had in mind or intended that separate rights arising out of sale of goods and if there was no such intention then there is no sale of goods, even if such a contract could be disintegrated. (see paras 44, 45, 86, 91(c) in VST; paras 44, 45, 88, 92(C) in SCC). 10. Where the sale is distinctly discernible in the transaction, i.e., the contracts are by intention of the parties severable so that there are separate values with respect to goods and services, only then can one not deny the legislative competence of the State to levy sales tax on the value of the goods. This, however,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ite contract is to be treated as a contract for services and no sales tax can be imposed on the contracts in question. It has also been held by the Constitution Bench of the Supreme Court in its judgment reported as Godfrey Phillips India Ltd. v. State of U.P. [2005] 139 STC 537 (SC); [2005] 2 SCC 515 that taxing entries must be construed with clarity and precision so as to maintain exclusivity and a construction of a taxation entry which may lead to overlapping must be eschewed. Reference in that case was also made to the judgment in State of West Bengal v. Kesoram Industries Ltd. [2004] 266 ITR 721 (SC); [2004] 2 RC 298; [2004] 10 SCC 201 that in our Constitution a conflict of the taxing power of the Union and States cannot arise. Since the contract in question is taxed as services by the Central Government defining the same as services under the Finance Act, 1994, we would have to thus eschew an interpretation which will lead to overlapping in the taxation entries otherwise the same transaction will be taxed both as services as also goods. To avoid that overlapping, and more particularly in view of the legislative history behind the provision of article 366(29A) it becomes clear....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cannot again transfer the same rights to others." Sub-paras (b) and (c) of para 97 are important with reference to the facts of the case to determine as to whether or not there is a sale by virtue of transfer of right to use goods as envisaged in article 366(29A)(d). The admitted position which emerges is that the transferee, namely, NDPL, has not been made available the legal consequence of the legal right to use the goods, viz., the permissions and licences with respect to the goods. In the present case, the permissions and licences with respect to the cabs are not available to the transferee and remained in control and possession of the respondent. It is the driver of the vehicle who keeps in his custody and control the permissions and licences with respect to the Maruti Omni cabs or the said permissions and licences remained in possession of the respondent. These are never transferred to M/s. NDPL. It, therefore, cannot be said that there is a sale of goods by transfer of right to use goods inasmuch as a necessary ingredient of the sale, the transfer of right to use the goods, is absent, namely, the ingredient as stated in para 97(c) of the Bharat Sanchar Nigam Ltd.'s ca....