TaxTMI 
TaxTMI 
2014 (9) TMI 1052
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.... the mud logging services are concerned this involves specialized machines which have been deployed by the petitioners at sites indentified by the ONGC and the petitioner uses these machines to drill and analyze the soil and then gives an opinion whether it is economically feasible to extract natural gas out of the soil. The contract was treated as a works contract and the State wants to levy VAT on the same. [3] In all other matters the vehicles have been hired by the ONGC or GAIL on certain terms and conditions, along with services of drivers etc. According to the petitioners it is entirely a service contract whereas according to the State it is an out and out contract for hire or transfer of right to use goods. It would be pertinent to mention that in all the cases the ONGC or GAIL deducted VAT at source from the bills of the petitioners showing the contracts to be work contracts within the meaning of Section 2(36) of the TVAT Act. All the petitioners urge that the contracts were not works contracts within the meaning of Section 2(36) of the TVAT Act and therefore, the deduction of tax was totally incorrect. On the other hand, the stand of the State is that though the contract....
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....ing with other issues it would be pertinent to mention that the Apex Court in State of Madras Vrs. Gannon Dunkerley & Co (Madras) Ltd., AIR 1958 SC 560 held that the State had no power to tax a composite contract of goods and services (works contract) to be taxed as sale of goods. The Court further held that the law also does not permit the severance of the contract for determining the value of the goods. [7] In view of this decision of the Apex Court, it was felt necessary to amend Constitution with a view to widen the definition of sale as traditionally understood. In common law, sale was understood to mean an agreement to transfer title in the goods on payment of consideration. The Constitution was amended and sub article (29A) was introduced in the Constitution by the Constitution Forty-sixth Amendment Act, 1982. By means of this Constitutional amendment, tax on the sale or purchase of goods now covered six more categories which may otherwise not have fallen within the definition of sale. Sub-clauses (a) to (f) to Clause 29A of Article 366 of the Constitution bring within the ambit of sale, transactions where one or more of the essential ingredients of sale as traditionally un....
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....ed by such dealer for carrying such goods to the place where these are used in execution of such works contract, but shall not include such portion of the aforesaid amounts as may be prescribed. (2) Tax on transfer of the right to use any goods- Notwithstanding anything contained elsewhere in this Act, any transfer of the right to use any goods for any purpose (whether or not for a specified period) shall be taxable at the rate as specified in the Schedule. (3) Deduction of tax at the time of payment- Every person responsible for paying) any sum to any person on account of works contract and right to use any goods for any purpose, shall at the time of credit of such sum to account of the person or at the time of payment thereof in cash or by issue of a cheque or draft or any other mode, deduct such amount towards sales tax (not being more than the total tax payable by the dealer) as may be prescribed." ***** ******* ******* ******* ****** ****** Rule 7(2) of the TVAT Rules reads thus: "7(2) Every person responsible for making payment to any person for discharge of any liability on account of valuable consideration payable for any transfer of the right to use any goods other th....
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....egally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods. 28. No authority of this Court has been shown on behalf of respondents that there would be no completed transfer of right to use goods unless the goods are delivered. Thus, the delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods. We are, therefore, of the view that where the goods are in existence, the taxable event on the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is executed. Thus, where goods to be transferred are available and a written contract is executed between the parties, it is at that point situs of taxable event on the transfer of right to....
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....le 366(29-A) as also of the Constitution Bench decision of this court in Builders' Assn. Of India Vrs. Union of India : (1989) 2 SCC 645." [12] In State of A.P and Another Vrs. Rashtriya Ispat Nigam Ltd.: (2002) 3 SCC 314 the Apex Court dealt with meaning of the phrase "transfer of right to use goods". In that case the Rashtriya Ispat Nigam was the owner of the Visakhapatnam Steel Project. It engaged various contractors to do the work and supplied sophisticated machines to the contractors for being used in execution of the contracted works. The Rashtriya Ispat Nigam Ltd. received hire charges for the same. The tax was levied on this transaction on the ground that there was a transfer of the right to use goods. The Andhra Pradesh High Court in its judgment held that there was no transfer of the right to use this machinery in favour of the contractor. While coming to this conclusion the High Court of Andhra Pradesh analysed the various clauses of the agreement and held that the contractors were not free to make use of the machinery for works other than the project work of the respondent or move out the machinery during the period of contract. The Court went on to hold that the condi....
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....e (b) covers cases relating to works contracts. This was the particular fact situation which the Court was faced with in Gannon Dunkerley and which the Court had held was not a sale. The effect in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley was directly overcome. Sub-clause (c) deals with hire purchase where the title to the goods is not transferred. Yet by fiction of law, it is treated as a sale. Similarly the title to the goods under Subclause (d) remains with the transferor who only transfers the right to use the goods to the purchaser. In other words, contrary to A.V. Meiyappan decision a lease of a negative print of a picture would be a sale. Sub-clause (e) covers cases which in law may not have amounted to sale because the member of an incorporated association would have in a sense begun as both the supplier and the recipient of the supply of goods. Now such transactions are deemed sales. Sub-clause (f) pertains to contracts which had been held not to amount to sale in State of Punjab vs. M/s. Associated Hotels of India Ltd. (supra). That decis....
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....y be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29A) continues to be:- Did the parties have in mind or intend separate rights arising out of the sale of goods? If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is 'the substance of the contract'. We will, for the want of a better phrase, call this the dominant nature test." [15] Thereafter the Court dealt with the question as to whether the dominant nature test would continue to apply even in respect of contracts falling within the ambit of Clause 29A of the Constitution. The Apex Court held as follows: "49. We agree. After the 46th Amendment, the sale element of those contracts which are covered by the six sub-clauses of clause (29A....
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.... is the Central Government alone it can only levied tax on the service part of the contract. [18] The other relevant judgment on the point is Imagic Creative(P) Ltd. Vrs. Commissioner of Commercial Taxes and Others; (2008) 2 SCC 614. In this case, the appellant before the Apex Court was an advertisement agency. It had entered into a contract with ISRO for conceptualizing, designing and producing computer artwork. It also supplied the advertising material to its customers. It raised bills under two heads; (1) the bills raised for conceptualizing and designing were treated to be in the nature of service and service tax was paid on the same. (2) With regard to the goods it supplied to its customers, the company treated the said transaction as sale and paid sales tax on the same. When the matter came up before High Court it rejected the plea of the assessee holding that the contract was a comprehensive contract for supply of printed material developed by the company. The High Court held that the indivisible contract was divided by the company under different heads. The Apex Court after discussing all the relevant law on the point including the judgments which we have referred to herei....
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....ntemplated by the legislature or which would lead to an anomaly or absurdity. 31. The Court, while interpreting a statute, must bear in mind that the legislature was supposed to know law and the legislation enacted is a reasonable one. The Court must also bear in mind that where the application of a Parliamentary and a Legislative Act comes up for consideration; endeavours shall be made to see that provisions of both the acts are made applicable. 32. Payments of service tax as also VAT are mutually exclusive. Therefore, they should be held to be applicable having regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract as contradistinguished from an indivisible contract. It may consist of different elements providing for attracting different nature of levy. It is, therefore, difficult to hold that in a case of this nature, sales tax would be payable on the value of the entire contract, irrespective of the element of service provided. The approach of the assessing authority, to us, thus, appears to be correct." [19] The Apex Court in BSNL's case clearly held that in a contract falling under Clause 29A of Article 366 of the Co....
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....le 366(29-A), the value of the goods involved in the execution of the whole transaction cannot be assessed to sales tax. Referring to the decision in Gujarat Ambuja Cements Ltd. & Anr. V. Union of India & Anr., (2005) 4 SCC 214 it was held that mutual exclusivity which is referred to in Article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Though liberal interpretation must be given to the taxing entries, however in substance if the statute is not referable to a field given to the State, then the Court will not by a principle of interpretation allow a statute to include in its field what is not covered in its field. The 'aspect' theory (viz. the aspect of goods in composite contracts) would not apply to enable the value of the services to be included in the sale of the goods or the price of the goods in the value of the service. 11. The conclusion, therefore, which emerges with respect to the facts of the present case on applying the ratio of the BSNL's case is that, since the contract in question is a composite contract of sale of goods and services, clearly, it is not permissible for the State Legislature by applying DVAT Act to tax composite....
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....hen went on to hold as follows: "28. Axiomatically, therefore, the transactions in hand to be validly subjected to the levy under the Act would have essentially to be adjudged to constitute transfer of right to use the Cranes. In the event a service element is traceable therein and any intention whatsoever of the contracting parties to contemplate two independent agreements, i.e., one for transfer of right of use and the other for service with respective values attached thereto is lacking, the bargain would catapult beyond the purview of the Act, thus, rendering the same in exigible to tax thereunder. To reiterate, the learned counsel for the Revenue in course of the arguments on a dialectical scrutiny of the clauses of the contract agreements has admitted the same to constitute indivisible contracts.****" However, dealing with the Dipak Nath's case the learned Single Judge held that the facts of that case were different and distinguished the said judgment. [23] A Division Bench of the Agartala Bench of the Gauhati High Court dealt with a similar question in HLS Asia Ltd. Vrs. State of Tripura and Ors; (2011) 5 GLR 277. In this case, the Court was dealing with a case where the c....
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....ude. [24] In HLS Asia Ltd. Vrs. State of Tripura and Ors; (2013) 1 GLR 107 another Division Bench of the Agartala Bench of the Gauhati High Court of which one of us (S.C. Das, J) is the author was dealing with a matter relating to well logging perforating and other wire line services and it was held that the petitioner was a service provider and could not be compelled to be registered as a dealer under the TVAT Act. [25] On the contrary, in two other Division Bench judgments of the Gauhati High Court in Motlib Ali Vrs. ONGC and others (W.P(C) No.5280 of 2011 decided on 24.07.2012) and M/s. Brahmaputra Valley Construction and Suppliers Vrs. ONGC and others (W.P(C) No. 578 of 2009 delivered on 24.07.2012) the Court has come to the conclusion that on consideration of various factors the transaction clearly involved, a transaction for right to use. [26] Coming to the facts of the present case, we shall first deal with the W.P(C) No.75 of 2013 which relates to mud logging services. The NIT was flouted on all India basis at Bombay and the contract was entered into at Bombay. The ONGC was desirous of hiring number of mud logging units along with services of the contractors. The r....
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....on: 5.1 The CONTRACTOR, in the beginning of the Contract, shall offer the Mud Logging Units asked to be mobilized initially for inspection at its premises sufficiently in advance prior to scheduled date of mobilization as per initial mobilization order from ONGC and inform the Corporation, 7(seven) days in advance for inspection. CONTRACTOR is responsible for equipments mobilization at ONGC base within 70 days from the date of issue of Mobilization Order or on mobilization date indicated on order (beyond 70 days) from ONGC. Contractors responsibility have also been mentioned and the contractor is responsible for carrying out preventive and back ground maintenance. Clauses 21 and 23 read as follows: 21. Exclusive Responsibility: In the performance of the Work, the CONTRACTOR is an independent contractor and shall be exclusively responsible for the means , manner and method of performing such Work, with the exclusive direction and control of and responsibility for and to its personnel, taking into account any instructions and/or guidelines from the CORPORATION. ***** ***** ****** ****** ****** ****** ***** 23. Independent Contractor: 23.1 The CONTRACTOR shall act as an indepen....
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..... The crew is a well trained crew which has to carry out scientific investigation, analyze the soil and then determine whether it is economically feasible to extract gas from the area or not. [28] The rates schedule for payment reads as follows: PRICE SCHEDULE FOR SEGMENTATION (ONLAND NORTH EAST AREAS) TOTAL NUMBER OF UNITS ORDERED 7 NOS. ELEMENT DESCRIPTION OF CHARGES UNIT OF MEASUREMENT RATE PER MLU IN RUPEES A Mobilisation Charges(inclusive of Charges for crew, expertise/consultancy, maintenance, spares, consumables, all taxes and duties except service tax) Per Occasion per unit NIL B Operative Day's Charges (inclusive of Charges for crew, expertise/consultancy, maintenance, spares, consumables, all taxes and duties except service tax) Per day per mud logging unit Rs.24,381/- (Rupees Twenty Four Thousand Three Hundred Eighty one only) C Standby Day's Charges(inclusive of Charges for crew, expertise/consultancy, maintenance, spares, consumables, all taxes and duties except service tax) Per day per mud logging unit Rs.12,150/- ( Rupees Twelve thousand one Hundred fifty only) per day. D Standby Charges under breakdown conditions(....
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....lly being paid. [30] As has been held by the Apex Court either a transaction shall be exigible to sales tax/VAT or it shall be exigible to service tax. Both the taxes are mutually exclusive. Whereas sales tax and value added tax can be levied on sales and deemed sales only by the State, it is only the Central Government which can levy service tax. No person can be directed to pay both sales tax and service tax on the same transaction. The intention of the parties is clearly to treat the agreement as a service agreement and not a transfer of right to use of goods. We are also clearly of the view that it is impossible from the terms of the contract to divide the contract into two portions and since the petitioners have paid service tax they cannot be also asked to pay value added tax. As held by the Delhi High Court in Commissioner, VAT, Trade and Taxes Department vrs. International Travel House Ltd.(supra), if there is a conflict between the Central law and the State Act then the Central law must prevail. The petitioner or the ONGC cannot be burdened with two different taxes for the same transaction. [31] After carefully going through the contracts, as we have held above, there is....