TaxTMI 
TaxTMI 
2014 (11) TMI 1070
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....gging a directional well. According to the petitioners they have entered into a service contract providing service of directional drilling and, therefore, they are paying service tax to the Central Government. The petitioners contend that the contract does not amount to sale and no VAT can be levied on the same. [3] In W.P(c) No. 315 of 2010 the petitioner has provided Mobile Drilling Rig service to the proforma respondent. Here again the stand of the petitioner is that this is a contract for rendering services since this mobile rig services are provided along with crew and the rig remains in the possession and custody of the petitioner. The petitioner is also required to provide experienced and qualified persons for proper execution of the drilling and, therefore, these are contracts for service not amounting to sale. [4] On the other hand, the stand of the State in all the cases is that transactions entered into by the petitioners are for hiring of machineries which amounts to sale within the meaning of Section 2(25)(d) of the Tripura Value Added Tax Act, 2004 read with Rule 7(2) of the Tripura Value Added Tax Rules, 2005 and exigible to tax under Section 4(2) of the Tripura Va....
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....rley & 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. [8] 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 understood were absent. By legal fiction such transactions, transfers and supply of goods were deemed to be sale ....
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...., 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 than the goods in exempted list of the Act for any purpose (whether or not for a specified period) for cash or in....
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....he 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 use goods would occur and situs of sale of such a transaction would be the place where the contract is executed." ....
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....ia : (1989) 2 SCC 645." [13] 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 condition that the contractor would be responsible for the custody of the machinery while it was on the site did not mil....
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....ced 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 Sub-clause (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 decision has by this clause been effectively legislatively invalidated. 42. All the sub-clauses of Article 366 (....
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....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." [16] 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) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and ....
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....ant 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 hereinabove set aside the judgment of the High Court and held as follows: "27. What, however, did not fall for conside....
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.... 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." [20] The Apex Court in BSNL's case clearly held that in a contract falling under Clause 29A of Article 366 of the Constitution the dominant nature test would not apply and the contract could be split up to determine the value of that pa....
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.... 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 contracts comprising of both goods and services. Not only the contracts cannot be artificially split up so as to enable ....
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....evy 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. [24] 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 contract was for well logging, perforating and other wire line services and the question was whether such a transaction am....
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....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. [26] 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. [27] A Division Bench of this Court in W.P(c) No. 75 of 2013(M/s. Oil Field Instrumentation (India) Ltd. Vrs. The State of Tripura and others) and other connected matters decided on 10th September, 2014 after discussing the entire law on the subject held that no person can be directed to pay both sales tax and service tax on the same transaction. It was also held that if there are both elements of service and transfer of right to use goods present in a cont....
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.... time of mobilization. 1.17 Tests: Shall mean such process or processes to be carried out by the CONTRACTOR as are prescribed in the CONTRACT considered necessary by ONGC or their representative in CONTRACT to ascertain quality, workmanship, performance and efficiency of equipment or services thereof. 1.20 Approval: Shall mean and include the written consent duly signed by ONGC or their representative in respect of all documents, drawing or other particulars in relation to the Contract. ***** ****** ***** 5.0 Duties and Power/Authority: 5.1 The duties and authorities of the of the ONGC's site representative are to act on behalf of the ONGC for: (i) Overall supervision, co-ordination and Project Management at site. (ii) Proper utilization of equipment and services. (iii) Monitoring of performance and progress. (iv) Commenting/countersigning on reports made by the CONTRACTOR's representative at site in respect of works, receipts, consumption etc. after satisfying himself with the facts of the respective cases. (v) He shall have the authority, but not obligation at all times and any time to inspect/test/examine/verify any equipment machinery, instruments, tools materials, ....
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....ion report (signed by an officer equivalent to DSP rank of higher) from the area I where the person(s) to be deployed has/have been residing since the last five years. In case the person concerned has not resided at a place for five years at a stretch, Police verification reports should be obtained from that area where the person(s) has/have stayed earlier. ***** ***** ***** ***** 8.3 Taxes: CONTRACTOR, unless specified otherwise in the CONTRACT, shall bear all tax liabilities, duties, Govt. levies etc. including Service tax, customs duty, Corporate and personnel taxes levied or imposed on the Contractor on account of payments received by it from the CORPORATION for the work done under this CONTRACT. It shall be the responsibility of the CONTRACTOR to submit to the concerned Indian authorities, the returns and all other concerned documents required for this purpose and to comply in all respects with the requirements of the laws in this regard, in time. ****. ***** ***** ***** ***** 13. SAFETY AND LABOUR LAWS: CONTRACTOR shall comply with the provision of all laws including Labour Laws, rules, regulations and notifications issued thereunder from time to time. All safety and la....
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....that the contract is basically for providing of services inasmuch as highly specialized machinery along with specialized staff is provided and the rates not only include the rates for hiring of machinery but also for the staff and the services provided by the staff. W.P(c) No. 315 of 2010: [31] In this case it is Mobile Rigs which are being supplied along with crew required to operate these Rigs. Para-1 of the contract reads as follows: "1. The Contractor agrees to perform the Services in accordance with the terms and conditions of this Contract and, in consideration of its due performance of the Services, the Company agrees to pay the Contractor according to the rates, terms and conditions herein contained in Appendix-5 (Schedule of Compensation) attached hereto." The other relevant portions of the contract are as follows: "3.1 Equipment of Personnel: The Drilling Unit shall be fully equipped as set out in Section II - Scope of Works, and shall be adequate to conduct the Well Operations at the Location specified by Company and contemplated by this Contract. The Drilling Unit and all other Contractor's Equipment shall be in first class working condition and, together wi....
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.... as per the requirements of the contract. "7.0 MATERIALS, SUPPLIES, EQAUIPMENT, SERVICES AND PERSONNEL TO BE FURNISHED BY COMPANY: 7.1 Company Equipment: Company shall furnish all items stated as being furnished by Company in Section II. All such items, together with all items referred to in Clause 7.2 shall be referred to as "Company Equipment" All such items shall be furnished at no cost to Contractor unless otherwise specified in Section II. Contractor shall protect Company Equipment from damage or loss and exercise the same degree of care in handling and using Company Equipment as it would with its own equipment. ***** ***** ***** ***** 11.6 Discipline 11.6.1 Contractor shall maintain at all times strict discipline and good order among its employees and subcontractors and shall abide by and conform to all reasonable rules and regulations promulgated by Company governing Well Operations. 11.9 Rig Superintendent: Contractor shall appoint a Rig Superintendent who shall have the general responsibility for matters affecting safety, emergency response, health or welfare and the maintenance of order and discipline and in the discharge of that responsibility shall exercise auth....
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....ds but according to us the pre-dominant portion of the contract relates to hiring of services and not to transfer of right to use the goods. We are aware that the dominant nature test is not to be used in composite contracts falling within the ambit of Article 366(29A) but from the reading of the contract it is more than apparent that the intention of the parties was to treat the contract as a contract for hiring of services. Moreover, it is impossible to divide the contract into two separate portions. Every element of the digging directional wells and Mobile Drilling Rig service contains a major element of provisions of services. In such an eventuality it is virtually impossible to divide the contract. It is not possible to work out the value of the right to use goods transferred under the contract. In cases, where the contracts are easily divisible or where the parties have by agreement clearly indicated what is value of the service part and what is value of the transfer of right to use goods part, the contract may be divided. We are in agreement with the Delhi High Court that when the contract cannot be divided with exactitude then the Central Law must prevail. [35] Parties hav....