TaxTMI 
TaxTMI 
2015 (11) TMI 46
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.... to the home of the customer and the customer by using the set top box provided by the petitioner-assessee is able to decode the signals and watch the programs on his T. V. set. It would be pertinent to mention that the State is only imposing VAT on the value of the set top boxes (STB) as valued by the petitioners in their own books. 3. The contention of the petitioners is that they are rendering service only and being service providers they are paying service tax and are not liable to pay any VAT. The contention of the petitioners is that the equipment in the nature of STB which is used by the customers is not sold to the customers but remains the property of the service provider and the service provider retains the control of the equipment. It is urged that since the equipment remains the sole property of the petitioner-service provider and capitalization of the same is made in the books of account, the STBs continue to be the property of the service providers and are installed at the premises of the customers only with a view in providing proper service to the customers. According to the petitioners they do not collect charges towards sale or rent of the equipment from the cust....
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....ose goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;" 7. The case of the State is that since a tax on the sale or purchase of goods includes in terms of sub-clause (d) of article 366(29A) tax on the transfer of the right to use any goods for any purpose the petitioners are liable to pay value added tax on such transfer of right to use goods. The contention of the petitioners is that they have entered into a service contract and only the Union can levy tax on services and not the State. The petitioners have also urged that they are paying service tax to the Central Government under the provisions of law and since they are paying service tax, if there is conflict between the Central law and the State Act the Tripura Value Added Tax Act must necessarily give way to the provisions which provide for imposition of service tax in the Finance Act of 1994. 8. Before dealing with other issues it would be pertinent to mention that the apex court in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353 (SC); AIR 1958 SC 560 held that the State had no power to tax a com....
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....for any purpose (whether or not for a specified period) shall be taxable at the rate as specified in the Schedule." The main issue is whether there is a transfer of the right to use any goods or not ? 12. A Constitution Bench of the apex court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra [2000] 119 STC 182 (SC); [2000] 6 SCC 12 dealt with the issue with regard to the power of the State Legislature to levy tax under clause (29 A) (d) of article 366 of the Constitution on the transfer of the right to use any goods. This is the leading judgment on the point. The following questions were framed by the apex court (page 187 in 119 STC): ". . . The questions, therefore, that arise for consideration in these cases are, whether a State can levy sales tax on transfer of right to use goods merely on the basis that the goods put to use are located within its State irrespective of the facts that-(a) the contract of transfer of right to use has been executed outside the State; (b) sale has taken place in the course of an inter-State trade; and (c) sales are in the course of export or import into the territory of India. . ." Answering this question the apex court held as follo....
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....is a sale or a service or both. The apex court held that if it was a sale only the State would be competent to levy sales tax on such a transaction under entry 54 of List II of the Seventh Schedule to the Constitution. If it was a service then the Central Government alone could levy service tax under entry 97 of List I or entry 92C of List I after 2003. The apex court further held if the nature of the transaction has characteristics of both sale and service then the moot question would be whether legislative authorities could levy separate taxes together or only one of them. The apex court dealt with the following question (page 99 in 145 STC): "The principal question to be decided in these matters is the nature of the transaction by which mobile phone connections are enjoyed. Is it a sale or is it a service or is it both ? If it is a sale then the States are legislatively competent to levy sales tax on the transaction under entry 54, List II of the Seventh Schedule to the Constitution. If it is a service then the Central Government alone can levy service tax under entry 97 of List I (or entry 92C of List I after 2003). And if the nature of the transaction partakes of the charact....
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....ne or more of the essential ingredients of a sale as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purchases and sales for the purposes of levy of sales tax. To this extent only is the principle enunciated in Gannon Dunkerley Ltd. [1958] 9 STC 353 (SC). The amendment especially allows specific composite contracts, viz., works contracts (sub-clause (b)), hire purchase contracts (sub-clause (c)), catering contracts (sub-clause (f)) by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax. 43. Gannon Dunkerley [1958] 9 STC 353 (SC) survived the 46th Constitutional Amendment in two respects. First with regard to the definition of 'sale' for the purposes of the Constitution in general and for the purposes of entry 54 of List II in particular except to the extent that the sub-clauses in article 366(29A) operate. By introducing separate categories of 'deemed sales', the meaning of the word 'goods' was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery, etc., would continue to be defined according to known legal con....
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....osite in form in any case other than the exceptions in article 366 (29A), 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 as to 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 (paras 50 and 51, pages 117 and 118 in 145 STC): "49. We agree. After the 46th Amendment, the sale elements of those contracts which are c....
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....laimed to be goods by the respondents, are not deliverable at all by the service providers to the subscribers, the question of the right to use those goods, would not arise." 18. After discussing the entire law on the subject the apex court in Bharat Sanchar Nigam Ltd. case [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 6 RC 276; [2006] 3 SCC 1 held as follows (pages 129 and 130 in 145 STC): "92. For the reasons aforesaid, we answer the questions formulated by us earlier in the following manner: (A) Goods do not include electromagnetic waves or radio frequencies for the purpose of article 366(29A)(d). The goods in telecommunication are limited to the handsets supplied by the service provider. As far as the SIM cards are concerned, the issue is left for determination by the assessing authorities. (B) There may be a transfer of right to use goods as defined in answer to the previous question by giving a telephone connection. (C) The nature of the transaction involved in providing the telephone connection may be a composite contract of service and sale. It is possible for the State to tax the sale element provided there is a discernible sale and....
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....t and sold and capability of being transmitted, transferred, delivered, stored and possessed. As a software was found to be having the said attributes, they were held to be goods. 28. We have, however, a different problem at hand. The appellant admittedly is a service provider. When it provides for service, it is assessable to a tax known as service tax. Such tax is leviable by reason of a parliamentary statute. In the matter of interpretation of a taxing statute, as also other statutes where the applicability of article 246 of the Constitution of India, read with the Seventh Schedule thereof is in question, the court may have to take recourse to various theories including 'aspect theory' as was noticed by this court in Federation of Hotel & Restaurant Association of India v. Union of India [1989] 74 STC 102 (SC); [1989] 178 ITR 97 (SC); [1989] 3 SCC 634. 29. If the submission of Mr. Hegde is accepted in its entirety, whereas on the one hand, the Central Government would be deprived of obtaining any tax whatsoever under the Finance Act, 1994, it is possible to arrive at a conclusion that no tax at all would be payable as the tax has been held to be an indivisible one. A....
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....e. This view is in line with the view taken by the apex court in the Second Gannon Dunkerley & Co.'s case [1993] 88 STC 204 (SC); [1993] 1 SCC 364. 21. A Division Bench of this court in W. P. (C) No. 75 of 2013 (Oil Field Instrumentation (India) Ltd. v. State of Tripura [2014] 3 VST-OL 550 (Tripura)) and other connected matters decided on September 10, 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 contract and the contract is not divisible then if service tax has been paid to the Central Government, the State cannot levy sales tax. 22. The learned counsel for the petitioners has placed reliance on the Division Bench Judgment of the Gauhati High Court in S. S. Photographic Lab Pvt. Ltd. v. State of Assam [2011] 44 VST 39 (Gauhati); [2011] 6 GLR 87 wherein the Gauhati High Court held that the conversion of exposed photographic film rolls into negatives and then into positive photographs is nothing but a rendering of service specific to a customer and is a matter of ski....
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....puted facts in this case disclose that the transaction of the petitioners falls under the second category and therefore, the transactions are not transfer of use of goods amounting to deemed sales exigible to tax under section 5C of the Act." In the first part it was clearly held that if the assessee hires the equipment without rendering any other service it would amount to a sale exigible under section 5C of the Karnataka Sales Tax Act, 1957. On behalf of the petitioners it is contended that it is the second part of the para 10 of the judgment which will apply inasmuch as the petitioners continues to rendering services. The only issue is whether that portion of the contract whereby the STBs are handed over by the petitioners to the customers is a sale within the meaning of the TVAT Act. 24. Admittedly, the contracts in question do not fix any value on the STBs. In fact the contracts have been framed in such a manner which tend to show that the STBs remain the property of the assessee-companies. The STBs shall always bear the logo and mark of the assessee-companies and the same shall not be erased or effaced by the customers. On behalf of the State it is pointed out that as far ....
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.... to use goods 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. . ." As far as this court is concerned it has been held that even in a case of a composite contract when the contract can be divided with exactitude and the value of the element of the sales part can be decided that portion of the contract which amounts to sale of goods can be taxed under the State law. As far as the present cases are concerned, the case of the petit....