TaxTMI 
TaxTMI 
2015 (11) TMI 1391
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.... Solutions Pvt. Ltd. of which M/s Rosmerta Technologies Pvt. Ltd. being the leading member of the consortium. The proposal submitted by the assessee was accepted by the transport department. Thereafter, they entered into an agreement dated 25.02.2009 at Bangalore. After the award of the contract, by an agreement dated 29.10.2009 the assessee was inducted into the consortium as an implementing partner. Consequently, M/s Mynd Solutions has given a no objection to exit out of the consortium and Zylog being inducted as a member of the consortium. Subsequently, a revised agreement was entered into between the above parties. The assessee is a service provider having expertise in providing information technology services. The assessee is the leading software solution and data service provider to large customer oriented offshore clients. The said agreement also stipulates the respective roles to be played by each of the member of the consortium. The nature of the work as agreed to in the agreement involves installation of computer systems, smart card facility, implementation of the computer systems installation, installation of project facilities at the respective transport offices through....
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....ected to the show cause notice including the jurisdiction of the CTO to invoke Section 38(5) of the VAT Act. The assessee had purchased ID Smart cards to the extent of Rs. 65,01,599/- for the month of June 2009 to September 2009. The allegation that the assessee has sold the said smart card for Rs. 1,48,86,951/- during June 2009 to October 2009 was contested. The assessee contended that the smart cards prepared by it are the property of the transport department and they have no value in the commercial market other than the transport department. Use of such ID cards without the authority of the transport department is an offence punishable under law. The transport department has paid the consideration in terms of the agreement for the services rendered by the assessee, the execution of which includes the incidental consumption of certain materials viz., ID smart cards. It was contended having regard to the nature of work carried out by the assessee in terms of the agreement, the use of smart card for printing data and delivering the same to the transport department is incidental. The smart cards issued by the department contains in it the data collected, entered and stored by the as....
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....very same grounds urged before the assessing authority. The revisional authority without appreciating the contentions of appellant set-aside the order of the appellate authority and restored the protective assessment order passed by the assessing authority. Aggrieved by the said order, the assessee is in appeal. 7. Learned counsel for the appellant assailing the impugned order contended that the terms of the contract entered into between the parties discloses it as a service contract, not a composite contract. The supply of smart card under the terms of the agreement is only incidental to the services rendered by the assessee to the transport department. The smart card is only a media through which the particulars of each driver is embedded by virtue of the software which the assessee has developed. There is no transfer of intellectual property when the smart card is handed over to the department. The intellectuality is used to render the services by way of supply of smart cards after the same is purchased as a blank smart card; the requisite information is embedded and supplied to the department and therefore, the authorities were in error in levying sales tax on the smart card....
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....f the contract, is voluntary or gratuitous. In the last class there is no sale because though property passed it did not pass for a price. Whether a contract is of the first or the second class must depend upon the circumstances; if it is of the first, it is a composite contract for work and sale of goods; where it is of the second category, it is a contract for execution of work not involving sale of goods". 11. This Court in the case of SASKEN COMMUNICATION TECHNOLOGIES LTD. Vs JOINT COMMISSIONER OF COMMERCIAL TAXES (APPEALS)-3 BANGALORE AND ANOTHER [(2012) 55 VST 89 (Karn.)] has held as under: "37. In a works contract, splitting of service and supply of goods has been constitutionally permitted by introducing the concept of deemed sale. Therefore, the works contract in truth, represents two distinct and separate contracts which are discernable as such. Then the State would have the power to separate the agreement to sell from the agreement to render service, and impose a tax on sale. Therefore, the works contract is necessarily a composite contract, consisting of both an agreement to sell goods and an agreement to render service. No one can deny the legislative competence ....
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....er. In other words it should be known to the market as goods. That is, such goods must be bought and sold in the market. Therefore, an article or commodity or a material must be something which can ordinarily come to the market to be bought and sold. It must have a distinctive name, character or use. Thereafter it should satisfy the test of abstraction transmission, transfer, delivery, storage and possession, etc. 40. The Forty-sixth Amendment does not give a licence, for example, to assume that a transaction is a sale and then to look around for what could be the goods. The word "goods" has not been altered by the Forty-sixth Amendment. That ingredient of a sale continues to have the same definition. By introducing separate categories of "deemed sales", the meaning of the word "goods" was not altered. Transactions which are mutant sales are limited to the clauses of Article 366(29A).Apart from cases falling under sub-clauses (b) and (f) of clause (29A) of Article 366 there is no other service which has been permitted to be so split. If there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29A), unless the transact....
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....tal. 22. Another important aspect is that the very moment the floppies are used for storing the matter and the paper, pouches, holograms are used for preparation of identity cards, the same cannot be used or sold by the petitioner to any other person, save and except, the CEO. As such, it was a special kind of job and delicate in nature which is predominant in the transaction and not the value of the materials which are used in executing the job. 23. Photo-identity cards prepared for voters had no existence as the sole property of the petitioner before its delivery to the CEO even though materials like floppies, pouches, holograms and papers were used by the petitioner in preparation of photo-identity cards. Thus, there is no element of sale or transfer of property in the goods involved in the present case. The photo-identity cards of voters are not the commodities saleable in open market. It fetches no commercial value in the open market. Had it been photographs of gods, goddesses, national leaders, popular film stars or cricketers, which are tradable in open market, it would have been exigible to tax, if not otherwise exempted from payment of tax. Hence, supply of photo-....
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....a sale or is it a service or is it both? Answering the said question at para 82 of the said judgment, it was held that telephone service is nothing but a service. There is no sales element apart from the obvious one related to the hand set, if any. Dealing with the question whether a Sim card was "goods" within the definition of the word in the Sales Tax Act it was held that what a Simcard represents is ultimately a question of fact. In determining the issue, the Assessing Authorities will have to keep in mind the following principles: "If the SIM card is not sold by the assessee to the subscribers, but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sale, it would be open to the Sales Tax Authorities to levy sales tax thereon." 15. As there was no sufficient material on the basis of which they could reach a decision, the matter was remitted back to the respective High Court to record a finding of fact and then decide the case on merits. The dispute before the Supreme ....
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....art of activation charges as no activation was possible without a proper functioning of a SIM card and the value of the taxable service was calculated on the gross total amount received by the operator from the subscribers. Therefore, the judgment of the Kerala High Court was upheld. 17. This Court in the case of M/s BHARTI AIRTEL LIMITED vs THE DEPUTY COMMISSIONER, INCOME TAX in ITA Nos. 637-644/2013has held as under : - "The telephone service is nothing but service. SIM cards, have no intrinsic sale value. It is supplied to the customers for providing mobile services to them. The SIM card is in the nature of a key to the consumer to have access to the telephone network established and operated by the assessee-company on its own behalf. Since the SIM Card is only a device to have access to the mobile phone network, there is no question of passing of any ownership or title of the goods from the assessee-company to the distributor or from the distributor to the ultimate consumer. Therefore, the SIM card, on its own but without service would hardly have any value. A customer, who wants to have its service initially, has to purchase a Sim-card. When he pays for the Sim-card, he ....
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....y of smart cards after the same is purchased as a blank smart card. The requisite information is embedded and supplied to the department. The use of smart cards for printing data and delivering the same to the transport department is incidental. 19. The law on the point is well settled. The essential test to be satisfied before an article is said to be 'goods' is the test of marketability. In the market, the said goods is to be known as a commodity which is useful to a customer. In other words it should be known to the market as goods. That is, such goods must be bought and sold in the market. Therefore, an article or commodity or a material must be something which can ordinarily come to the market to be bought and sold. It must have a distinctive name, character or use. Thereafter it should satisfy the test of abstraction transmission, transfer, delivery, storage and possession, etc. 20. Unless the transaction in truth represents two distinct and separate contracts and is discernible as such, the State does not have the power to separate the 'agreement to sell' from the 'agreement to render service', and impose tax on the sale. The question is did the....