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Posted by on in Landmark Judgements - VAT



Gujarat Value Added Tax Act, 2003 – Work Contract - Whether the materials used in a contract to provide pest control treatment would amount to a deemed sale within the meaning of Article 366 (29A)(b) of the Constitution of India so as to make the same exigible to tax under VAT

HELD - The salient features of the contract is to make services of pest control available to the consumer by use of chemicals to be procured and supplied by the contractor. Admittedly, in the course of the execution of the contract there is no trace of the goods / materials used for execution of the contract - goods which have by incorporation become part of immovable property are deemed as goods.

The definition of “tax on the sale or purchase of goods” includes a tax on the transfer or property in the goods as goods or which have lost its form as goods and have acquired some other form involved in the execution of a works contract

In view of the position of law enunciated in Larsen & Toubro Ltd and Kone Elevator the view taken by the High Court that there is no deemed sale of the goods used in the contract executed by the respondent-contractor, cannot be sustained – the High Court order is set aside and revenue appeal is allowed

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Gujarat VAT Act, 2003 – legislative competence of the State to tax workover service contracts - contracts for carrying out workover operations using workover rigs imported specifically for the purpose of the contract - whether the contract entered into between the petitioners and the ONGC for workover operations on oil wells of the ONGC is purely service contract or composite contract involving both, an element of service as well as transfer of right to use goods - Levy of VAT on the ground that such contracts involve transfer of right to use goods – Pure service contract or Composite contract

HELD - At no point of time during the execution of the contract, is the contractor required to deliver the goods viz., the workover rigs to the ONGC. The control over the rigs at all times is with the contractor and it is the contractor alone who is to use it - on a plain reading of the contract executed between the parties, the intention of the parties is clearly to enter into a contract for services and the workover rigs are merely equipment to be used by the contractor for the purpose of executing such contract. The contract is not a composite contract of service and transfer of right to use the goods.

However, assuming for the sake of argument that the contract is a composite contract, even then it is not severable and hence, it would not be permissible to the State to impose value added tax on the whole transaction because that would amount to the State entrenching upon the Union List and taxing services by including the cost of such service in the value of goods.

Thus, even if the contract were to be treated as a composite contract, it has to be treated as a contract for services and no value added tax can be imposed on the transactions in question - the mere use of the words charter hire in relation to workover rigs would not change the nature of the contract to one of transfer of right to use goods when there is none – the case does not involve even hire charges and is a case where the petitioners providing service to the ONGC, for which purpose they use their own equipment, including the workover rigs.

Under the circumstances, it is not possible to say that the transaction involves the transfer of right to use in favour of the ONGC attracting levy of value added tax - the contract entered into between the petitioner and the ONGC for workover operations of oil wells of ONGC is a pure contract of services – tribunal order is set aside and assessee appeal is allowed

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Central Sales Tax Act – sub-contracting of contract for supply of solar panels – payment of CST by sub-contractor – Revenue stand that since the entire consideration was received by the assessee who had also issued the Form-C it is liable to tax in accordance with Section 9 of the CST Act - subsequent sale – application of Section 9(1)

HELD – the articles utilized in the contract and its execution never entered the State of U.P. No sale or purchase of goods is stated to have been effected within the State of U.P. - there is no material to hold that there was a movement of goods which commenced in the State of U.P.

In view thereof, it is apparent that Section 9(1) would not apply – merely because the principal contractor received the entire consideration would not be sufficient to hold that there was a subsequent transfer of property in goods - once the transaction had been taxed in the hands of the sub-contractors, no subsequent transfer of property in goods occurred so as to warrant the Department taking the position that there was a subsequent sale – Tribunal order is upheld and revision is dismissed

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Maharashtra VAT Act – Leasing, Work Contract, Sale, Sale price, Turnover - Whether activity of leasing out the hoarding to the customer is 'a sale' within the meaning of Section 2(24) of the Act - transfer of right to use goods - Whether the goods namely, hoardings are moveable or immoveable

Whether the mounting charges received by applicant forms the part of sale price – whether The Supply of Printed Materials is transaction is related to works contract or sale – taxability of printed flex/vinyl advertising material supplied to customers

HELD - The transaction of supplying printed material on flex/ vinyl as per the order of customers is held to be works contract and liable to tax accordingly - the Mounting charges received by applicant form the part of sale price and liable to tax under the Act - perusal of terms of contracts and works orders placed by the customers it is seen that there is effective control of the hoarding to enjoy the right for specific period

The transactions of leasing of the hoarding for a particular fixed period and for valuable consideration thus constitute a transfer of the right to use goods and the transaction between the applicant and its customer is a 'lease' transaction is exigible to VAT under MVAT Act.

The customers have enjoyed the right to use hoardings of definite size for a definite period. The transaction of transfer of hoarding by the applicant to his clients is liable to be treated as a transaction involving the transfer of the right to use goods. Hence, it is covered by the definition of "sale" as provided in section 2(24) Act i.e. subclause "(iv) the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable considerationthe assessing officer shall decide the items in question constitute "goods" or "immoveable property - the prayer of prospective effect to order is rejected – in favour of Revenue

The assessing officer shall decide the items in question constitute "goods" or "immoveable property - the prayer of prospective effect to order is rejected – in favour of Revenue

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Maharashtra Value Added Tax Act – Composition Scheme - levy of sales tax on component of service tax which is collected in the sales bill separately - appellant submission that service tax is not the part of the sales price and the same should not be considered for levy of sales tax even when the appellant opted for composition scheme

HELD - the levy of tax as per the composition scheme is on the ‘turnover of sales’. The turnover of sales means the aggregate of the amount of sales price. The definition of sales price does not specifically include service tax like specific inclusion of custom duty and central excise duty

In the composition scheme for works contractors the composition tax is payable on the ‘total contract value’ whereas in the case at hand the composition amount is payable on the ‘turnover of sales’ and the sale price does not include service tax.

The ratio of the decision in the case of Nikhil Comforts does not apply to the facts of the case - The order passed by the First Appellate authority is quashed and set aside. The case is remanded to the First Appellate Authority to recalculate the tax liability excluding the portion of service tax – assessee appeal is allowed

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