1989 (9) TMI 356 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of the Constitution (Forty-sixth Amendment) Act, 1982 and the Bihar Finance Act, 1981.
2. Applicability of sales tax on works contracts to the services rendered by the petitioner-company.
3. Definition and scope of "goods" and "works contract" under the Constitution and Bihar Finance Act, 1981.

Summary:

1. Constitutionality of the Constitution (Forty-sixth Amendment) Act, 1982 and the Bihar Finance Act, 1981:
At the hearing, the petitioner did not challenge the vires of the Constitution (Forty-sixth Amendment) Act, 1982 and the Bihar Finance Act, 1981 concerning the imposition of sales tax on works contracts.

2. Applicability of sales tax on works contracts to the services rendered by the petitioner-company:
The petitioner-company, engaged in pest control and related services, argued that its activities did not involve the sale of goods and thus should not be subject to sales tax. The Deputy Commissioner, Commercial Taxes, held that the petitioner's services constituted a "works contract" involving the use of chemicals, thereby making it liable for sales tax under the Bihar Finance Act, 1981. However, the court found that the chemicals used were consumed in the process and did not result in the transfer of property in goods. Consequently, the court held that the petitioner's contract was purely for services and not subject to sales tax.

3. Definition and scope of "goods" and "works contract" under the Constitution and Bihar Finance Act, 1981:
The court referred to clause (29-A) of article 366 of the Constitution, which includes "a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract." The court emphasized that for a transaction to be taxed as a works contract, there must be a transfer of property in goods. Since the chemicals used by the petitioner were consumed and did not exist in any form post-application, there was no transfer of property in goods. The court concluded that the petitioner's contract was a service contract and not a works contract involving the supply of goods.

Conclusion:
The writ application was allowed, and the order of the Deputy Commissioner of Commercial Taxes dated 9th December 1988, along with the subsequent notices, was quashed. The court ruled that no sales tax was leviable on the petitioner-company's services under the Bihar Finance Act, 1981.