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1997 (8) TMI 483 - HC - VAT and Sales Tax
Issues Involved:
1. Whether the contract for removing overburden at Bermo mines was a hiring contract or a works contract. 2. Whether the petitioners are liable to pay sales tax under the Bihar Finance Act, 1981. Summary: Issue 1: Nature of the Contract The petitioners argued that the contract for removing overburden at Bermo mines was a works contract and not a hiring contract, as it did not involve the hiring of machineries or any sale within the meaning of section 2(t) of the Bihar Finance Act, 1981. The petitioners used their own heavy earth moving machinery (HEMM) and bore all operational and maintenance costs. The contract stipulated that the petitioners were to be paid based on the volume of work measured in cubic meters, and there was no transfer of right to use the machinery to Damodar Valley Corporation (DVC). The court agreed with the petitioners, noting that the control, custody, and possession of the machinery always remained with the petitioners, and the work was executed by the petitioners' personnel. Issue 2: Liability to Pay Sales Tax The respondents contended that the agreement was for hiring of machinery and thus the petitioners were liable to pay sales tax u/s 2(t)(iv) of the Act. They argued that the effective control of the machinery was with DVC, as evidenced by the terms of the agreement and the payment mode. The court, however, found that the agreement was a works contract, not a hiring contract. The court emphasized that the nomenclature of the agreement is not decisive; rather, the substance and terms must be considered. The court concluded that there was no transfer of right to use the machinery, and thus the petitioners were not liable to pay sales tax. Conclusion: The court quashed the impugned orders demanding sales tax from the petitioners and declared that the petitioners were not liable to pay sales tax for the works executed under the contract with DVC for removing overburden at Bermo mines. The writ petition was allowed with no order as to costs.
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