2004 (4) TMI 549 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Deduction of tax at source under Section 27 of the Assam General Sales Tax Act, 1993.
2. Clarification issued by the Commissioner of Taxes.
3. Nature of the contract between the petitioner and the respondent.
4. Applicability of sales tax on the transfer of the right to use goods.
5. Determination of whether the contract amounts to a lease or a works contract.

Detailed Analysis:

1. Deduction of Tax at Source:
The petitioners challenged the deduction of tax at source by the respondents under Section 27 of the Assam General Sales Tax Act, 1993, read with Rule 35 of the Assam General Sales Tax Rules, 1993. The Superintendent of Taxes informed the respondent, North Eastern Coal Fields, that the petitioner-company is liable to pay sales tax, to be deducted at 5% from the bills submitted by the firm.

2. Clarification Issued by the Commissioner of Taxes:
The Commissioner of Taxes issued a clarification stating that the firm is executing works on an operating lease and has rented out machinery, which is taxable under item 3 of Schedule VII of the Assam General Sales Tax Act, 1993. The rent for machinery indirectly charged indicates the transfer of the right to use such machinery, and the lessee has full control over such machinery during the period of use.

3. Nature of the Contract:
The core issue was whether the agreement between the petitioner and the respondent amounted to a lease or a works contract. The contract involved the removal of hard shale/carbonaceous shale using Heavy Earth Moving Machinery (HEMM) for coal mining. The petitioner was responsible for all aspects of the work, including providing labor, machinery, and equipment, and the payment was based on the quantity of materials collected and moved.

4. Applicability of Sales Tax:
The court examined whether the contract involved the transfer of the right to use goods, which would make it taxable. The court referred to the case of Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer, which stated that the transfer of the right to use goods involves delivery of possession from the transferor to the transferee. The Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra held that the taxable event is the transfer of the right to use goods, regardless of when or whether the goods are delivered for use.

5. Determination of Lease or Works Contract:
The court analyzed the terms of the contract and found no evidence that the control, custody, or possession of the HEMM was handed over to the respondent-company. The petitioner-company used the HEMM for executing the works contract, and the machinery remained under the control and possession of the petitioner-company. Therefore, the contract did not amount to a lease but was a works contract not exigible to tax.

Separate Judgment for W.P. (C) No. 1061 of 1999:
In the other writ petition, M/s. B. Fam Automobiles provided crane services to Oil India Limited. The contract required the contractor to perform specific work, maintain the crane, and provide fuel and lubricants at their own cost. The court held that the petitioner-company was not liable to pay sales tax on the contract for providing crane services, and the impugned notice issued by the Sales Tax Department was quashed.

Conclusion:
The writ petitions were allowed, and the impugned notices issued by the Senior Superintendent of Taxes were set aside. The respondent companies were directed not to deduct tax under Section 27 of the Assam General Sales Tax Act.