2010 (5) TMI 759 - HC - VAT and Sales Tax

Whether in terms of the clauses of the contracts, the transactions are evidently not of sale as envisaged under the Act or within the meaning of clause (29A)(d) of article 366 of the Constitution of India and, therefore, no tax is payable by them? Held that - The enjoinments proclaimed by the various clauses of the contract agreements albeit are to secure the maximum utilization of the manned cranes and the quality services to be rendered thereby, (i) all permeable supervision of the contractors over the works to be executed on the instructions of the representatives of the corporation, (ii) their singular responsibilities and liabilities to guarantee the availability of the manned cranes while ensuring the perfect working condition thereof, (iii) the insulatory stance of the corporation from all liabilities, risks, hazards, claims, etc., that may arise from the operations and (iv) recognition of the independence of the contractors and their employees considered cumulatively, in the opinion of this court are extinctive of any supervening dominion of the corporation over the possession, custody and control of the cranes so as to signify transfer of right of use thereof to it by the contractors. No patent or latent comprehension of the contracting parties is perceptible from the contract agreements to deduce any transfer of right to use the cranes so as to render the transactions exigible to tax under the Act. On a totality of the considerations as hereinabove and in the wake of the determinations made, this court is of the view that the petitioners assailment ought to succeed. The proposed action of the respondents to deduct tax under the Act at source qua the transactions is thus adjudged to be illegal and without jurisdiction. Petition allowed.

Issues Involved:
1. Proposed deduction of tax at source under the Assam Value Added Tax Act, 2003.
2. Nature of the contract agreements and whether they constitute a lease or transfer of right to use goods.
3. Applicability of service tax under the Finance Act, 1994.
4. Distinction between the present contracts and those in previous court decisions.

Issue-wise Detailed Analysis:

1. Proposed Deduction of Tax at Source under the Assam Value Added Tax Act, 2003:
The Oil and Natural Gas Corporation (the corporation) proposed to deduct tax at source from the petitioners' entitlements under contracts for hiring hydraulic cranes. The petitioners challenged this deduction, arguing that their transactions were not sales under the Assam Value Added Tax Act, 2003 (the Act) or within the meaning of Article 366(29A)(d) of the Constitution of India. The corporation, relying on a previous court decision, construed the transactions as leases, thus subject to tax under the Act. The petitioners contended that their contracts were for services, not leases, and thus not taxable under the Act.

2. Nature of the Contract Agreements and Whether They Constitute a Lease or Transfer of Right to Use Goods:
The court analyzed the contract agreements to determine if they involved a transfer of the right to use the cranes, which would make them taxable under the Act. The contracts required the petitioners to provide manned and equipped cranes for the corporation's operations, with the corporation having some control over the cranes during the contract period. However, the contracts also emphasized the petitioners' responsibility for maintaining and operating the cranes, suggesting that the transactions were for services rather than a transfer of the right to use the cranes.

3. Applicability of Service Tax under the Finance Act, 1994:
The petitioners argued that the contracts contemplated only the payment of service tax under the Finance Act, 1994, not sales tax. The Union of India supported this view, stating that the petitioners were liable for service tax on the supply of tangible goods services. The court noted that the contracts included service tax in the hire charges, indicating that the parties intended the transactions to be treated as services.

4. Distinction Between the Present Contracts and Those in Previous Court Decisions:
The court distinguished the present contracts from those in a previous decision (Dipak Nath v. Oil and Natural Gas Corporation Ltd.), noting that the earlier contracts did not explicitly state that the transactions were not leases or transfers of the right to use the cranes. Additionally, the present contracts were post-amendment and included the payment of service tax, further supporting the argument that they were for services, not leases.

Conclusion:
The court concluded that the transactions in question did not constitute a transfer of the right to use the cranes and were therefore not taxable under the Assam Value Added Tax Act, 2003. The proposed deduction of tax at source by the corporation was deemed illegal and without jurisdiction. The petitions were allowed, and the parties were directed to bear their own costs.

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