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2016 (2) TMI 1152 - HC - VAT and Sales TaxService tax or VAT - contract with the ONGC for digging directional wells - stand of the State is that transactions entered into by the petitioner is for hiring of machineries which amounts to sale within the meaning of Section 2(25)(d) of the Tripura Value Added Tax Act, 2004 read with Rule 7(2) of the Tripura Value Added Tax Rules, 2005 and exigible to tax under Section 4(2) of the Tripura Value Added Tax Act, 2004 - The case of the petitioner is that this is not a contract for hiring of machinery but for hiring of services. Whether the transactions entered into by the petitioner amount to transfer of right to use any goods and, therefore, they are exigible to tax in terms of Section 4(2) of the Tripura Value Added Tax Act, 2004 read with Rule 7 of the Tripura Value Added Tax Rules, 2005? Held that - A bare perusal of the provisions of the contract clearly show that the contract is basically for providing of services inasmuch as highly specialized machinery along with specialized staff is provided and the rates not only include the rates for hiring of machinery but also for the staff and the services provided by the staff. After carefully going through the contract we are of the view that the contract is mainly for hiring of services. There may be a very small element of transfer of right to use goods but according to us the predominant portion of the contract relates to hiring of services and not to transfer of right to use the goods. We are aware that the dominant nature test is not to be used in composite contract falling within the ambit of Article 366(29A) but from the reading of the contract it is more than apparent that the intention of the parties was to treat the contract as a contract for hiring of services. Moreover, it is impossible to divide the contract into two separate portions. Every element of the digging directional wells and Mobile Drilling Rig service contains a major element of provisions of services. In such an eventuality it is virtually impossible to divide the contract. The petitioner has also been paying service tax and if the State is allowed to tax any portion of the value of the contract then there has to be a proportionate refund of the service tax to that extent - The petitioner or the ONGC cannot be made liable to pay both the taxes for the same transaction. The transactions do not amount to sale within the meaning of the TVAT Act, 2004. Therefore, the petition has to be allowed - decided in favor of petitioner.
Issues Involved:
1. Whether the transactions entered into by the petitioner amount to the transfer of the right to use any goods and are exigible to tax under Section 4(2) of the Tripura Value Added Tax Act, 2004. 2. The applicability of service tax versus value-added tax (VAT) on the said transactions. 3. The interpretation of the contract between the petitioner and ONGC regarding the nature of the agreement (service contract vs. transfer of right to use goods). Issue-wise Detailed Analysis: 1. Transfer of Right to Use Goods: The petitioner entered into a contract with ONGC for digging directional wells, which involves various components such as Drilling Rig, Logging Services, Cementing, Mud Engineering, and Directional Drilling. The petitioner contends that the contract is for providing directional drilling services and thus subject to service tax, not VAT. The State argues that the transaction involves hiring machinery, which amounts to a sale under Section 2(25)(d) of the Tripura Value Added Tax Act, 2004, making it exigible to VAT under Section 4(2). 2. Applicability of Service Tax vs. VAT: The petitioner argues that the contract is a service contract, and only the Central Government can levy tax on services. The petitioner is already paying service tax to the Central Government. The State contends that the transaction is a transfer of the right to use goods, thus subject to VAT. The judgment references Article 366(29A) of the Constitution, which includes a tax on the transfer of the right to use any goods. The court discusses various Supreme Court judgments, including Gannon Dunkerley & Co., 20th Century Finance Corpn. Ltd., and BSNL, which clarify that the dominant nature test does not apply to contracts falling under Article 366(29A) and that service and sales tax are mutually exclusive. 3. Interpretation of the Contract: The contract between the petitioner and ONGC is scrutinized to determine its nature. The court examines the provisions of the contract, which include mobilization, duties, power/authority, discipline, and rates for equipment and services. The court concludes that the contract is primarily for providing services, with highly specialized machinery operated by qualified personnel. The judgment highlights that the contract cannot be easily divided into service and goods components, making it predominantly a service contract. Conclusion: The court concludes that the transactions do not amount to a sale within the meaning of the TVAT Act, 2004. As such, the State is not entitled to levy VAT on the transactions. The petitioner has been paying service tax, and it cannot be asked to pay VAT as well. The court directs the State to refund the tax already deducted along with statutory interest by a specified date. If the refund is delayed, the State will be liable to pay interest at 12% per annum from a specified date. Final Judgment: The petition is allowed, and the State is directed to refund the amount of tax deducted along with statutory interest by 31st May 2016. If the refund is not made by the specified date, the State will be liable to pay interest at 12% per annum from 1st March 2016. The petition is disposed of with no order as to costs.
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