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2015 (11) TMI 46 - HC - VAT and Sales TaxLevy of VAT on set top boxes (STB) - Whether the petitioners-assessees are liable to pay value added tax (VAT) in terms of the Tripura Value Added Tax Act, 2004 (for short, the TAVT Act ) in respect of contracts entered into by them with the customers whereby they have agreed to provide direct-to-home (DTH) service to the customers in the State of Tripura - Held that - As far as STBs are concerned they are in total control of the customer. Under his effective control the STBs are installed in the house of the customer. He can use the STB when he wants to. He can use the STB to view whichever channel he wants to view. He may or may not use the STB. The company does not even have the power of enter ing the premises of the customer. Most importantly as per the terms of the agreement, the companies are responsible for the functioning of the STBs only for a period of 6 (six) months. The warranty is valid only for six months and thereafter there is no warranty. Therefore, if STB of a customer is spoiled after six months he will have to pay for repair or replacement of the same. We are of the considered view that this amounts to transfer of the right to use goods. - after the Forty-sixth Amendment the sale element of all the six contracts covered under clause (29A) of article 366 are separable and may be subjected to sales tax. Finally in para 92, the apex court again held that when a telephone connection is given there may be transfer of right to use goods and where both composite contract of service and sales is concerned the State may impose tax on the sale elements provided there is discernible sale and only the sale element can be taxed. State is assessing the tax solely on the basis of the value of the STBs as given in the books of account of the petitioners. The petitioners claim depreciation, etc., on these STBs and the valuation given by the petitioners is the value of the goods, the right to use which has been transferred to the customers. This is easily separable and discernible and the State has the full authority to levy value added tax on the sale part of the transaction, i.e., the value of the STBs. - no merit in the petitions - Decided against assessee.
Issues Involved:
1. Liability of petitioners-assessees to pay VAT under the Tripura Value Added Tax Act, 2004 (TVAT Act) for providing Direct-to-Home (DTH) services. 2. Whether the transaction involves a "transfer of the right to use goods" under Article 366(29A)(d) of the Constitution of India. 3. Applicability of service tax versus VAT in composite contracts involving both services and goods. Detailed Analysis: Liability to Pay VAT for DTH Services: The primary issue is whether the petitioners-assessees are liable to pay VAT under the TVAT Act for contracts involving the provision of DTH services. The petitioners argue that they are providing a service and not selling the set top boxes (STBs), which remain their property, and thus, they are not liable to pay VAT. They contend that there is no transfer of property or right to use the STBs, and hence, the contract does not amount to a sale under the TVAT Act. Transfer of Right to Use Goods: The State argues that the transaction amounts to a sale of the STBs or, at the very least, a transfer of the right to use the STBs, making it liable to VAT under Section 4(2) of the TVAT Act. Article 366(29A)(d) of the Constitution includes a tax on the transfer of the right to use any goods. The court referred to various precedents, including *Bharat Sanchar Nigam Ltd. v. Union of India* and *20th Century Finance Corpn. Ltd. v. State of Maharashtra*, to determine whether there is a transfer of the right to use the STBs. Applicability of Service Tax vs. VAT: The petitioners argue that they are paying service tax to the Central Government and that if there is a conflict between the Central law and the State Act, the TVAT Act must give way to the Finance Act of 1994. The court discussed the applicability of the dominant nature test and the aspect theory in composite contracts. It was emphasized that after the 46th Constitutional Amendment, the sale elements of contracts covered by Article 366(29A) are separable and may be subjected to sales tax by the States. Judicial Precedents and Analysis: The court referred to several judgments, including *State of Madras v. Gannon Dunkerley & Co.*, *State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd.*, and *Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes*, to analyze the nature of the contracts and the applicability of VAT. The court noted that the STBs are goods and that the right to use these goods has been transferred to the customers, making the transaction liable to VAT. Division of Composite Contracts: The court held that even in composite contracts, if the contract can be divided with exactitude and the value of the sales part can be determined, that portion of the contract which amounts to the sale of goods can be taxed under the State law. The court noted that the valuation given by the petitioners in their books of accounts for the STBs is the value of the goods, the right to use which has been transferred to the customers. Conclusion: The court dismissed the petitions, holding that the petitioners are liable to pay VAT on the value of the STBs as reflected in their books of accounts. The court found no merit in the arguments of the petitioners and vacated the stay orders granted earlier. The judgment emphasizes the separability of the sale and service elements in composite contracts and upholds the State's authority to levy VAT on the sale part of the transaction.
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