2017 (7) TMI 877 - HC - VAT and Sales Tax

Levy of VAT - terminalling services provided to Bharat Petroleum Corporation Limited (BPCL) - this Court is of the view that the third respondent has failed to address the important aspect raised by the petitioner by contending that they having discharged the service tax liability, they cannot be directed to pay VAT for the same transaction - whether the petitioner could be made to suffer two levies, namely, sales tax and service tax? - Held that - it may be necessary to peruse the circular issued by the Central Board dated 01.08.2002. It appears that the circular was not placed before the Assessing Officer. Nevertheless, the circular throws light as to what would be includable in storage and warehousing and it states that service for goods including the liquids and gases would fall within the storage and warehousing. Above all, the legal principle should be taken note of by the third respondent, that is to say that except specific contracts so provided under Article 366(29A), no other contracts can be artificially severed to tax the sale element with respect to the goods as compromised in such composite contracts. The non-exclusivity of the agreement between the petitioner and the BPCL is also a relevant factor which the third respondent has not considered. Furthermore, the installation which have been erected by the petitioner are fixed to the ground and the photographs produced would show that it consists of pipes and cylinders and prima facie, this Court is the view that the finding rendered by the third respondent that it is not a fixed asset like land/building/space appears to be an incorrect finding. Thus, for all the above reasons this Court is of the considered view that the assessment under the said head requires to be re-done taking note of the legal position, circular issue by the Central Board, factual matrix and the non-exclusivity of the agreement between the petitioner and the BPCL and that the petitioner cannot be made to suffer by two levies, namely, sales tax and service tax. The impugned assessment under the head of terminalling service provided to BPCL is set aside and the writ petition is allowed and the matter is remanded to the third respondent to re-do the assessment on the said head - appeal allowed by way of remand.

Summary

Issues:
Challenge to assessment order demanding VAT on terminalling services provided to a corporation under TNVAT Act, 2006.

Analysis:
1. The petitioner contested an assessment order demanding VAT on terminalling services provided to a corporation under the TNVAT Act, 2006. The petitioner operated an LPG storage and distribution facility at Tuticorin Port, offering terminalling and storage services. The assessment order concluded that the petitioner transferred the right to use their storage facility to the corporation, thus liable for VAT. The petitioner argued against this, stating no transfer of right occurred, and service tax was already paid for the services rendered.

2. The petitioner's primary contention was that the same transaction cannot be taxed under both service tax and VAT. They emphasized the non-exclusive nature of the contract and the usage of the facility by multiple entities. Reference was made to the definition of "storage and warehousing" under the Finance Act, highlighting that the assessment's findings were not sustainable based on this definition.

3. The petitioner relied on a Supreme Court case emphasizing the importance of deliverable goods for the transfer of the right to use goods. They also cited a Delhi High Court case to support their argument that only specific contracts provided under the law could be taxed, not composite contracts. The petitioner contended that the assessment was based on a misconception of the legal position.

4. The Government Advocate defended the assessment, stating that the Assessing Officer correctly concluded the transfer of the right to use the storage facility, justifying the VAT imposition. The court, after hearing both parties, found that the Assessing Officer failed to address the crucial aspect of the petitioner already discharging service tax liability, raising concerns of double taxation. The court also noted the absence of consideration for the non-exclusivity of the agreement and the fixed nature of the installation in the assessment.

5. Consequently, the court set aside the assessment on terminalling services provided to the corporation and remanded the matter for reassessment, considering the legal position, circular issued by the Central Board, factual details, and the non-exclusivity of the agreement. The court emphasized that the petitioner should not be subjected to double taxation and directed a re-assessment under the observations made in the order.

In conclusion, the court allowed the writ petition, setting aside the assessment and remanding the matter for a fresh assessment under the specified considerations, ensuring the petitioner is not subjected to dual levies of sales tax and service tax.