2019 (2) TMI 429 - HC - VAT and Sales Tax

Works Contract or not - whether the Build Operate Maintain and Transfer (BOMT) contract entered into by the appellant with the Motor Vehicles Department of the State of Kerala was a works contract or a right to use the goods? - Held that - The Assessing Officer definitely would look into such contentions and make appropriate deductions as available for a works contract, when taxing the same; if not already done. If the assessment is completed, it is for the assessee to challenge such orders, if deductions in accordance with law, have not been granted - there is no purpose served by a direction in this appeal - appeal dismissed.

Summary

Issues:
1. Clarification under Section 94 of the Kerala Value Added Tax Act, 2003 regarding a Build Operate Maintain and Transfer (BOMT) contract.

Analysis:
The appellant contested whether the BOMT contract with the Motor Vehicles Department was a works contract or a right to use goods. The appellant was responsible for infrastructure setup, software installation, maintenance, and training under the Fully Automated Services of Transport project. The appellant argued that it retained ownership until transferring goods after three years, claiming only a right to use was involved. However, the government argued that goods were transferred when the system went live, with the appellant having no property rights. The agreement stated that assets became the property of the MVD upon contract completion or termination.

The court found no transfer of right to use based on the appellant's clause reliance. The contract involved building, operating, maintaining, and transferring a fully operational system after three years. Property in goods transferred when the system went live, with deferred payments made quarterly during the maintenance period. The appellant's obligation was solely to maintain and operate the system for functionality. The court rejected the appellant's argument that the transfer occurred only after three years, stating that the sale was deemed upon goods accretion as per the Constitution.

Referring to a Supreme Court decision, the court noted that a works contract includes transfer of goods, even if additional obligations exist. The appellant sought deductions for civil works, labor, personnel deployment, and training expenses post "go-live." The government clarified that the order focused on taxing the transfer of goods' value, with the Assessing Officer responsible for granting deductions if applicable. The court upheld the authority's clarification order, rejecting the appeal without costs.