2022 (4) TMI 928 - HC - VAT and Sales Tax

Works contract service - zero rated supply - deemed sale or not - consideration money of works order or simply works contract is exempted from tax in view of section 21 A of West Bengal VAT Act and schedule AA or not - whether respective purchase orders and works order be taken as a sale or as a work order or the both orders should be dealt separately subject-wise, or not - HELD THAT - The entire case of the petitioner rests upon the interpretation of the various provisions of the Act. To put the case of the petitioner in simple terms is that the nature of transaction done by the petitioner was held to be a works contract and deemed to be a sale. If the works contract is deemed to be a sale, then it should fall within the definition of sale as defined under Section 2(39) of the Act and if it is held to be a sale, the same having been affected to SEZs, has to be treated as zero rated in terms of Section 21 A of the Act as the nature of activity done by the petitioner under the said contract falls within Serial No. 04 in Schedule AA to the Act. Section 2(39) uses the expression includes . But what has been brought within the inclusive definition of sales or the types of transactions enumerated in Clauses (a) to (e) above. This becomes clear on reading the provision further i.e. after Clause (e) which uses the words and such . By use of the words and such would mean that such of the transfers, delivery of goods, transfer of right to use goods, supply or service or supply of goods, as mentioned in Clauses (a) to (e) alone can be treated to be the inclusive part of the definition of sale as defined under Section 2(39) of the Act. It is those 5 categories of transactions having been held to be deemed to be a sale and therefore, the question of giving an expansive meaning to the definition of sale merely because the word deemed is used is an incorrect manner of interpretation of the provision. The liability to pay tax in respect of a works contact is under Section 14 of the Act and Sub-Section (1) of Section 14 commences with a non-obstante clause stating that notwithstanding anything contained elsewhere in the Act, any transfer of property in goods whether as goods or in some other form involved in the execution of works contract in West Bengal shall be deemed to be a sale of those goods by the person making a transfer and the purchaser of those goods by the person to whom such transfer is made. Sub-Section (2) of Section 14 makes the dealer liable to pay tax under Section 15 of the Act which is a liability of a casual dealer to pay tax whereas the charging section for a sale simpliciter as defined under Section 2(39) are Section 16 and 16A of the Act - There is a conspicuous omission to include deemed sale which is found in Section 14 of the Act. Therefore, the benefit of the transaction to be treated as zero rated is mandatorily required to be a sale simpliciter to fall within the five categories enumerated in the definition of sale as defined under Section 2(39) of the Act. The purpose of bringing transaction which are works contract exigible to tax the deeming provision was inserted. A deemed sale cannot be interpreted to be a sale simpliciter unless the definition of sale in that particular statute provides for. Therefore, to contend that merely because a deemed sale is not included in the illustrative list it cannot be taken out of the purview of the definition of sale is an argument which is unacceptable. Thus, the petitioner has not been made out any grounds to interfere with the order of the tribunal - petition dismissed.

Issues Involved:
1. Whether the works contract as defined in Section 2(57) and levied tax by Section 14 of the West Bengal VAT Act comes under the sale simpliciter on the analogy that works contract is a deemed sale.
2. Whether the consideration money of works order or simply works contract is exempted from tax in view of Section 21A of West Bengal VAT Act and Schedule AA.
3. Whether those respective purchase orders and works orders should be taken as a sale or as a work order or both orders should be dealt separately subject-wise, as mentioned in the subject column of those respective orders.
4. Whether the findings of respondent No. 1 of both the applications and the orders under challenge are tenable and substantial in law or whether it requires intervention from this Tribunal.

Issue-Wise Detailed Analysis:

1. Whether the works contract as defined in Section 2(57) and levied tax by Section 14 of the West Bengal VAT Act comes under the sale simpliciter on the analogy that works contract is a deemed sale:

The petitioner argued that an installation contract without the transfer of property in goods is not exigible to tax under the Act as a works contract. They contended that the contract with TCS does not involve the transfer of property in goods and thus cannot fall within the purview of a works contract liable to tax. They relied on Article 366 (29A) and the Supreme Court's decision in Larsen and Toubro Ltd. to support their argument that a works contract must involve the transfer of property in goods to be taxable.

The court noted that Section 2(39) defines "sale" and includes five categories of transactions, which are deemed to be sales. The court emphasized that the term "sale" in Section 2(39) is a sale simpliciter and does not include deemed sales unless explicitly stated. The court rejected the argument that a works contract should be treated as a sale under Section 2(39) and held that the interpretation of the petitioner was impermissible.

2. Whether the consideration money of works order or simply works contract is exempted from tax in view of Section 21A of West Bengal VAT Act and Schedule AA:

The petitioner argued that if the works contract is deemed to be a sale, it should be treated as zero-rated under Section 21A of the Act. They contended that the transaction with TCS falls within Serial No. 04 in Schedule AA and should be exempted from tax.

The court examined the provisions of Section 21A, which deals with zero-rated transactions, and noted that it applies to sales simpliciter as defined under Section 2(39). The court pointed out that there is a conspicuous omission to include deemed sales within the scope of zero-rated transactions under Section 21A. Therefore, the court held that the benefit of zero-rated transactions is only available to sales simpliciter and not to deemed sales.

3. Whether those respective purchase orders and works orders should be taken as a sale or as a work order or both orders should be dealt separately subject-wise, as mentioned in the subject column of those respective orders:

The Tribunal had interpreted the nature of the contract between the petitioner and TCS to be two separate contracts and should be considered according to the nature and purpose for which they have been entered into. This finding was not challenged by the petitioner, and the court upheld the Tribunal's interpretation.

4. Whether the findings of respondent No. 1 of both the applications and the orders under challenge are tenable and substantial in law or whether it requires intervention from this Tribunal:

The court reviewed the findings of the Tribunal and the arguments presented by both parties. The court found that the Tribunal's interpretation of the provisions of the Act was correct and that the petitioner's arguments were not tenable. The court held that the Tribunal's findings on points 1 and 2 were sustainable and did not require intervention.

Conclusion:

The court dismissed the writ petition, holding that the petitioner had not made out any grounds to interfere with the order of the Tribunal. The court emphasized that the definition of "sale" under Section 2(39) is limited to sales simpliciter and does not include deemed sales. The court also held that the benefit of zero-rated transactions under Section 21A is only available to sales simpliciter and not to deemed sales. The petitioner's arguments were found to be impermissible and unsustainable.

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