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2024 (6) TMI 2 - HC - Service TaxTransfer of right of use goods - Interpretation of Article 366 (29A) of the Constitution - Applicability of Section 65 (105) (zzzzj) of the Finance Act, 1994 - Whether the contracts dated 08.06.2009 and 04.07.2012 are transactions for transfer of right to use the goods. Whether the transactions in relation to the hiring of two numbers of launch vehicles in connection with construction Bridge Project across the river Brahmaputra, on the basis of the contract agreements would come within the ambit of sale as defined in Section 2 (43) of the Assam Value Added Tax Act, 2003 ( the Act of 2003 ) or it would be service in terms with Section 65 (105) (zzzzj) of the Finance Act 1994 - HELD THAT - From the Sub-clauses of Article 366 (29A) of the Constitution, it would be seen that they serve to bring transactions where one or more of the essential ingredients of sale as defined in the Sale of Goods Act, 1930 are absent, within the ambit of the purchase and sale for the purpose of levy of sales tax. By the said amendment, it now specifically allows specific composite contracts, viz., works contract; hire-purchase contracts; catering contracts by legal fiction to be divisible contracts where the sale element could be isolated and be subject to sales tax. On the basis of the amendment so carried out to Article 366 (29A) of the Constitution, the State Sales Tax Legislation had also adopted substantially a similar definition as would be seen from a perusal of Section 2 (43) of the Act of 2003. The contracts relate to hiring of two numbers of launch vessels in connection with the construction of the Bogibeel Bridge across river Brahmaputra near Dibrugarh. The Schedule of Rates and their approximate quantities mentioned about the description of the items, i.e. hire charge per launch fitted with 10 KVA DG set for essential services which shall include the cost of operators/machines etc. deployed for running and operation of the launch as per the IWAI regulations complete in all respect. The second description of the items shows running charge of launch vessel including cost of all consumable including the cost of the operators etc. complete in all respect. The third description of the items is in respect for 10 KVA DG set including cost of all consumable/hire charges etc. complete for essential services in launch vessel. From the terms of the contract, it would be seen that the petitioners have an option of replacing the launch vessel in case one of the launch vessels was not working properly (clause 17). The petitioners are liable to take care of legal consequence of using the launch vessels (clauses 38 39). The petitioners must maintain the vessels and it is for the petitioners to pay for consumable like fuel, oil etc. (clauses 13, 14 18). Even the launch vessels must be moved and operated by the crew members appointed by the Petitioners (clauses 2 3). Moreover, in case of mishap or an accident in connection with the launch vessels or in connection with the use of the launch vessels or as a consequence thereof, the entire liability would be on the petitioners and not on the Railway (clauses 38 39). Thus, in short, the contracts in question are for providing the service of the launch vessels to the Railways. The reason is that the Railways are not required to face legal consequences for using the launch vessels supplied by the Petitioners. Therefore, the test laid down in Clause (c) (d) of paragraph No. 97 of the concurring opinion in Bharat Sanchar Nigam Ltd 2006 (3) TMI 1 - SUPREME COURT are not fulfilled to constitute the transaction of right to transfer the use of the vessels. It is also pertinent to observe that on a conjoint reading of the above quoted clauses, it would on the other hand appear that the use of launch vessels provided by the Petitioners to the Railways were by way of only permissive use. Though the launch vessels are used for carrying out the works as suggested by the Railways, the entire control over the launch vessels are retained by the Petitioners. At the cost of repetition, it is again reiterated that the Petitioners provides the crew members for operating the crane; it is the Petitioners who have to pay for the fuel, oil etc., for maintenance, for loss or damage of the launch vessels, for staff of the Petitioners, for any loss to any third party, staff as well as the properties of the Railways. This Court is of the unhesitant opinion that the contracts in question to provide the launch vessels would not come within the ambit of transfer of right to use the launch vessels. They are purely service contracts. In the case of M/s K. P. Mozika 2024 (1) TMI 443 - SUPREME COURT as quoted, applies to the facts of the instant case. Thus, that there is no transfer of right of use of the launch vessels in favour of the Railways, the contracts in question would come within the ambit of service contracts as stipulated in Section 65 (105) (zzzzj) of the Finance Act, 1994. The consequential effect of the said observation and declaration is that the impugned order dated 03.04.2017 stands set aside and quashed and the clarifications so given by the respondent No. 2 on 28.08.2015 and 06.06.2015 stands restored. The respondents therefore are further directed to act on the basis of the clarification orders dated 28.08.2015 and 06.06.2015 and take appropriate steps for processing the application for refund of the petitioners as sought for at the earliest. The writ petition was allowed.
Issues Involved:
1. Whether the transactions related to the hiring of launch vehicles for the Bogibeel Bridge Project constitute a 'sale' u/s 2(43) of the Assam Value Added Tax Act, 2003 or a 'service' u/s 65(105)(zzzzj) of the Finance Act, 1994. Summary: Issue 1: Whether the transactions constitute a 'sale' or a 'service': The High Court analyzed whether the hiring of two launch vehicles for the Bogibeel Bridge Project falls under 'sale' as per Section 2(43) of the Assam Value Added Tax Act, 2003 or 'service' as per Section 65(105)(zzzzj) of the Finance Act, 1994. The petitioners entered into agreements on 08.06.2009 and 04.07.2012 with the Northeast Frontier Railway to supply launch vehicles. The Service Tax Department demanded service tax, while the Finance and Taxation Department of Assam deducted VAT. The Commissioner of Taxes clarified on 06.06.2015 and 28.08.2015 that VAT was not applicable, categorizing the contracts as service contracts. The Court referenced the Supreme Court's judgment in Bharat Sanchar Nigam Ltd. vs. Union of India, which delineates the attributes for a transaction to be considered a transfer of the right to use goods. The Court noted that the petitioners retained control over the launch vehicles, provided crew members, and were responsible for maintenance and legal consequences, indicating a service rather than a transfer of the right to use. Court's Analysis: The Court examined the terms of the contracts, noting that the petitioners could replace the launch vessels if needed and were responsible for all operational aspects, including fuel and crew. The Court found that the contracts did not satisfy the attributes of a transfer of the right to use goods as outlined in Bharat Sanchar Nigam Ltd. and subsequent judgments. Conclusion: The Court concluded that the contracts in question are service contracts and not transactions for the transfer of the right to use goods. Consequently, the impugned order dated 03.04.2017 was set aside, and the clarifications dated 06.06.2015 and 28.08.2015 were restored. The respondents were directed to process the petitioners' refund application based on these clarifications. Order: The writ petition was allowed, and the respondents were instructed to act on the clarification orders and process the refund application promptly. No costs were awarded.
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