2018 (5) TMI 1334 - SC - VAT and Sales Tax

Liability of VAT - deemed sale - Whether the materials used in a contract to provide pest control treatment would amount to a deemed sale within the meaning of Article 366 (29A)(b) of the Constitution of India so as to make the same exigible to tax under the Gujarat Value Added Tax Act, 2003? Held that - A Constitution Bench of this Court in Kone Elevator India Private Limited vs. State of Tamil Nadu 2014 (5) TMI 265 - SUPREME COURT , while considering the correctness of its earlier view with regard to dominant nature of the contract test, had, apart from holding that the dominant nature test would no longer be determinative - the view taken by the High Court that there is no deemed sale of the goods used in the contract executed by the respondent-contractor cannot have our approval - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether materials used in a contract for pest control treatment amount to a deemed sale under Article 366(29A)(b) of the Constitution for tax under the Gujarat Value Added Tax Act, 2003.

Analysis:
The main issue in this case is whether the materials used in a contract for pest control treatment would be considered a deemed sale under Article 366(29A)(b) of the Constitution, making them subject to tax under the Gujarat Value Added Tax Act, 2003. The High Court had ruled in favor of the Assessee, leading to an appeal by the State. The contract involved the provision of pest control services by the contractor to the consumer, Reliance Petroleum Limited, using chemicals procured and supplied by the contractor. Notably, there was no trace of the goods/materials used in the contract during its execution.

The Supreme Court referred to a previous judgment in Larsen and Toubro Limited case, where it was held that the expression "goods (whether as goods or in some other form)" in Article 366(29A)(b) of the Constitution expands the definition of goods to include goods in various forms. The Court emphasized that goods in some other form encompass items that have ceased to be chattels or movables and have become attached or embedded to immovable property. Additionally, the Court cited the Kone Elevator India Private Limited case, which supported the position taken in Larsen and Toubro Limited regarding the dominant nature of the contract test.

Based on the legal precedents set in Larsen and Toubro Limited and Kone Elevator India Private Limited cases, the Supreme Court disagreed with the High Court's decision that there was no deemed sale of goods in the contract. The Court set aside the High Court's order and allowed the appeal filed by the State, indicating that the materials used in the pest control contract would indeed be considered a deemed sale for tax purposes under the Gujarat Value Added Tax Act, 2003.