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TMI Blog1999 (2) TMI 637X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal before the Joint Commissioner of Commercial Taxes (Appeals), BCD IV, Bangalore. That appeal was remanded on the ground that certain reductions were not considered. Against that order appeal is filed before the Karnataka Appellate Tribunal, Bangalore. The Appellate Tribunal dismissed the appeal after elaborately considering entire material on record. In the meanwhile after remand the assessing authority passed an order holding that the spare parts supplied and the goods supplied during course of service even though some of the goods are consumed in the course of maintenance of machines amounts to sale, therefore liable to tax under section 5B of the Karnataka Sales Tax Act, 1957. Therefore, the petitioner filed this revision petition. 2.. The petitioner-company has entered into an agreement called SSMA (Spares and Service Maintenance Agreement) and FSMA (Full Service Maintenance Agreement). They are more in the nature of an insurance coverage for a bundle of services rendered. It is contended by the petitioner that there is no element of sale liable to tax. Therefore, section 5B of the Act is not attracted as it is purely service contract. The basis for the charge is the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct must be considered for coming to a conclusion whether there is element of sale or not. 3.. The company has charged only 0.27 paise per copy in one type of machinery in one type of transaction and Rs. 7,000 per annum in lump sum for rendering of service as terms of the contract and they are not charging any additional amount for the spare parts and consumables supplied. 4.. The learned Government Advocate contended that though the contract is termed as service contract, the clause provide for supply of spare parts in exchange of old parts and supply of the other goods, even if they are consumable, amounts to sale. The company is entitled to take away the old parts. Further, the contract provides that for rendering service of supplying spare parts and consumable goods in toto the company received 0.27 paise per copy and Rs. 7,000 per annum as per terms of contract. Therefore, the price for the goods is part and parcel of 0.27 paise and Rs. 7,000 per annum. It is contended that though the price for the goods supplied and charges for the service rendered is indivisible the authority can come to a conclusion following the principle laid down under rule 6 of the Rules framed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of that word in entry 48 in List 11 of the Seventh Schedule to the Government of India Act, 1935. The apex Court in the case of Gannon Dunkerley Co. [1958] 9 STC 353 held that the expression sale of goods in entry 48 of List II of the Seventh Schedule has the same meaning as in the Sale of Goods Act, 1930, its essential ingredient being an agreement to sell materials for a price and passing of property therein pursuant to that agreement. It was held firstly that in any indivisible works contract such as construction of buildings, there is no sale of goods because in such a contract there was no contract to sell the materials, nor the property passed therein as movables and therefore it is not within the States power to impose tax on the supply of materials used in such works contract, treating it as sale. 9.. The court further observed that the parties might enter into distinct and separate contracts, one for the transfer of materials for monetary consideration and the other for payment of remuneration for services and for work done. In such a case there are really two agreements, though there is a single instrument embodying them, and the power of State to separ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. 13.. Section 2(t) defines sale which is as follows: sale with all its grammatical variations and cognate expression means every transfer of the property in goods other than by way of a mortgage, hypothecation, charge or pledge by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, and includes- (i) a transfer otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration; (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (iii) a delivery of goods on hire purchase or any system of payment by instalments; (iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; Explanation 1.-A transfer of property involved in the supply or distribution of goods by a society (including a co-operative society), club, firm, or any association to its members, for cash, or for deferred payment or other valuable consideration, whether or not in the course of business, shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge. Therefore, it has to be seen whether there is an element of transfer of property for price. 19.. The replacement of the spare parts and right to take away the worn out parts by the petitioner makes him owner of the said worn out parts. There is no clause providing for customer of the petitioner becoming the owner of the spare parts on replacement. But during the entire contract period as per terms of the agreement a duty is cast on the petitioner to keep the equipment under good working order. Therefore, spare parts supplied by the petitioner has to be kept with the machines. There is no dispute that machines belong to the consumer of the petitioner. If the spare parts are taken away then the machine becomes unworkable and it will frustrate the contract. 20.. The learned counsel for the petitioner contended that the petitioner has got the right to take away spare parts whenever they like as per clause (2) of the contract. Therefore, there is no right over the spare parts with the consumer, so ownership remains with the petitioner and it is not a sale. 21.. To appreciate the above contention it is relevant to extract clause (2): (2) Shall repair and service the equipm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the supplying of the spare parts is without any charge and therefore there is no sale. 26.. Learned counsel for petitioner relied on the decision reported in [1998] 108 STC 234, Patna High Court (Rungta Projects Limited v. State of Bihar) to support the proposition that terms and conditions of the contract have to be looked into and not the nomenclature of the contract. There is no doubt about the principle laid down in the above judgment by the division Bench of the Patna High Court. But we have already held by considering the clauses of the contract, the only possible conclusion is that there is an element of sale. 27.. Learned counsel for the petitioner contended that the goods supplied by the petitioner, i.e., toner, developer, and fuser oil are consumed while equipment is functioning, therefore it cannot be said that there is any transfer. In support of the above proposition counsel for the petitioner relied on Pest Control India Ltd. v. Union of India [1989] 75 STC 188, judgment of the Patna High Court. In this case the contract relates to treating premises by spraying and applying chemicals. The question arose whether the chemicals used in the course of such servi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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