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TMI Blog2014 (7) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioners are not liable to make payment of sales tax on the equipments unless the same are transferred under the agreement executed between the petitioners and respondent No. 4. It is apparent to mention here as per the terms and agreement, that the petitioners are still in possession and control of the equipments by which the service MSWAN is being provided to the State of Meghalaya. - Decided in favour of assessee. - W.P. (C) No. 262 of 2012 - - - Dated:- 19-2-2014 - Prafulla C. Pant C. J. AND Sen S.R. J. For the Appellant: GK Joshi, Senior Advocate with SD Upadhaya For the Respondents : KS Kynjing, Advocate-General with ND Chullai, Senior Government Advocate and Mrs. T Yangi JUDGMENT:- The judgment of the court was delivered by PRAFULLA C. PANT C.J.- By means of this writ petition, the petitioners have challenged the action on the part of respondents Nos. 1 to 5 regard-ing deduction of tax at source under the Meghalaya Value Added Tax Act, 2003. 2. Heard learned counsel for the parties at length and perused papers and record. 3. Brief facts of the case are that petitioner No. 1, M/s. Tata Consultancy Services Ltd., is a pioneer consultancy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k headquarters level. Petitioner No. 1 is also responsible for the upkeep and maintenance of the premises at all levels like State Headquarters, District level HQs, etc. 6. It is also stated in the writ petition that in terms of the agreement since five years period has not expired as such petitioner No. 1 is still owner of all the equipments, cables, etc., by which MSWAN is made operational under BOOT basis. As such neither there is any works contract nor any transfer of right to use goods for any of the purposes of sub-clauses (b) and (d) of clause (xxxii) of section 2 of the Meghalaya Value Added Tax Act, 2003 ( the MVAT Act ). After importing necessary equipments and components, the petitioners are rendering services to the State of Meghalaya in terms of the agreement, after final acceptance test certificate for MSWAN was issued by respondent No. 4 on June 29, 2011. The period of five years under the agreement for transfer of system would expire in June, 2016, whereafter, the system along with equipments will be transferred to respondent No. 4 for Re. 1 only. 7. Since the petitioners are registered with the Service Tax Department of Government of India, they are fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be made to law laid down in Steel Authority of India v. State of Orissa [2000] 118 STC 297 (SC); AIR 2000 SC 946 and Rapti Commission Agency v. State of U.P. [2006] 147 STC 566 (SC); [2006] 6 SCC 522. In view of this legal position, learned Additional Advocate-General has stated that there was no proposal to make deduction of tax at source from the entire transaction value but only from such value as is found to be tentative taxable turnover. In view of there being no dispute on principle, no further issue needs to be gone into at this stage as issues raised by the petitioner can be gone into in appropriate proceedings. We dispose of this petition with a direction that respondent No. 4 may determine prima facie taxable turnover, if any, in the transaction involved and make such deduction as appears to be the tax liability of the petitioner. This may be done within one month from the date of receipt of this order and after considering the viewpoint of the petitioner. The tax so deducted will be paid over to the concerned Department and will abide by the assessment in accordance with the provisions relating to the assessment of tax liability. Since huge amount is said to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintenance and provisions of services, etc. When request for proposals (RFP) was furnished to this effect by the petitioners vide letter dated September 3, 2012, respondent No. 3 intimated the petitioners to show cause within twenty one days as to why the application for registration be not rejected. The petitioners submitted reply dated September 18, 2012 in response to show-cause notice stating that the project is running on build, own, operate and transfer basis (BOOT basis) and the transfer will take only in the fifth year. The petitioners further replied that they cannot be deprived to import further equipments/parts required for service deliveries. And they filed the present petition challenging the action taken by respondents No. 1 to 5 as illegal. 13. On behalf of respondents No. 1, 2 and 3, a counter-affidavit has been filed, in which it has been stated that the petitioners were refused certificate of non-liability to pay tax on the ground that petitioner No. 1 is not only rendering the service while executing contract but also engaged in the supply of taxable materials in execution of the work. It is further stated on behalf of the answering respondents that the Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Qs) to District and Sub-Divisional Headquarters. It is also not disputed that under the agreement, the petitioners were required to provide data connectivity, voice and video services to the various offices of the State of Meghalaya for five years for which the Government was required to pay minimum guaranteed amount on quarterly basis. It is also not disputed that at the end of five years, the petitioners were required to transfer the entire system with equipments to the State Government on nominal payment of Re. 1. The dispute relates as to the fact whether under the aforesaid project, the petitioners are simply service provider or they are making project for sale of their equipments under the works contract. 18. In this connection, first of all we would like to quote the relevant clauses of agreement executed between the petitioners and respondent No. 4. Para 1 of the agreement reads as under: Government of Meghalaya (GoM) proposes to set up a Meghalaya State Wide Area Network (MSWAN) to modernize the communication set up of Government to implement e-Governance initiatives, improve administrative effectiveness and efficiency, and accelerate the overall development of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /network by executing a Service Level Agreement (SLA) between bidder and GoM for Operation and Maintenance for the entire period of contract as in integral part of supplies and implementation. As vendor will be responsible for smooth functioning of network, availability of spares will be taken care of by vendor to maintain the guaranteed uptime. Paragraph 9.4 of the agreement is most important which reads as under: 9.4 No title to the equipment The Operator and GoM/MITS agree that GoM/MITS shall have no title to any of the equipment made available for delivery of services by the operator during the period of the agreement. After five years, it shall be transferred to GoM/MITS. Paragraphs 13.5 and 13.6, other two important clauses in the agreement provide as under: 13.5 Properties and facilities The operator shall assume full responsibility and liability for the maintenance and operation of its properties and facilities and shall indemnify and hold MITS harmless from all liability and expense on account of any and all damages, claims or actions, including injury to and death of persons, arising from any act, accident or omission i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se any goods for any purposes is inclusive in the expression tax on sale or purchase of goods but in the present case, since the personnel of the petitioners-company have not handed over their possession and control over the equipments for providing services to MSWAN as such said sub-clause cannot be said to have been attracted. 22. The above view taken by us gets supported from the principle of law laid down by the apex court in State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. [2002] 126 STC 114 (SC); [2002] 3 SCC 314. 23. On behalf of the petitioners, attention of this court is drawn to the case of Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes [2008] 12 VST 371 (SC); [2008] 2 SCC 614, in which the apex court in second part of para 29 has observed as under (para 30, page 384 in 12 VST): ... A distinction must be borne in mind between an indivisible contract and a composite contract. If in a contract, an element to provide service is contained, the purport and object for which the Constitution had to be amended and clause (29A) had to be inserted in article 366, must be kept in mind. 24. In State of Uttar Pradesh v. Union of India [2003] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed above, we are of the view that the action taken by respondents No. 1 to 5 regarding tax deduction at source under Meghalaya Value Added Tax Act, 2003 against the petitioners who are service providers and who have not transferred the equipments to the respondents, is illegal and it is made clear that the petitioners are not liable to make payment of sales tax on the equipments unless the same are transferred under the agreement executed between the petitioners and respondent No. 4. It is apparent to mention here as per the terms and agreement, that the petitioners are still in possession and control of the equipments by which the service MSWAN is being provided to the State of Meghalaya. 28. Accordingly, this writ petition is disposed of allowing the relief No. (a) of prayer clause of the writ petition and it is declared that the action on the part of respondents No. 1 to 5 in deducting tax at source from CAPWX portion of the quarterly guaranteed revenue charges payable to the petitioners in respect of services rendered under the agreement dated August 20, 2010, under section 106 of the MVAT Act, 2003, is illegal. The writ petition also stands allowed in respect of prayer clau ..... X X X X Extracts X X X X X X X X Extracts X X X X
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