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TMI Blog2015 (6) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... s control and even the equipment of the company, if any, given to him did not become his equipment but remained the equipment of the company. Therefore, there was no transfer of right to use goods and the petitioner was only rendering services which are only amenable to tax by the Union of India and not by the State. - Decided in favour of assessee. - W. P. (C) No. 352 of 2011 - - - Dated:- 5-5-2015 - Deepak Gupta, CJ And S C Das,JJ. For the Appellant : Mr Dhruba Ghosh, Adv., Mr B Chatterji, Adv. and Mr S Bhattacharji, Adv. For the Respondent : Mr D C Nath, Adv. State Counsel. JUDGMENT Per: Deepak Gupta: The petitioner, Asian Oilfield Services is a company incorporated under the Companies Act, 1956. It entered into a contract with the respondent No.4, Jubilant Oil and Gas Private Limited whereby it agreed to provide 2D Seismic Data Acquisition Basic Processing Services to Jubilant Oil and Gas Private Limited which is engaged in oil exploration in the State. The contract between the parties has been produced before this Court and the only question is whether the services being rendered by the petitioner company are in the nature of works contract or are pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are paying service tax to the Central Government under the provisions of law and since they are paying service tax, if there is conflict between the Central Law and the State Act the Tripura Value Added Tax Act must necessarily give way to the provisions which provide for imposition of service tax in the Finance Act of 1994. [4] Before dealing with other issues it would be pertinent to mention that the Apex Court in State of Madras Vrs. Gannon Dunkerley Co (Madras) Ltd., AIR 1958 SC 560 held that the State had no power to tax a composite contract of goods and services (works contract) to be taxed as sale of goods. The Court further held that the law also does not permit the severance of the contract for determining the value of the goods. [5] In view of this decision of the Apex Court, it was felt necessary to amend Constitution with a view to widen the definition of sale as traditionally understood. In common law, sale was understood to mean an agreement to transfer title in the goods on payment of consideration. The Constitution was amended and sub article (29A) was introduced in the Constitution by the Constitution Forty-sixth Amendment Act, 1982. By means of this C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een received or receivable by a dealer during such period as valuable consideration, whether or not such amount has been separately shown in the works contract. The amount as received or receivable shall include the value of such goods purchased, manufactured, processed, or procured otherwise by the dealer, and the cost of freight or delivery as may be incurred by such dealer for carrying such goods to the place where these are used in execution of such works contract, but shall not include such portion of the aforesaid amounts as may be prescribed. (2) Tax on transfer of the right to use any goods- Notwithstanding anything contained elsewhere in this Act, any transfer of the right to use any goods for any purpose (whether or not for a specified period) shall be taxable at the rate as specified in the Schedule. (3) Deduction of tax at the time of payment- Every person responsible for paying) any sum to any person on account of works contract and right to use any goods for any purpose, shall at the time of credit of such sum to account of the person or at the time of payment thereof in cash or by issue of a cheque or draft or any other mode, deduct such amount towards sales ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods. 28. No authority of this Court has been shown on behalf of respondents that there would be no completed transfer of right to use goods unless the goods are delivered. Thus, the delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods. We are, therefore, of the view that where the goods are in existence, the taxable event on the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the stand taken by the respondent State cannot be sustained . However, this view taken in Rainbow Colour Lab's case was doubted in case of Associated Cement Companies Ltd. Vrs. Commr. Of Customs : (2001) 4 SCC 593 and the Apex Court observe as follows: The conclusion arrived at in Rainbow Colour Lab Case, in our opinion, runs counter to the express provision contained in Article 366(29-A) as also of the Constitution Bench decision of this court in Builders' Assn. Of India Vrs. Union of India : (1989) 2 SCC 645 [10] In State of A.P and Another Vrs. Rashtriya Ispat Nigam Ltd.: (2002) 3 SCC 314 the Apex Court dealt with meaning of the phrase transfer of right to use goods . In that case the Rashtriya Ispat Nigam was the owner of the Visakhapatnam Steel Project. It engaged various contractors to do the work and supplied sophisticated machines to the contractors for being used in execution of the contracted works. The Rashtriya Ispat Nigam Ltd. received hire charges for the same. The tax was levied on this transaction on the ground that there was a transfer of the right to use goods. The Andhra Pradesh High Court in its judgment held that there was no transfer of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended by the State that there was transfer of the right to use goods and hence the transactions should be treated to be sales and were amenable to sales tax. Dealing with sub clause (29A) of the Article 366 of the Constitution the Apex Court held as follows: 41. Sub-clause (a) covers a situation where the consensual element is lacking. This normally takes place in an involuntary sale. Sub-clause (b) covers cases relating to works contracts. This was the particular fact situation which the Court was faced with in Gannon Dunkerley and which the Court had held was not a sale. The effect in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley was directly overcome. Sub-clause (c) deals with hire purchase where the title to the goods is not transferred. Yet by fiction of law, it is treated as a sale. Similarly the title to the goods under Sub-clause (d) remains with the transferor who only transfers the right to use the goods to the purchaser. In other words, contrary to A.V. Meiyappan decision a lease of a negative print of a picture would be a sale. Sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y as sales within the meaning of Sales of Goods Act, 1930 for the purpose of levy of sales tax. ***** ****** ****** ****** ****** ***** ***** 45. The reason why these services do not involve a sale for the purposes of Entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley's case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29A) continues to be:- Did the parties have in mind or intend separate rights arising out of the sale of goods? If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is 'the substance of the contract'. We will, for the want of a bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to use those goods, would not arise. [15] BSNL case has been relied upon by both the parties and the opening portion of the judgment makes it clear that the State is competent to levy sales tax only on the sale part of the contract and it is the Central Government alone it can only levied tax on the service part of the contract. [16] The other relevant judgment on the point is Imagic Creative(P) Ltd. Vrs. Commissioner of Commercial Taxes and Others; (2008) 2 SCC 614. In this case, the appellant before the Apex Court was an advertisement agency. It had entered into a contract with ISRO for conceptualizing, designing and producing computer artwork. It also supplied the advertising material to its customers. It raised bills under two heads; (1) the bills raised for conceptualizing and designing were treated to be in the nature of service and service tax was paid on the same. (2) With regard to the goods it supplied to its customers, the company treated the said transaction as sale and paid sales tax on the same. When the matter came up before High Court it rejected the plea of the assessee holding that the contract was a comprehensive contract for supply of printed material d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said provision. Such a legal fiction, as is well known, should be applied only to the extent for which it was enacted. It, although must be given its full effect but the same would not mean that it should be applied beyond a point which was not contemplated by the legislature or which would lead to an anomaly or absurdity. 31. The Court, while interpreting a statute, must bear in mind that the legislature was supposed to know law and the legislation enacted is a reasonable one. The Court must also bear in mind that where the application of a Parliamentary and a Legislative Act comes up for consideration; endeavours shall be made to see that provisions of both the acts are made applicable. 32. Payments of service tax as also VAT are mutually exclusive. Therefore, they should be held to be applicable having regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract as contradistinguished from an indivisible contract. It may consist of different elements providing for attracting different nature of levy. It is, therefore, difficult to hold that in a case of this nature, sales tax would be payable on the value of the entire c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of the goods. This, however, does not allow the State to entrench upon the Union List and tax services by including the cost of such services in the value of goods. Even in the composite contracts which are by legal fiction deemed to be divisible under Article 366(29-A), the value of the goods involved in the execution of the whole transaction cannot be assessed to sales tax. Referring to the decision in Gujarat Ambuja Cements Ltd. Anr. V. Union of India Anr., (2005) 4 SCC 214 it was held that mutual exclusivity which is referred to in Article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Though liberal interpretation must be given to the taxing entries, however in substance if the statute is not referable to a field given to the State, then the Court will not by a principle of interpretation allow a statute to include in its field what is not covered in its field. The aspect' theory (viz. the aspect of goods in composite contracts) would not apply to enable the value of the services to be included in the sale of the goods or the price of the goods in the value of the service. 11. The conclusion, therefore, which emerges with res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract for hiring of Hydraulic Cranes by the petitioner to the ONGC amounted to transfer of the right to use goods. After referring to various judgments including those referred to herein above the learned Single Judge made reference to the various portions of the contract and then went on to hold as follows: 28. Axiomatically, therefore, the transactions in hand to be validly subjected to the levy under the Act would have essentially to be adjudged to constitute transfer of right to use the Cranes. In the event a service element is traceable therein and any intention whatsoever of the contracting parties to contemplate two independent agreements, i.e., one for transfer of right of use and the other for service with respective values attached thereto is lacking, the bargain would catapult beyond the purview of the Act, thus, rendering the same in exigible to tax thereunder. To reiterate, the learned counsel for the Revenue in course of the arguments on a dialectical scrutiny of the clauses of the contract agreements has admitted the same to constitute indivisible contracts.**** However, dealing with the Dipak Nath's case the learned Single Judge held that the facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to use goods. **** We are not in total agreement with this judgment especially in view of the law laid down in Imagic Creative(P) Ltd. case which has not considered by the Division Bench. However, we are clearly of the view that the State will be entitled to levy tax only if the sale portion of the contract can be ascertained with exactitude. [22] In HLS Asia Ltd. Vrs. State of Tripura and Ors; (2013) 1 GLR 107 another Division Bench of the Agartala Bench of the Gauhati High Court of which one of us (S.C. Das, J) is the author was dealing with a matter relating to well logging perforating and other wire line services and it was held that the petitioner was a service provider and could not be compelled to be registered as a dealer under the TVAT Act. [23] On the contrary, in two other Division Bench judgments of the Gauhati High Court in Motlib Ali Vrs. ONGC and others (W.P(C) No.5280 of 2011 decided on 24.07.2012) and M/s. Brahmaputra Valley Construction and Suppliers Vrs. ONGC and others (W.P(C) No. 578 of 2009 delivered on 24.07.2012) the Court has come to the conclusion that on consideration of various factors the transaction clearly involved, a transaction for right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to use property. It is also obvious that this was not a works contract because no work was to be done except carrying out a survey. A Works Contract has been defined under Section 2 (36) of the TVAT Act which reads as follows: (36) Works Contract means any agreement for carrying out for cash or deferred payment or other valuable consideration (i) the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property, or (ii) the installation or repair of any machinery affixed to a building or other immovable property, or (iii) the overhaul or repair of- (a) any motor vehicle, (b) any vessel propelled by internal combustion engine or by any other mechanical means, (c) any aircraft, (d) any component or accessory or part of any of the items mentioned in paragraph (a) to (c) above, (iv) the altering, ornamenting, finishing, improving or otherwise processing or adopting of any goods. [27] The present contract does not fall within the ambit of a works contract. It however, appears that on 02.02.2010 on behalf of the petitioner a letter was addressed to the Superintendent of taxes where they prayed that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-VIII, Agartala. [28] There are inherent fallacies in this rejection. The petitioner is not engaged in drilling work but was only engaged for carrying out seismic survey work. The said work does not fall within the ambit of Section 4(3) of the TVAT Act. The Seismic survey is carried out to investigate the Earth's subterranean structure. There was no transfer of the right to use goods. The equipment of the petitioner contractor remained the equipment and material owned and provided by the contractor. The equipment remained in the control of the petitioner. The petitioner remained in exclusive possession and control of the said equipment and all the resources were supplied by the contractor. Reference may be made to certain clauses of the agreement which read as follows: ******* ******* ****** ..1.1.11 Contractor's Equipment shall mean all equipment and materials owned or provided by the Contractor. ***** ***** ****** ****** ..1.1.16 Mobilisation shall mean the arrival at a location designated by the Company of equipment, materials and personnel necessary for the Contractor to perform the Work, and including the completion of system installation and ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Contractor in connection with the Services as if the employees of the Contractor performed the Services. 4.2.6 The Contractor shall ensure that all employees of the Contractor and any Subcontractor engaged in the performance of the Services comply with applicable laws including immigration laws, labour laws etc. and where required are in possession of a visas or other valid work permit for the duration of the Contract. When requested details of such work permits shall be submitted to the Company prior to the employee being engaged in the Services. To the extent that such visas or permits are required to be issued by any Government authority, the Company shall, at the Company's sole discretion, endeavour to assist the Contractor to obtain such visas and permits. The costs of obtaining such visas or permits shall be borne by the Contractor. ******* ******** ******* 5.1 Company Equipment and Company Services: At its option, the Company shall provide at the Company's sole cost certain equipment and services. These shall be identified as Company Equipment and Company Services and the Contractor shall use the same solely for the execution of the Work. The Contra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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