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TMI Blog2017 (2) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... property in the goods between the contractor and the Contractee and is thus exigible to tax. The second question raised by the petitioner, i.e. whether the Commissioner was liable to grant a certificate for NIL deduction of Tax Deducted at Source, is dependent on the answer to the above question. 3. The petitioner is engaged in the business of providing services of maintenance, cleaning, washing, housekeeping, waste management, etc. 4. The petitioner was awarded a contract by the Northern Railways (hereinafter referred to as the Contractee) in relation to the management, cleaning, washing, housekeeping, waste management, etc. at Diesel Shed Shakurbasti and at Training School Shakurbasti. 5. It is contended by the petitioner that the contract was for cleaning of sites of Northern Railways (Contractee) and was a pure service contract and no transfer of property from the Petitioner (Contractor) to Northern Railways (Contractee) was involved. It is contended that the activities undertaken by the petitioner did not constitute a sale within the meaning of Delhi Value Added Tax, 2004 (hereinafter referred to as the DVAT Act). 6. It is contended that being a service contract the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity or nominated supervisor. The counter affidavit further contends that the arrangement of handing over the material to Railways is an operational procedure to ensure that the requisite quantity of consumables is used by the contractor. It is specifically averred that transfer of property is not involved in this contract. 13. Per contra, Special Commissioner, Department of Trade & Taxes filed the counter affidavit on behalf of Department of Trade & Taxes and defended the impugned order contending that the contract between the parties i.e. the petitioner and the Railways is a works contract of a composite nature. The property in goods i.e. chemical is transferred by the petitioner to the Railways. The petitioner is required to calculate chemical/solvent per month and the same has to be delivered by the petitioner to the Railways. The contract stipulates that cost of chemicals and machines is included in activities mentioned in the schedule of unit rates. 14. It is contended that it is not just a service contract but a composite contract including transfer of property in goods involved in execution of the work contract. It is contended that the chemicals have been used extensively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to keep it free from muck/grim arises due to dropping of oil/grease/effluents and industrial waste by using biodegradable floor chemicals/solvent and floor scrubbing/scarifying machine, removal of industrial waste along with muck, unwanted/useless and dumping the same at the nominated place within the shed complex. 3. Cleaning of floor of main shed, SMM store, Lab & Administrative block to keep it free from dropping of oil/grease/grime/effluent including removal of cobwebs from covered area. 4. Cleaning of DEMU Care Centre, DEMU Block and Diesel Training Centre SSB to keep it free from dropping of oil/ grease/ grime/ effluent including removal of cobwebs from covered area. 5. Cleaning of rooms, veranda, etc. of Lab, Administrative block and offices of Sr. Subordinate Super-visors with wiping by wet and dry moppers. 6. Cleaning of rooms, veranda, etc. of DEMU Block and Diesel Training Centre SSB with wiping by wet and dry moppers. 7. To keep floor, side walls of inspection pits free from muck/grime/arises due to dropping of oil/grease/ effluents and industrial waste by using high-pressure cold / hot jet cleaner. Removal of unwanted industrial waste and dumping the same at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the property in the chemicals/solvents used by the petitioner in the execution of the work has transferred to the Contractee. 23. In the impugned order, reliance has been placed on the judgment in the case of M/s Enviro Chemicals (Supra) of the Kerala High Court, wherein the majority relied upon the decision of the Supreme Court in Xerox Modicorp Ltd. v. State of Karnataka, (2005) 7 SCC 380 to hold that in the facts of the case, the property in the goods used for the execution of the contract passed to the Contractee and thus amounted to sale and was exigible to tax. 24. The activity taken by the petitioner in relation to maintenance, cleaning, washing, housekeeping, waste management etc. is under a works contract. No doubt certain chemicals and solvents are used by the petitioner in the execution of the said contract but property in the said chemicals and solvents does not pass on to the Contractee. The use of chemicals and solvents is integral to the very execution of the works contract. The chemicals and solvents are not required by the Contractee for any purpose other than that for execution of the contract i.e. of cleaning, washing, housekeeping etc. The chemicals and sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in facts of the Judgments in Enviro Chemicals (Supra) and Xerox Modicorp Ltd (Supra). 29. In Enviro Chemicals (Supra), the dispute was with regard to the chemical product "Envirofloc" which was used as a chemical for effluent treatment. The Petitioner, therein, was using the chemical "Envirofloc" for the treatment of effluent. The case of the Petitioner was that since the chemical is completely used up in the process of effluent treatment, no transfer of property takes place. 30. The Majority in Enviro Chemicals (Supra) held as under: "13. After having considered the entire case law cited before us and on a conspectus of the provisions, we would think that the learned Special Government Pleader is right in his contention based on the decision of the Apex Court in Xerox Modicorp Ltd's case (supra). It is no doubt true that the contract as such is not placed before us, if it is one which is reduced to writing. But we will proceed on the basis that the process involved is substantially the same as has been indicated by the assessee and which we have extracted. It is undoubtedly true that even after the 46th amendment, sales tax cannot be levied merely because there is a wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-holder quicquid plantatur solo, solo cedit. As soon as materials of any description are used in a building or other erection, they cease to be the contractor's property and become that of the free holder. The employer under a building contract may not necessarily be the free-holder, but may be a lessee or licensee, or even have no interest in the land at all, as in the case of a sub-contract. However, once the builder has affixed materials, the property in them passes from him, and at least as against him, they become the absolute property of his employer, whatever the latter's tenure of or title to the lands. The builder has no right to detach them from the soil or building, even though the building owner may himself be entitled to sever them as against some other person - for example, tenant's fixtures. Nor can the builder reclaim them if the building owner or anyone else has subsequently severed from the soil. Materials worked by one, into the property of another, becomes part of that property. This is equally true whether it be fixed or moveable property. Bricks built into a wall becomes part of the house, thread stitched into a cost which is under repair, or pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omer in the case before the Apex Court in Xerox Modicorp Ltd case and the sale taking place before the goods are consumed, in the same way, the property in the chemical passed to the awarder the moment they are put into the effluent by the assessee and its subsequent consumption is the consumption after sale and it does not detract from the factum of sale and consequently the exigibility to tax becomes unquestionable." (Underlining supplied) 31. In Xerox Modicorp Ltd. v. State of Karnataka, (2005) 7 SCC 380 the Supreme Court held as under: "7. Even though at first blush the submissions of Mr Ganesh may appear attractive, on a proper consideration, we think that Mr Iyer was right when he submitted that the agreements are not just service contracts but also maintenance contracts. Mr Iyer is right that the machines belong to the customer after they are sold to them. If after the sale some part was to be replaced or some component supplied there would be sale as understood in law. Under the agreements, apart from the service element, for which no tax is sought to be levied, there is the element of supplying parts and components like toners/developers, etc. Mr Iyer is right in submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... X prices." Thus for the extra stock there is a provision which provides that it is left in trust. However once the toner and developer are put into the machine they are no longer in trust. This is because the property in the toner and developer passed the moment they are put into the Xerox machine. Now they belonged to the customer. At this stage they are tangible movables in which property can pass. This is clear from the provision that the appellants will charge for unaccounted stock at prevailing prices. That they are goods in which property can pass is also clear from the fact that in SSMA the customer has to buy the toner and developer. If as now claimed they are consumables in which property cannot be transferred how are the appellants charging for toners and developers. In our view, Mr Iyer is right. The sale i.e. transfer of property takes place before the goods are consumed. The transfer takes place in respect of tangible goods. Just like petrol is consumed after sale or ink is consumed after sale in this case also the toners and developers get consumed after sale. The property passes the moment they are put in the machine. At that stage they are not consumed but are tang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luent/Waste metal chips including removal of cobwebs from covered area. 34. The soaps, detergent, chemicals and solvent used purely for the purposes of cleaning and which are completely consumed, in the process of the execution of the above referred tasks, cannot by any stretch of imagination be said to goods in which property could pass to the Contractee. Similarly, water is also used in the above-referred process of cleaning and execution of the contract. Can it be said, that even property in water, that is used and consumed in the said process of cleaning and execution of the contract, is also transferred to the Contractee and the value of the water consumed should be exigible to tax. 35. The mere fact that soaps, detergent, chemicals and solvents are deposited in the store of the Contractee would not make any difference to the exigibility, as is sought to be contended by the Revenue/respondents, because, admittedly, by mere deposit in the store, the property in them is not stated to pass. It is contended by the Revenue/Respondent, that the property passes when they are actually used. The Petitioners and the Railways have contended that the said soaps/detergent/chemical/solven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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