Allowed

Ms Deep Industries Ltd. v. the State of Tripura and Ors.

Tripura HC13 Dec 2017WP(C)/546/2017

Case brief

AI extract

What is this about?

In a writ petition, Deep Industries challenged the deduction of tax at source and the applicability of Tripura VAT on a contract for hiring booster compressor services. The High Court held that the transaction was a service, not a transfer of right to use goods, and allowed the petition, restraining respondents from levying VAT.

What did the court decide?

The writ petition was allowed; respondents were restrained from realising VAT, and any deducted tax must be refunded with interest.

Ms Deep Industries Ltd. Vs the State of Tripura and Ors. — GST and Indirect Tax | Tripura HC (2017)

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IN THE HIGH COURT OF TRIPURA AGARTALA

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WP(C) 546 of 2017

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M/s Deep Industries Limited,

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a company incorporated under the Companies Act,

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1956 and having its registered office at Abhishree Corporate Park, Ambli Bopal Road, Ambli Ahmedabad-380058, Gujarat and is represented by its duly authorized representative, Shri Subhashish Das, presently serving as Site incharge of the Petitioner Company and residing at Joy Ram Bhavan, Opp. Badarghat Petrol Pump, Badarghat, Siddhi Ashram, Agartala, Tripura-799001.

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………………… Petitioner

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–Vs–

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The State of Tripura, represented by the Secretary to the Government of Tripura, Department of Revenue, Government of Tripura, Agartala, West Tripura

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The Commissioner of Taxes, Government of Tripura, Agartala, West Tripura

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The Superintendent of Taxes, Government of Tripura, Charge-V, Agartala, West Tripura

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.............Respondents

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Oil & Natural Gas Corporation Limited, a Government of India enterprise and incorporated under the Companies Act, 1956, having its registered office at Pandit Deendayal Upadhyaya Urja Bhavan, 5, Nelson Mandela Marq, VasanKunj, New Delhi-110070, India and one of its work centre at Agartala, Tripura, India

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..........Proforma-Respondent

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B E F O R E

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HON‟BLE THE CHIEF JUSTICE MR. T. VAIPHEI THE HON‟BLE MR. JUSTICE S. TALAPATRA

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For the petitioner : Ms. M. Chakraborty, Advocate For the respondents : Mr. D.C. Nath, Addl. G.A. Mr. A.L. Saha, Advocate

Date of hearing and

WP(C) 546 of 2017

Page 1 of 10

Judgment & Order : 13.12.2017 Yes No Whether fit for reporting : √

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JUDGMENT & ORDER (ORAL)

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( Talapatra J.)

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Heard Ms. M. Chakraborty, learned counsel appearing for the petitioner, M/s Deep Industries Limited as well as Mr. D.C. Nath, learned Addl. G.A. appearing for the respondent Nos. 1,2 & 3 and Mr. A.L. Saha, learned counsel appearing for the respondent No.4.

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By means of this writ petition, the petitioner has urged this court for quashing and setting aside the instruction under No.F.16051578083/Ch-V/2005/11834-36 dated 28.11.2008 and the memorandum No.F.1-7(6)-TAX/2002 dated 25.06.2005 by dint of which the respondents sought to deduct the tax at source from the bills of the petitioner under provisions of Tripura Value Added Tax Act, 2004, in short TVAT Act, 2004. As regards the contract-agreement No.9010024632 dated 30.03.2017 entered between the petitioner and the respondent No.4, the petitioner has further urged to hold that the said agreement dated 30.03.2017 cannot be construed to have been made to transfer the right to use and to render the transaction thereby exigible to tax under the TVAT Act, 2004. It is to be noted at the outset that by the order dated 30.05.2017, the respondents No. 2, 3 & 4 were directed not to insist the deposit of tax by the petitioner under the TVAT Act, 2004 at source from the bills of the petitioner relating to the contract-agreement dated 30.03.2017.

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WP(C) 546 of 2017

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It has been stated at the bar that no deduction of tax at source has been made on account of the contract-agreement dated 30.03.2017. It is apparent from the contract-agreement dated 30.03.2017 [Annexure-I to the writ petition] that the said contractagreement was entered into, for Hiring of Booster Compressor services at Sonamura GCS, Tripura Asset for a period of one year under the terms and conditions as provided in the said agreement. It would be further apparent from the price schedule that the price has been determined in the following manner :

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Sl.	D	escription of Item	Unit
1.	Compress Per unit Natural compress specified providing manpowe spare part of tende developm	ion Charges : rate for compression of Gas and delivery of ed Natural Gas at the outlet conditions by all necessary equipments, r, consumables, lubricants, s etc. as per scope of work r document and site ent charges.	Rs.1500 (Rate 1000 Sm3)	per

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By virtue of the communication dated 28.11.2008, [Annexure-III to the writ petition], the respondents were insisting deduction of tax at source under Section 4(3) of TVAT Act read with Rule 7(2) of the TVAT Rule, 2005 against the Works Contract and right to use of Vehicles, Crane, Dozers, Instruments & Machineries etc. and by the memorandum dated 25th/30th June, 2005 [Annexure-IV to the writ petition] all the Departments, Head of Departments, State Government Undertakings, Corporations and Organisations and Central Government Undertakings, Corporation and Organisations were directed to issue suitable instructions to the authorities under their control responsible for making payment to any person against workscontract and transfer of right to use any goods for duly deducting from

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the sales tax component @ 4% (uniform rate) and deposit by challan in form XVIII in proper Head of Account within the specified period.

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The petitioner being comprehensive of such deduction has approached this court and submitted that under those provisions of TVAT Act, 2004, there must be a transfer of the right to use any goods for the purpose of levy of Value Added Tax, the VAT in short, in other words, transfer of the right to use of any goods, for any purpose, is the pre-requisite for realising the VAT. It is not a tax on the right to use or the use of any goods, but the same is a tax on ‘transfer’ of the right to use goods. Thus, until and unless the incidence of transfer of the right to use the goods is present, a transaction cannot be termed ‘sale’ even under the expanded definition of ‘sale’ for the purpose. Similarly, a transaction would not attract the VAT, merely because the goods have been hired and the hiring charges have been paid to the person, who gives those on hire the goods, unless one can show that the transaction is not confined to ‘use’ of the goods only but it is, in substance, a ‘transfer’ of the ‘right’ to ‘use’ of the goods.

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According to the petitioner, Hiring of Booster Compressor services at Sonamura GCS, Tripura Asset for a period of one year along with the power services, is not the instance of transfer of right to use. From a bare reading of the terms of the contract-agreement dated 30.03.2017, it would be evidently clear that the said contractagreement dated 30.03.2017 cannot be construed as transfer of right to use goods in favour of the respondent No.4, ONGC Limited by the petitioner by rendering the transaction exigible to tax under the TVAT Act, 2004.

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It has been stated by the learned counsel appearing for the petitioner that a similar question had been determined in Quippo Oil and Gas Infrastructure Ltd. versus State of Tripura and Others reported in (2015) 1 TLR 38 where it has been observed as under :

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“33. As has been held by the Apex Court either a transaction shall be exigible to sale tax/VAT or it shall be eligible to service tax. Both the taxes are mutually exclusive. Whereas sales tax and value added tax can be levied on sales and deemed sales only by the State, it is only the Central Government which can levy service tax. No person can be directed to pay both sales tax and service tax on the same transaction. The intention of the parties is clearly to treat the agreement as a service agreement and not a transfer of right to use of goods. We are also clearly of the view that it is impossible from the terms of the contract to divide the contract into two portions and since the petitioners have paid service tax they cannot be also asked to pay value added tax. As held by the Delhi High Court in Commissioner, VAT, Trade and Taxes Department v. International Travel House Ltd. (supra), if there is a conflict between the Central law and the State Act then the Central law must prevail. The petitioners cannot be burdened with two different taxes for the same transaction.

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34. After carefully going through the contracts we are of the view that the contracts are mainly for hiring of services. There may be a very „small clement of transfer of right to use goods but according to us the predominant portion of the contract relates to hiring of services and not to transfer of right to use the goods. We are aware that the dominant nature test is not to be used in composite contracts falling within the ambit of Article 366(29A) but from the reading of the contract it is more than apparent that the intention of the parties was to treat the contract as a contract for hiring of services. Moreover, it is impossible to divide the contract into two separate portions. Every element of the digging directional wells and Mobile Drilling Rig service contains a major element of provisions of services. In such an eventuality it is virtually impossible to divide the contract. It is not possible to work out the value of the right to use goods transferred under the contract. In cases, where the contracts are easily divisible or where the parties have by agreement clearly indicated what is value of the service part and what is value of the transfer of right to use goods part, the contract may be divided. We are in agreement with the Delhi High Court that when the contract cannot be divided with exactitude then the Central Law must prevail.‟

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35. Parties have also been paying service tax and if the State is allowed to tax any portion of the value of the contract then there has to be a proportionate refund of the service tax to that extent. This cannot be done without hearing the Union of India. If there is any dispute between the State or the Union of India then they must resolve it between themselves. The petitioners or the ONGC cannot be made liable to pay both the taxes for the same transaction.

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36. In view of the above discussion, we are clearly of the view that in all the cases the transactions do not amount sale within the meaning of the TVAT Act, 2004. Therefore, all the writ petitions have to be allowed. The State is not entitled to levy any sales tax or Value Added Tax on the transactions in question. It is, therefore, directed that the amount of tax, already deducted and received by the State shall be refunded to the Petitioners along with statutory interest by 28^th February, 2015. In case the amount is not refunded by that date then the State shall be liable to pay interest @ 12% per annum with effect from 1^st January, 2015.

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37. All the petitions are disposed of in the aforesaid terms. No order as to costs.”

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[Emphasis added]

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In Quippo Oil and Gas Infrastructure Ltd. (supra), a

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similar service has been held to be exigible to the service tax not to VAT and sequel to that observation, it has been held that both the Service Tax and the VAT cannot be realised for the same transaction. The Quippo Oil and Gas Infrastructure Ltd. has also been followed in various subsequent decisions of this court.

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Mr. D.C. Nath, learned Addl. G.A. appearing for the respondents No.1, 2 & 3 has referred to the notification under No. F.11(43)-TAX/2005(P-I) dated 01.08.2012. By the said notification, the Tripura Value Added Tax Act (Second Amendment) Rules, 2012 has been given effect to whereunder a new Rule 7A has been inserted. Rule 7A reads as under:

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“7A- Where accounts maintained by the contractor do not show separately the value of labour and services and amount of profit accrued on such labour and services, or accounts maintained by the dealer are not worthy of credence or if the dealer has not maintained accounts, for the purpose of determining turnover of goods in which transfer of property in goods has taken place, an amount can be deducted towards labour and service charge in contracts described in column 2 of the table given below therein at the corresponding rate given in column 3 of the gross amount of contract received or receivable.

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Sl.	Type of Works contract	Amount to be deducted
No.		from the gross amount of the bill of contract (in percentage)
1	2	3
1.	Fabrication and installation of plant and	10%

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	machinery.
2.	Fabrication and erection of structural works including fabrication, supply and erection of iron trusses, purline.	10%
3.	Fabrication and installation of cranes and hoists.	10%
4.	Fabrication and installation of elevator(lifts) and escalators.	10%
5.	Supply and installation of air conditioning equipment including deep freezers, cold storage plants, humidification plants and dehumidifier.	10%
6.	Supply and installation of air conditioners and air coolers.	10%
7.	Supply and fitting of electrical goods, supply and installation of electrical equipment including transformers.	15%
8.	Supply and fixing of furnitures and fixtures, partitions, including contracts of interior decorations.	10%
9.	Construction of railway coaches and wagons on under carriages supplied by railways.	10%
10.	Construction of bodies of motor vehicle and construction of trailers.	10%
11.	Fabrication and installation of rolling shutters and collapsible gates.	20%
12.	Civil works like construction of building, bridge, roads, dams, barrages, spillways and diversions, sewages and drainage system.	25%
13.	Installation of doors, doors frames, windows, window frames and grills.	20%
14.	Supply and fixing of tiles, slabs, stone and sheets.	20%
15.	Sanitary fitting for plumbing for drainage or sewerage system.	20%
16.	Whitewashing, painting, and polishing.	25%
17.	Laying of pipes.	20%
18.	Tyre retreading.	25%
19.	Dying and printing of textiles.	25%
20.	Any other works contract.	20%

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Mr. Nath, learned Addl. G.A. has contended that the memorandum dated 25th/30th June, 2005 is no longer in force, particularly after issuance of the notification dated 01.08.2012 issued by the respondents No.1 & 2. Hence, the challenge against the letter dated 28.11.2008 and the memorandum dated 25th/30th June have become infractuous. According to him, now the provisions of the notification dated 01.08.2012 would apply and it cannot be stated unless the entire transaction is assessed whether the petitioner would be exigible to the VAT for the transaction as referred. The respondents

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No. 1, 2 & 3 have stated that since by dint of the contract-agreement, the goods is hired by the ONGC Limited and the effective control is totally with the ONGC Limited, the transaction by the said contractagreement is transfer of right to use and hence, this contractagreement comes within the purview of Section 4(2) of TVAT Act, 2004. It has been stated in Para-15 of the reply, by the respondents No.1, 2 & 3 as under :

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“Therefore, without making assessment the liability of tax cannot be ascertained in the instant case. Hence, the contention of this averment is not maintainable in the eye of law. It is reiterated that the provisions of the TVAT Act, 2004 have been mandated by the State Legislature within the gamut of the Constitution of India.”

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However, those respondents in Para-26 of their reply have

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also stated that :

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“...........it is reiterated that the Proforma Respondent No.4 made the deduction of sales tax/VAT, at source, on the running bill of the petitioner on the transfer of the right to use of machineries but not on the service part. The matter of the case is a fiscal one and the petitioner does not have any prima facie case nor is he entitled to resist the Respondent No.4 not to deduct sales tax/VAT to the extent of hiring charges for the machineries and hence, it is stated that there was/is no contrary to law of the land when deduction of sales tax/VAT is made from the running bills of the petitioner in respect of transfer of right to use goods as the same is taxable under the provisions of TVAT Act, 2004. It is further reiterated that the effective control of all the machineries were/are with the ONGC Ltd., Tripura Asset and thus, the transfer of right to use of the goods takes place.”

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The ONGC-respondent, even though has filed a separate reply, did not contest the averments of the petitioner for obvious reason, but has expressed their concern over formation of the context under which the TVAT can be deducted.

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On reading of the said contract-agreement dated 30.03.2017, this court finds the scope of work, relating to hiring of Booster Compressor Services at Sonamura GCS, Tripura Asset, is delineated as under :

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SCOPE OF WORK

The job relates to “HIRING OF BOOSTER COMPRESSOR SERVICES AT SONAMURA GCS- Tripura Asset as per the details given below:

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1.0 Broad guidelines: The scope of work shall broadly cover the following but, not be limited to:

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1.1 Providing adequate Gas compression facilities at site at GCSSonamura, Tripura Asset, including all civil, electrical, instrumentation & piping works etc. in all respects including mechanical completion.

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1.2 Providing suitable gas flow metering and totalizing device.

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1.3 Pre-commissioning & commissioning of Gas compressor package systems with periodic calibration of gas metering systems jointly with ONGC Representative, including the meter for fuel gas consumption by the contractor.

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1.4 Operation & maintenance of Gas compression facilities to deliver high pressure gas in required quantities at 22-25 kg/sqcm pressure from low pressure gas at 12-15 kg/sq cm without any interruption.

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1.5 Vacation of the site within 14 days, once the contract period is over/closed/terminated.

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1.6 Period of contract will be for 12 (twelve) months from the date of commencement of the contract with the option with ONGC for closure of the contract at an earlier date giving 15 Days‟ notice.

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2.0 Sites for Operation & Gas compressor package features: Gas compression facilities are to be provided at GCS-Sonamura, Tripura Asset, Tripura State.

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The quantity of gas to be compressed and other details are as follows: Gas to be compressed 2.5 LSCMD (max) and 0.9 LSCMD (min). Prime mover: Gas engine.

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Special condition to be put in tender:

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1) Contract duration is to be 12 months. 2) Suction pressure : 12-15 kg/cm2

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3) Discharge pressure : 22-25 kg/cm2 4) Mobilization period : 45 days.

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5) Prospective bidder shall offer two compressors of capacity ranging between 1.0 LSCMD to 1.5 LSCMD (min). Bidder to ensure stability of the system during single or parallel operation of the compressor unit(s). Both the compressor units may be required to be operated throughout the contract duration.

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6) The prospective bidder must have the compressor(s) ready for deployment immediately. To establish this the bidder must submit TPI report along with the bid and must agree to offer the compressors for inspection by ONGC if demanded by ONGC. Inlet gas temperature : 15-42 deg. C Final discharge temperature downstream of after cooler : 45 deg. C (max)

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Ambient temperature : 5-40 deg. C

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Driver, accessories & auxiliaries : As per compressor provider no electricity available. Gas available for compression may be used as fuel.

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The equipment should meet relevant international standards e.g. API11P/ISO 13631-2002 for reciprocating compressors. However, the compressor capacity should be worked out as per ISO13631-2002 at the worst set of operating parameters i.e. highest ambient temp highest inlet gas temperature, lowest inlet pressure and highest discharge pressure.”

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It is evidently clear from the above clause that the

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pertinent question that has emerged is that whether the ONGC had

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any right to transfer to use. By virtue of the said contract-agreement, contrary to what has been stated by the respondents No.1, 2 & 3, it appears clearly that the contract-agreement is struck for hiring of Booster Compressor Services and as such, the said transaction would not be exigible to the VAT. Hence, the respondents No.1, 2 & 3 do not have any right to realise the VAT from the petitioner’s company and thus the new Rule viz. 7A of the Tripura Value Added Rules, 2005 cannot be applied. It has been mentioned [as amended] there, clearly the price for service, to which the petitioner is entitled.

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Having observed thus, this writ petition is allowed and accordingly, disposed of.

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The respondents are restrained from realising the VAT from the petitioner for the said work under the contract-agreement dated 30.03.2017. If the VAT had been deducted at source by the respondent No.4, the said amount deposited to the respondents No.1, 2 & 3 be refunded to the petitioner forthwith with statutory interest within a period of 3(three) months from the date when the petitioner shall submit a copy of this order.

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There shall be no order as to costs.

JUDGE

CHIEF JUSTICE

Sabyasachi. B

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Ms Deep Industries Ltd. v. the State of Tripura and Ors.

Case brief

What is this about?

What did the court decide?

Ms Deep Industries Ltd. v. the State of Tripura and Ors.

Case brief

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