2014 (9) TMI 1052 - HC - CST, VAT & Sales Tax

Transfer of right to use - contract for hiring of mud logging services with the ONGC - service contract or contract for hire - VAT or service tax - whether the transactions entered into by the petitioners amount to transfer of right to use any goods and, therefore, they are exigible to tax in terms of Section 4(2) of the Tripura Value Added Tax Act, 2004 read with Rule 7 of the Tripura Value Added Tax Rules, 2005?

Held that: - there is both an element of service and transfer of right to use goods. It however appears to us that the pre-dominant 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 mud logging contract 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.

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. It is for the State in consultation with the Union of India to come up with the scheme whereby such contracts may be divided but in the absence of any such provision we are clearly of the view that the State has no jurisdiction to levy tax on such a transaction.

By operation of law services of renting-a-cab have been brought within the ambit of service tax. This is a Central law which governs the field and renting of cab services has been held to be a service amenable to service tax. The consistent view is that where vehicles are rented out with or without drivers they are amenable to service tax and therefore, no sales tax or VAT can be levied on such transaction.

Petition 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 latest by 31st December, 2014 - decided in favor of petitioner.