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2015 (11) TMI 1391 - HC - VAT and Sales TaxLevy of VAT on smart cards - Contract for sale or contract for service and labour - The assessee had purchased ID Smart cards for transport department - Assessee contended that the use of smart card for printing data and delivering the same to the transport department is incidental - They are the property of the transport department and were never considered as the property of the assessee. - Held that:- The smart card is only a media through which the particulars of each driver is embedded by virtue of the software which the assessee has developed. There is no transfer of intellectual property when the smart card is handed over to the department. The intellectuality is used to render the services by way of supply of smart cards after the same is purchased as a blank smart card. The requisite information is embedded and supplied to the department. The use of smart cards for printing data and delivering the same to the transport department is incidental. An article or commodity or a material must be something which can ordinarily come to the market to be bought and sold. It must have a distinctive name, character or use. Thereafter it should satisfy the test of abstraction transmission, transfer, delivery, storage and possession, etc. The essential test to be satisfied before an article is said to be 'goods' is the test of marketability. In the market, the said goods is to be known as a commodity which is useful to a customer. In other words it should be known to the market as goods. That is, such goods must be bought and sold in the market. Therefore, an article or commodity or a material must be something which can ordinarily come to the market to be bought and sold. It must have a distinctive name, character or use. Thereafter it should satisfy the test of abstraction transmission, transfer, delivery, storage and possession, etc. The smart cards supplied to the department are not commercial commodities. The same cannot be sold to any other person. The smart cards, which are produced by the petitioner, have no utility or value to any other person than the department who paid for the service rendered by the petitioner. The material purchased and utilized in preparation of photo-identity cards is incidental. Another important aspect is that the smart cards also contained the official logo of the Government of Karnataka along with key management microchip. The same cannot be used or sold by the petitioner to any other person. As such, it was a special kind of job and delicate in nature which is predominant in the transaction and not the value of the materials which are used in executing the job. The smart cards are not the commodities saleable in open market. It fetches no commercial value in the open market. Hence, supply of smart cards to RTO cannot be held as sale. It is a contract for labour and service. The contract entered into between the parties for supply of smart cards is for rendering service only and there is no element of sale. - Not liable to VAT - Decided in favour of assessee.
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