2017 (3) TMI 1708 - AAR - VAT and Sales Tax

Works contract or sale - Supply of Printed Materials - whether transaction is related to works contract or sale? - What is the rate of tax on printed flex/vinyl advertising material supplied to customers? - Held that - The Applicant has received orders for the supply of printed vinyl / flex with advertisement. The advertisement text / content is as per specification and governed by Copyright Act (being art work /design).This is very typical nature of transaction in which goods belongs to the customers when they came into existence. The view taken by Hon. Apex Court in the case of Sarvodaya Printing Press 1998 (8) TMI 512 - SUPREME COURT OF INDIA is to be accepted and it is held that the transaction is works contract. The applicant has used vinyl / flex and printing ink which are incorporated while executing the works contract is to be held taxable at prescribed rate of tax as per provision of law. Mounting charges - Whether the mounting charges collected form the part of sale price - Held that - The customers pay for sale of printed vinyl / flex banners and mounting charges for mounting activities. The applicant also received consideration for the precise size and specific period of hoarding. The sale is completed when applicant put the material on hoarding as per direction given by customer. The mounting of vinyl on hoarding cannot be treated as installation and thus cannot be excluded from sale price. Hoardings - Whether activity of leasing out the hoarding to the customer for specific period for remuneration is a sale within the meaning of Section 2(24) of the Act? - Held that - The transactions of leasing of the hoarding for a particular fixed period and for valuable consideration thus constitute a transfer of right to use goods and the transaction between the applicant and its customer is a lease transaction is exigible to VAT under MVAT Act. The customers have enjoyed the right to use hoardings of definite size for definite period. The transaction of transfer of hoarding by the applicant to his clients is liable to be treated as transaction involving transfer of right to use goods. Hence it is covered by the definition of sale as provided in section 2(24) Maharashtra Value Added Tax 2002 i.e. sub clause (iv) the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash deferred payment or other valuable consideration. The jurisdictional facts as to whether the items in question constitute goods or immoveable property are required to be examined by the assessing authority in the light of the principles and the judgments. Prospective effect - Held that - The applicant is very well aware about the tax liability on said transactions. The applicant is well aware of the pros and cons of litigations. The applicant has preferred the path of litigation in spite of the clear legal position - The applicant cannot prove existence of circumstances which warrant us to use the discretionary power. In fact use of such discretionary powers in the absence of compelling circumstances would be detrimental to legitimate government revenue and would wipe out the legitimate tax liability. In these circumstances we do not allow the use of prospective effect as a tool to protect or to wipe of legitimate tax liability. Ruling - The transaction of supplying printed material on flex/ vinyl as per the order of customers is held to be works contract - Since the transaction held as works contract it shall liable to tax accordingly. The Mounting charges received by applicant form the part of sale price and liable to tax under MVAT ACT 2002 - The factual aspect whether goods in question are movable or immovable is to be decided by assessing officer / jurisdictional authority/investigating authority in view of principles and test applied as indicated above with respect to said subject matter in this order. On the verification if concerned officer comes to conclusion that goods are movable then the transaction related to lease of hoarding is to be held taxable. If the transaction related to lease of hoarding is held as taxable then the charges received from customers will be the sale price.

Summary

Issues Involved:
- Whether the supply of printed vinyl/flex banner is sale or works contract under MVAT ACT, 2002.
- The rate of tax on printed vinyl/flex banner.
- Whether the mounting charges received by the applicant form part of the sale price.
- Whether leasing out the hoarding to the customer for a specific period for remuneration is 'a sale' within the meaning of Section 2(24) of the MVAT Act.
- Whether there is a transfer of the right to use goods, i.e., hoardings.
- Whether the goods, namely hoardings, are movable or immovable.
- Whether discretionary powers should be used to give the benefit of prospective effect to this order under section 55(9) of MVAT ACT, 2002.

Detailed Analysis:

1. Supply of Printed Vinyl/Flex Banner:
The applicant argued that the supply of printed materials on vinyl/flex is a works contract, not a sale, as the materials are customized and governed by the Copyright Act. The court referenced various judgments, including Sarvodaya Printing Press, and concluded that the transaction is indeed a works contract. The goods incorporated during the execution of the works contract are taxable at the prescribed rate.

2. Rate of Tax on Printed Vinyl/Flex Banner:
The applicant charged VAT at 6% under schedule entry C-76 for printed materials. The court affirmed that the rate of tax on printed flex/vinyl/advertisement material should be determined at 6%, either as per the rate applicable to flex/vinyl and ink in respective entries or under entry C-76 as printed material.

3. Mounting Charges:
The applicant contended that mounting charges should not form part of the sale price as they are for labor and not for goods. The court disagreed, stating that the mounting charges are part of the sale price as defined under section 2(25) of MVAT ACT, 2002, and are therefore taxable. The court referenced several judgments, including ACC Ltd. v. State of Karnataka, to support this conclusion.

4. Leasing Out Hoardings:
The applicant argued that leasing hoardings is not a transfer of the right to use goods and thus not taxable under MVAT. The court, however, found that the leasing of hoardings for a specific period constitutes a transfer of the right to use goods, making it taxable. The court referenced multiple judgments, including Delta Communications v. State of Kerala and Aggarwal Brothers v. State of Haryana, to support this conclusion.

5. Movable or Immovable Goods:
The court analyzed whether hoardings are movable or immovable by considering various judgments, including Commissioner of Central Excise v. Solid & Correct Engg. Works. The court concluded that the assessing officer should determine whether the hoardings are movable or immovable based on the principles laid down by the Hon. Apex Court and other relevant judgments.

6. Prospective Effect:
The applicant requested the benefit of prospective effect, arguing that the current tax position has been followed for over ten years without adverse judgments. The court denied this request, stating that there was no ambiguity in the provisions and no compelling circumstances to warrant the use of discretionary power to protect the applicant's liability. The court referenced the Hon. Bombay High Court's decision in Lalbaugcha Raja Sarwajanik Ganeshotsav Mandal to support this conclusion.

Conclusion:
- The supply of printed vinyl/flex banners is a works contract.
- The rate of tax on printed vinyl/flex banners is 6%.
- Mounting charges form part of the sale price and are taxable.
- Leasing out hoardings constitutes a transfer of the right to use goods and is taxable.
- The assessing officer should determine whether hoardings are movable or immovable.
- The request for prospective effect is denied.