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2018 (1) TMI 614 - HC - VAT and Sales TaxLevy of service tax or VAT - workover service contracts entered into by the petitioners with clients - GVAT Act - Article 286 of the Constitution of India read with section 5(2) of the Central Sales Tax Act, 1956 - While the petitioners duly filed returns under the GVAT Act, they did not admit any liability of tax under the GVAT Act since according to the petitioners the contracts do not involve any sale/deemed sale of goods. Whether the contract entered into between the petitioners and the ONGC for workover operations on oil wells of the ONGC is (a) a purely service contract, or (b) a composite contract involving both, an element of service as well as transfer of right to use goods? Held that: - while the overall supervision of the project is carried out by the representative of the ONGC, the actual work is executed by the contractor through his representative and all the contractor’s personnel are under his charge - the court has held that all the sub-clauses of Article 366(29-A) of the Constitution serve to bring transactions where one or more of the essential ingredients of a sale as defined in the State of Goods Act, 1930 are absent, within the ambit of purchase and sales for the purposes of levy of sales tax. The amendment especially allows specific composite contracts viz., works contract [sub-clause (b)]; hire-purchase contracts [subclause (c)], catering contracts [sub-clause (e)] by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax. The court has observed that of all the different kinds of composite transactions, the drafters of the Forty-sixth Amendment chose three specific situations, a works contract, a hire-purchase contract and a catering contract to bring them within the fiction of a deemed sale. Of these three, the first and third involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been constitutionally permitted in sub-clauses (b) and (f) of clause (29-A) of Article 366, there is no other service which has been permitted to be so split. The contract between the petitioners and the ONGC does not involve any transfer of the right to use goods and resultantly there is no deemed sale attracting the levy of value added tax on such transaction. The contention of the petitioner that the transaction is only for providing the service of workover operation and nothing more, therefore, deserves to be accepted. The contract entered into between the petitioner and the ONGC for workover operations of oil wells of ONGC is a pure contract of services to the ONGC. The impugned order passed by the Tribunal which holds that the contract dated 8.7.2008 entered into between the petitioner and the ONGC is a composite contract involving both the element of deemed sale by way of transfer of right to use goods and the element of providing services to the ONGC, being contrary to the intention of the parties as provided in the agreement to contract, cannot be sustained. The Tribunal after holding the contract to be a composite one, involving an element of service as well as an element of transfer of the right to use the goods has remanded the matter to the first appellate authority to recalculate the tax liability with consequential effect on interest and penalty - petition allowed.
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