TMI Blog2010 (5) TMI 759X X X X Extracts X X X X X X X X Extracts X X X X ..... upervening dominion of the corporation over the possession, custody and control of the cranes so as to signify transfer of right of use thereof to it by the contractors. No patent or latent comprehension of the contracting parties is perceptible from the contract agreements to deduce any transfer of right to use the cranes so as to render the transactions exigible to tax under the Act. On a totality of the considerations as hereinabove and in the wake of the determinations made, this court is of the view that the petitioners' assailment ought to succeed. The proposed action of the respondents to deduct tax under the Act at source qua the transactions is thus adjudged to be illegal and without jurisdiction. Petition allowed. - Writ Petition (C) Nos. 5453,5455, 5456,5458,5459,5461, 5548,5561, 5462, 5671 of 2009 - - - Dated:- 12-5-2010 - AMITAVA ROY , J. AMITAVA ROY J.- The proposed deduction of tax at source under the Assam Value Added Tax Act, 2003 (hereafter referred to as, the Act ) by the Oil and Natural Gas Corporation (for short, hereafter referred to as, the corporation ) from the petitioner's entitlements under the contract for hiring of hydraulic cranes by i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erted that the contracts herein are distinctly different from those involved in the aforementioned proceedings decided by this court, and service tax leviable under the Finance Act, 1994, was only contemplated by the parties. Moreover the present contract agreements in categorical terms envisage that the transactions would not be by way of lease or transfer of the right to use the vehicle/equipments. As the express intention of the parties is for providing and availing of the services of the hydraulic cranes which do not conceive of any transfer of right to use the same, the proposed deduction of tax under the Act is constitutionally as well as legally impermissible. The petitioners in the alternative have also averred that even if the contracts could be perceived to evidence an element of transfer of the right to use of the cranes, as those are of composite nature also inclusive of the service component, the same do not admit of splitting under article 366(29A) and, therefore, the sale segment thereof cannot be made exigible to tax under the Act. The corporation in its affidavit while expressing nescience about the payment of service tax by the contractors to the Central Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been effected with effect from May 16, 2001 and consequentially they are liable to pay service tax from July 1, 2003 under business auxiliary service the petitioners have omitted to do so for which meanwhile a show-cause notice on October 15, 2009 had been issued to them demanding an amount of Rs. 21,64,769. The Union of India, therefore, has refuted the petitioners' claim of paying service tax. In the above backdrop of pleadings, Dr. Saraf has emphatically urged that as the contract agreements read as a whole would unequivocally attest that the transactions contemplated therein are out and out for hiring the services of the cranes with no element of transfer of right to use thereof to draw the same within the purview of sale and or lease under the Act, the proposed deduction of tax is ex facie illegal and unauthorised. Referring to various clauses of the contract agreements bearing on the nature and extent of the use of the cranes, the period of service to be rendered, the responsibility of maintenance thereof as well as the unalienable control of the device by the contractors, the learned senior counsel has argued that those clearly demonstrate against the lease or transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were of hiring of the service of the cranes had remained uncontroverted by the corporation in its counter, Dr. Saraf has contended that mere possession sans custody and control is of no consequence and that, therefore, having regard to the various clauses of the contract, it by no means can be construed that the same envisaged any transfer of right to use thereof. Referring to section 65(105)(zzzzj) of the Finance Act, 1994, the learned senior counsel has insisted that it being apparent from the contracts that the parties had consciously agreed on the payment of service tax only, levy under the Act, was clearly not in their comprehension. To reinforce his arguments Dr. Saraf has placed reliance on the decision of the apex courts in Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 VST 95; [2006] 145 STC 91; [2006] 3 SCC 1 and of the Delhi High Court in Commissioner, VAT, Trade and Taxes Department v. International Travel House Ltd. [2009] 25 VST 653. Dr. Todi for the corporation abiding by its pleaded stand has reiterated that the contracts in question being similar to those involved in W.A. No. 138 of 2007 (Dipak Nath v. Oil and Natural Gas Corporation Ltd. [2010] 31 VST 337 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress his submissions has placed reliance on the decisions of the apex court in Federation of Hotel and Restaurant Association of India v. Union of India [1989] 74 STC 102 (SC); [1989] 3 SCC 634 and in Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 VST 95; [2006] 145 STC 91; [2006] 3 SCC 1. The learned Central Government standing counsel has argued that as the petitioners have been registered as service providers under section 69 of the Finance Act, 1994, in terms of the circular/letter DOF No. 334/1/ 2008/TRU dated February 29, 2008, service tax is payable as no transfer of right to use of the cranes in the contracts involved is deductible. He however contended that the petitioners though liable to pay service tax on and from July 1, 2003 have not done so for which a proceeding has already been initiated. The competing pleadings and the submissions have received the due consideration of this court. The legality and/or validity of the proposed deduction of tax under the Act would essentially be contingent on the interpretation of the contract agreements involved. The transactions evidenced thereby if exude a transfer of the right by the petitioners to use the manned cran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be carried out or places approved by the ONGC for the purposes of the contract together with any other places designated in the contract as forming part of the site. 1.13 Works/operations Shall mean all work to be performed by the contractor as specified in the scope of work under this contract. 1.15 Mobilisation Shall mean rendering the equipment fully manned and equipped as per contract and ready to begin work at site designated by ONGC after on hire survey and ONGC's acceptance thereafter. The date and time of ONGC's acceptance of on hire survey will be treated as the date and time of mobilisation. 1.25 Crane Shall mean a truck mounted/all terrain hydraulic crane in good working condition with its certified lifting capacity of minimum 40 MT for type II crane and minimum 20 MT for type III crane at an operating radius of three metres and meeting the other technical specifications given herein. It should comply with Motor Vehicle Act as applicable and in possession of valid documents as applicable such as certificate of registration, fitness, insurance, test certificate, etc. 1.26 Crew Shall mean the staff required for operation of crane such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and supplies to be furnished by it hereunder and agrees to allow no lien or charge resulting from such claims to be fixed upon any property of ONGC. ONGC may, at its option, pay and discharge any liens or overdue charges for contractor's equipment, labour, materials, services and supplies under this contract and may thereupon deduct the amount or amounts so paid from any sum due, or thereafter become due, to contractor hereunder. Taxes Contractor, unless specified otherwise in the contract, shall bear all tax liabilities, duties, Government, levies, etc., including service tax, customs duty, corporate and personnel taxes levied or imposed on the contractor on account of payments received by it from the corporation for the work done under this contract. It shall be the responsibility of the contractor to submit to the concerned Indian authorities, the returns and all other concerned documents required for this purpose and to comply in all respects with the requirements of the laws in this regard, in time. 9.0 Performance The contractor shall undertake to perform all services under this contract with all responsible skill, diligence and care in accordance with soun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NGC's interest, the ONGC shall have the unqualified right to request for the removal of such employee either for incompetence, unreliability, misbehaviour, security reasons, etc., while on or off the job. The contractor shall comply with any such request to remove such personnel at contractor's expense unconditionally. The contractor will remove such personnel at contractor's expense unconditionally. The contractor will be allowed a maximum of . . . Working days to replace the person by competent qualified person at contractor's cost. 12.0 Safety and labour laws Contractor shall comply with the provision of all laws including labour laws, rules, regulations and notifications issued thereunder from time to time. All safety and labour laws enforced by statutory agencies and by ONGC shall be applicable in the performance of this contract and contractor shall abide by these laws. Contractor shall take all measures necessary or proper to protect the personnel, work and facilities and shall observe all reasonable safety rules and instructions. No smoking shall be permitted outside the living quarters, and welding jobs will be carried out with full safety precau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the complete control of the contractor and shall not be deemed to be employees of the ONGC and nothing contained in the contract or in any sub-contract awarded by the contractor shall be construed to create any contractual relationship between any such employees or representative or subcontractor and the ONGC. Contractors shall be responsible for the acts, defaults or negligence of the contractor, his agencies, servant or workman. SECTION B 1.. Scope of work The services of the manned (driver/operator/slinger/khalasi, etc., as the case may be) crane (type of crane to be given) as per technical specifications given herein or a vehicle/equipment or equivalent technical specifications and acceptable to ONGC along with the necessary accessories with valid permits/licences, insurance, etc., sufficient fuel in well maintained condition and fulfilling other pre-requisites should be available for performing the duties as advised by ONGC, at the appointed time and place, throughout the contract period not by way of lease or transfer of rights for use of the vehicle/equipment by the contractor to ONGC. The work under this contract shall include but not limited to dismantling/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to cancel the LOI. It is therefore suggested that the bidder must ensure that offered cranes meets the technical specification. 4.3 The crane(s) along with their original documents including the certificate at clause 4.2 shall be presented/produced for the inspection at the nominated place before putting it into operation/ service of ONGC. The operation/service of crane along with its/their documents shall require the approval of the competent inspection authority for its deployment. Once a particular crane(s) and its documents have been approved for the service of ONGC, the same shall not be changed during the period of the contract, except on being defective and another crane of similar specifications offered as replacement. An intimation of such change shall be given to the authorized representative of ONGC for accepting such replacement. Such replacement shall require valid inspection certificate from the certifying agencies at clause 4.2 above and accepted by ONGC. 5.. Award of contract 5.1 ONGC reserves the right to award whole or part of the work against this contract to any number of contractors at its sole discretion. 5.2 The contractors will have the rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be present for briefing at the appointed time and place in furtherance of the operations without loss of the available operational time. 6.9 The denial or failure of the execution of the timely operations or delays due to poor planning or failure to take timely actions or delays attributed by bad, inefficient operations of crane/prime mover including bogging down of the crane(s), etc., shall be to the account of the contractor and shall not count towards the operational time and make the contractor liable for imposition of liquidated damages as per clause 16 of the contract. Such loss of operational time shall be governed by the relevant clause. 6.11 The cranes are required to be placed at the disposal of ONGC on daily rate basis. Normal working hours will start from seven hours for 10 hours duty everyday within (half) hour as lunch break. However, these timings are subject to change and the cranes could be asked for services beyond these working hours at the sole discretion of the ONGC. 6.12 The contractor is required to provide the crane for all days in a calendar month excepting for 4(four) days (maintenance off days). The four days shall be called maintenance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taff (competent and mentally fit), viz., driver/crane operator/rigger slingers/khalasi/handimen/cleaners, etc., shall be provided by the contractor at his own cost along with the crane. The staff should be skilled/experience in the line for proper/ safe operation of crane such as loading/unloading/slinging dunnage placement, etc. The experience of the crew should not be less than three years. However, even if during currency of contract, if ONGC is not satisfied with the performance of any of crew member, the contractor shall be required to replace the same. 7.3 The contractor will be solely responsible for and shall keep the ONGC indemnified against any consequence under laws (whether Central, State or local) arising out of any accident caused by the crane(s) to equipment/property/personnel engaged in the said contract. The contractor will also be responsible for any claim/compensation that may arise due to damages/injuries to any third party/parties, death, permanent or partial disability or damage to the property, etc., caused by his crane(s) and in addition contractor shall also be responsible to damages/disability/death, etc., to the ONGC employees/ property. The contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rew to meet the urgency of the connected operations. 9.2 The rates in the Schedule are all inclusive, complete, composite and firm for the contract period. For work done under this contract the contractor shall be paid as under: (i) Per day hire charges for all days in a month except maintenance off days and period of non-availability (days/hours) of cranes in operation. (ii) Normally, ONGC may allow one day per week to carry out repair/maintenance of the crane(s) (maximum up to four days in a month). Contractor may also avail of such four maintenance off days at a time in any month, if due to carry out repair and maintenance off the crane with the prior approval from ONGC without any day rate payment and no LD will be levied on such maintenance days (four days per month). 9.3 The above rates are inclusive of all expenses, which means every expenditure necessary for the continuance of the services of the cranes throughout the contract duration. Such expenses shall also include (but not restricted to) payments to regional transport authorities, labour authorities, any Government/semi-Government, local and municipal authorities dues, taxes, levies, fees, connected with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icular day are less than the hours mentioned in clause 16.4 above, then payment would be made on pro rata hourly rate basis as per clause No .1.31 of section A of annexure II for actual available hours of crane(s) in operation. In addition, L.D for an amount equal to one per cent of (per day hire charges x 26/10) per hour will be recovered for the actual period of non-availability of cranes for operation. 16.8 If the crane is not made available for more than one month at a time, ONGC reserves the right to terminate the default crane contract without further notice and forfeit the performance guarantee. 17.. Contractor's supervision 17.1 The contractor shall be providing a competent and experience project incharge acceptable to ONGC who shall be duly authorized in writing to act for and bind the contractor in matter relating to this contract. The project incharge shall receive and carry out directions and instructions with regard to SCOPE OF WORK from the ONGC's authorized representative. Schedule of rates for hiring of truck mounted/all terrain diesel hydraulic cranes Contract No. HQ/CHMM/HYDCRANES-3/AA/2009-2012/ZN6JCO 8006/DPA. Name of the contractor: M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... van and any other light transport arrangement for transportation of fuel, crew, expedients, repair staff or any other assistance required by the machines/crew to meet the urgency of the connected operations. They need to carry out the operations with due diligence and in a safe and workmen like manner maintaining discipline and good conduct amongst its employees and further abide by and conform to all rules and regulations promulgated by the corporation governing such operations. If the conduct of any such employee is considered to be detrimental to the interest of the corporation, it has the right to request for his/her removal and the contractors would have to comply with the same. The contractors at their expense are to arrange appropriate insurance to cover all risk under the contract in support of their personnel deputed by them as well as their equipment, tools and belongings, etc., during the period of their engagement under the contract. The corporation under the agreement has excused itself of all liabilities on this count. The contractors are also required to indemnify and kept indemnified the corporation, its other contractors and sub-contractors as well as their employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and the designed efficiency during the period of the contracts. The contractors as the relevant clauses proclaim, would have independence in their actions and subject to the compliance with the contract agreements would be solely responsible for the manner in which the works are performed. The contract agreements clarify that the same do not create any agency/partnership/joint ventures or joint relationship between the parties. All employees/representatives or sub-contractors engaged by the contractors in performing the contract work would be under their complete control and would not be deemed to be employees of the corporation and that nothing in the contract agreements or in any sub-contract, if awarded by the contractors would be construed to create any contractual relationship between any such employee or representative of sub-contractors and the corporation. The contract agreements, in clear terms stipulate that the employees of the contractors and/or their sub-contractors, if any, although working at the discretion of the corporation would remain the employees of the contractors and such working arrangement would not in any way create or be construed to create an em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment for all days in a calendar month except the four maintenance off days for 10 hours operation in a day. Operational time charges per working hour/10 hours, i.e., at pro rata hourly rate is also contemplated. The relevant clauses clarify that the rates are inclusive of all expenses encompassing every expenditure necessary for the continuance of the services of the cranes throughout the duration of the contract and that the corporation would not be required to make any other payment. The schedule of rates appended to the contract agreements clearly includes service tax at the rate of 10.3 per cent included in the per day hire charge. In other words, the service tax forms an integral unit of the rate at which the contractors are to be paid the hire charges for the cranes provided by them for executing the works of the corporation in accordance with the terms and conditions of the contract agreements. The significance of the words transfer of the right to use in the context of the Assam Value Added Tax Act, 2003 lies in the quintessence of the concept of lease and sale as defined in section 2(27) and 2(43) thereof. These expressions in turn determine the exigibility o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; The Statement of Objects and Reasons for the Forty-sixth Amendment is, inter alia, as follows: 2. By a series of subsequent decisions, the Supreme Court has, on the basis of the decision in Gannon Dunkerley's case [1958] 9 STC 353; AIR 1958 SC 560 held various other transactions which resemble, in substance, transactions by way of sales, to be not liable to sales tax. As a result of these decisions, a transaction, in order to be subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies thereof, namely works contract, hire purchase contract and a catering contract were drawn within the fiction of a deemed sale. It was clarified that the first and second eventualities involved elements of service and sale at the same time and apart from these, no other service under this constitutional provision is permitted to be disintegrated or secured. Their Lordships enunciated that in case of any composite contract other than those excepted by article 366(29A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, the State would not possess the power to segregate the unit of sale from the one to render service and impose tax on the same. Their Lordships, therefore, recognized the dominant nature test to determine any such contract and ascertain whether the transaction fell into one category or the other to decipher the intention of the parties thereto. This test, however, their Lordships observed would not be applicable to the contracts covered by the six sub-clauses of article 366(29A). Referring to the earlier decision of the apex court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra [2000] 119 STC 182 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... composite contracts only as contemplated in the subclauses was affirmed. Axiomatically, therefore, the transactions in hand to be validly subjected to the levy under the Act would have essentially to be adjudged to constitute transfer of right to use the cranes. In the event a service element is traceable therein and any intention whatsoever of the contracting parties to contemplate two independent agreements, i.e., one for transfer of right of use and the other for service with respective values attached thereto is lacking, the bargain would catapult beyond the purview of the Act thus rendering the same inexigible to tax thereunder. To reiterate, the learned counsel for the Revenue in course of the arguments on a dialectical scrutiny of the clauses of the contract agreements has admitted the same to constitute indivisible contracts. The Delhi High Court in Commissioner, VAT, Trade and Taxes Department [2009] 25 VST 653 while dealing with the same issue relatable to a contract for hiring of Maruti omni cabs by the respondent therein to M/s. N. D. P. L. portrayed the same view. Their Lordships reiterated with reference to the decision rendered in Bharat Sanchar Nigam Ltd. [200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y incorporated by the contracting parties emphasise as well the singular responsibility and accountability of the contractors to unfailingly guarantee the timely placement, and availability of the manned crane(s) as well as the smooth and quality execution of the works. A few clauses of the contract though are suggestive of the corporation's prerogative to use the crane(s) as per its requirements, the same per se do not constitute cessation of the contractors' duties as enumerated on various fronts for due discharge of the services expected of them. The terms and conditions of the contract agreements taken as a whole, do not proclaim corporation's possession, custody and control of the crane(s) to the total exclusion and estrangement of the contractors wholly alienating them from the assignment agreed to be undertaken. The parties seem to be ad idem to accentuate upon continuous supervision and surveillance of the contractors not only to affirm unhindered execution of the corporation's works but also to ensure quality service. The residuary discretion and the power retained by the corporation in the matter of detailment of the works and the prohibition against the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 3 SCC 1 while reflecting on the plea of res judicata raised therein enunciated that the court's would generally adopt an earlier pronouncement of law or a conclusion of the fact unless there is a new ground urged or a material change in the factual position. The endeavour of the Revenue to draw sustenance from the decision in the said appeals is thus of no avail. Taxable service referred to hereinabove and as defined in section 65(105) of the Finance Act, 1994 as amended by the Finance Act, 2008 being essential for the instant adjudication is extracted hereunder: 65. (105) 'Taxable service' means any service provided or to be provided.-. . . (zzzzj) to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances. Vide Circular/letter DOF No. 334/1/2008/TRU dated February 29, 2008 issued by the concerned Department of the Central Government, a clarification was provided in the context of article 366(29A)(d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permit the exercise thereof. The transfer of right would thus imply relinquishment of both possession and control of the goods by the transferor in favour of the transferee whereafter during the transaction the former would have absolute dominion thereupon to the alienation of the latter. The enjoinments proclaimed by the various clauses of the contract agreements albeit are to secure the maximum utilization of the manned cranes and the quality services to be rendered thereby, (i) all permeable supervision of the contractors over the works to be executed on the instructions of the representatives of the corporation, (ii) their singular responsibilities and liabilities to guarantee the availability of the manned cranes while ensuring the perfect working condition thereof, (iii) the insulatory stance of the corporation from all liabilities, risks, hazards, claims, etc., that may arise from the operations and (iv) recognition of the independence of the contractors and their employees considered cumulatively, in the opinion of this court are extinctive of any supervening dominion of the corporation over the possession, custody and control of the cranes so as to signify transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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