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2016 (10) TMI 85 - GUJARAT HIGH COURT

2016 (10) TMI 85 - GUJARAT HIGH COURT - TMI - Works contract for pest control at SEZ - sale and supply of goods as per Section 2(13) and 2(23) of the Value Added Tax Act, 2003 - registered in the category of cleaning activity service - taxation of pesticides and chemicals used in the cleaning and pest control activity under the VAT Act - 'sale' under section 2(23) of the Act - whether execution of the works contract for pest control amount to transfer of property in goods and exigible to VAT? - .....

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es and chemicals was wholly incidental. There was no intention of sale of goods from the assessee to the company. - Similar issue decided in the case of Pest Control India Ltd. v. Union of India and others [1989 (9) TMI 356 - PATNA HIGH COURT]. - NO transfer of property in goods involved - No VAT liability - appeal dismissed - decided against Revenue. - Tax Appeal No. 706 of 2013 - Dated:- 22-9-2016 - Akil Kureshi And A. J. Shastri, JJ. Government Pleader for the Appellant Mr. Apurva N M .....

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ol would lead to transfer of property in goods making the transaction exigible to value added tax? 3. Whether the learned tribunal has erred by holding that in execution of a works contract for pest control, there is no transfer of property in goods because the chemicals are consumed and are not present in a tangible form? 2. The questions arise in the following background. Respondent assessee is a proprietary concern and is engaged in the business of providing pest control service to various co .....

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en sale of such goods. The assessee however contends that the contract is one for providing service, it is a skilled service which also involves providing labour. Use of pesticides is incidental. In any case, such material is consumed during the course of the work. The title in the goods therefore, never passed from the assessee to the company who has awarded such contract. 3. The assessee in view of such debatable issue had approached the Joint Commissioner of Commercial Tax by filing an applic .....

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clause( b) of subsection (23) of section 2 of the VAT Act and exigible to tax. This order of determination, the assessee challenged before the Value Added Tax Tribunal ('the Tribunal' for short). The Tribunal by the impugned judgment dated 28.10.2010 reversed the decision of the Joint Commissioner. In a detail consideration, the Tribunal came to the conclusion that the assessee had to carry out activities as per the terms of the contract awarded by Reliance Petroleum. As per such contra .....

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nition of sale under Article 366(29A) of the Constitution by virtue of 46th Amendment, but was convinced that even with the aid of this expanded definition of term 'sale', the transaction in question could not be taxed as a sale of goods. We may recall the relevant expansion made by virtue of the said amendment was to allow the State to levy tax in the nature of sales tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract .....

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would include transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The Tribunal concluded as under: 57. In my view in the present case the appellant is engaged in the business of providing Pest Control Services . In execution of pest control services Pesticides, Chemicals and Water is used by the appellant on the space specified by the contractee and charged consideration on square feet basis. 58. In light of the legal position set .....

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, while in execution of pest control contract property in pesticides, chemicals or water is not transferred either in goods or in some other form, because when it's process ends on specific place, nothing tangible remains in which property is transferred. 59. In view of the above facts, goods used in execution of pest control is neither, (1) has its utility, nor (2) has capable of being bought and sold, nor (3) has capable of being transmitted, transferred, delivered, stored and possessed, .....

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ances its appearance, neither increased its value or differs its uses, at the end nothing is deliverable is exist. It is held in BSNL case, particular in para 78, where apex court has observed as under: 60.1 (para 78 on page 125) But if there are no deliverable goods in existence as in this case, there is no transfer of user at all. Providing access or telephone connection does not put the subscriber in possession of the electromagnetic waves any more than a toll collector puts a road or bridge .....

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s Association (Supra), 20th Century (Supra) and BSNL Ltd. (Supra) following legal position of law emerged. 62. From the plain reading of sub clause (b) of clause (29A) of article 366 of the Constitution of India it appears that there must be a transfer of property in good whether as goods or in some other form involved in the execution of a works contract. Clause 12 of article 366 and section 2(12) of the Gujarat Value Added Tax Act, 2003 give some indication as to what is meant to be goods . Th .....

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transfer of property in goods. This presupposes that the goods existed and that either in its original form or in some other form, it is transferred to the principal by the contractor. Transaction involved in the question of the applicant does not involve transfer of any goods as understood in sub clause (b) of clause (29A) of article 366 of the Constitution of India or under the provisions of the Gujarat Value Added Tax Act, 2003. It is a service pure and simple and does not involve any sale o .....

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eemed 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. Hence, a transfer of property in goods under sub clause (b) of clause (29A) is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and a purchase of those goods by the person to whom such transfer is made. So for levying tax under 46th Amendment there must .....

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onstitution of India and under provisions of VAT Act because it ceases to exist and it amounts to only simple service contract. 4. It is this judgment that the State has challenged in the present appeal. As noted, revolving around the same controversy, three separate questions have been framed. First is, whether the contract of pest control would involve sale of goods? Second is, whether such contract would lead to transfer of property in goods which transfer would be exigible to VAT. The last i .....

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erefore, be exigible to tax. Mere registration of the assessee for the purpose of service tax would not be conclusive. The Tribunal committed a serious error in holding that since the goods were consumable, no title passed in favour of the purchaser. 6. On the other hand, learned counsel for the assessee opposed the appeal contending that the assessee had only provided skill based service. There was no transfer of goods in the process. At the end of execution of the contract, the pesticides and .....

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the State Sales Tax laws. Currently, the VAT Act, the section 2(23) of the Act defines term 'sale' as to mean on sale of goods made within the State for cash or differed payment or other valuable consideration and would include various transactions referred to in clause( a) to (j) contained therein, clause( b) thereto reads as under: (b) transfer of property in goods (whether as goods or in some other form) involved in execution of a works contract 8. The essential question therefore, i .....

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ying insecticides, rodent control treatment etc. The work order specified the quantity of the work, the rate at which the assessee would be remunerated for such work, the total amount to be paid for such quantity at such rate. The work order contained at AnnexureA, special conditions of the contract. It essentially required all works to be performed by the assessee under the supervision of the engineer of the company. The scope of work was further elaborated in this document as to include carryi .....

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sale tax as may be applicable. 10. From the terms of contract, it can thus, be seen that the assessee was awarded the contract for pest control measures at the office of factory premises of the company situated within the SEZ area. The contract would include complete treatment of pest control and rodent control, for which, the assessee would use the pesticides and chemicals of reputed companies. In essence therefore, this was a contract for carrying out the pest control service which would requi .....

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ssee to the company. 11. We may notice how this or somewhat similar issue has been considered by Courts in the past. In the Constitution Bench judgment in case of Gannon Dunkerley & Co. and others v. State of Rajasthan and others reported in 88 STC 204, it was observed that the value of goods to be involved in execution of works contract will have to be determined, taking into account the value of the entire works contract and deducting various charges such as labour charges and cost of cons .....

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also develop the films brought by the customers and provide the prints for the same. In such context, it was observed that all that had happened in law after the 46th amendment and the judgment of the Supreme Court in case of Builders Association of Indian and others v. Union of India and others reported in 73 STC 370 (SC) is that it is now open to the State to delve to separate works contract by legal fiction, i.e. contract for sale of goods involved in the works contract and supply of labour .....

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ch, the appellant would sale the photocopies or xeroxed documents to the customers. The question was whether the making of photocopies with the use of xerox or other machines and delivering the copies so taken to the customers amounts to sale of goods exigible to tax under the Tamilnadu General Sales Tax Act. In this background, it was held that when the main object of the work undertaken by a person is not the transfer of chattel as chattel, the contract is one of work and labour. The main obje .....

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e clients, he cannot be said to have entered into a contract for sale of goods. The contract is for use of skill and labour. Sales tax is not payable by the photographer when he takes photograph or supplies the photographic prints to the customers. 15. The Patna High Court in case of Pest Control India Ltd. v. Union of India and others, reported in 75 STC 188 Patna, examined a question very similar to one on hand before us. The Division Bench in the context of pest control service rendered by th .....

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