TMI Blog2017 (2) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... water, that is used and consumed in the said process of cleaning and execution of the contract, is also transferred to the Contractee and the value of the water consumed should be exigible to tax - The mere fact that soaps, detergent, chemicals and solvents are deposited in the store of the Contractee would not make any difference to the exigibility, as is sought to be contended by the Revenue/respondents, because, admittedly, by mere deposit in the store, the property in them is not stated to pass. The property in the consumable chemicals used in the process of cleaning does not transfer to the Contractee/Railways and accordingly the said goods are not exigible to tax. Whether the Commissioner was liable to grant a certificate for NIL deduction of Tax Deducted at Source, is dependent on the answer to the above question? - Held that: - Since the said goods are not exigible to tax, the Contractee/Railways is not liable to deduct Tax at Source and the Commissioner VAT is liable to grant a certificate for NIL deduction of Tax Deducted at Source. Petition allowed - decided in favor of assessee. - WP(C) 7843/2014 - - - Dated:- 15-2-2017 - MR. BADAR DURREZ AHMED MR. SANJEE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property in goods, no tax was required to be deducted at source under Section 36(A) of the DVAT Act. It is contended that the Contractee (Railways) to be on safe side insisted on deduction of tax at source. 7. It is contended that for the purposes of providing the service of cleaning, the petitioner was required to use soap/detergent/chemical of a very minimal quantity and a very nominal value. The soap/detergent/chemical was used for removing the muck/grime and the same got completely consumed in the process and were not transferred to the Railways. It is contended that the contract involved pure labour and service and was a mere works contract. 8. An application was filed before the Commissioner of DVAT under Section 36(A) (2) of the DVAT Act seeking certificate to the effect that the Railways should not deduct tax at source. 9. By the impugned order dated 30.06.2014, the Commissioner (DVAT) relying on the judgment of the Kerala High Court in Enviro Chemicals Vs. State of Kerala 39 VST 434 (Ker) held that the moment the applicant pours the chemical on to the property of the Contractee, he will cease to be the owner and at that point of time the awarder must be deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he owner and at that point of time, the Railways is deemed to have taken delivery of the same. Thus, it is contended that the scope of work to be performed is such that there is transfer of property from the petitioner to the Railways, in the chemicals/solvents involved, in the execution of the works contract. 15. To settle the controversy, let us examine the relevant provision of the DVAT Act. 16. Section 2(1) (zc) of the DVAT Act defines sale as under: sale with its grammatical variations and cognate expression means any transfer of property in goods by one person to another for cash or for deferred payment or for other valuable consideration (not including a grant or subvention payment made by one government agency or department, whether of the Central Government or of any State Government, to another) and includes- (i) ******** (ii) ******** (v) transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (vi) ******** 17. In terms of Section 2(1) (zc) of the DVAT Act, when goods are used in execution of a works contract and there is transfer of property in such goods, then there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... using high-pressure cold / hot jet cleaner. Removal of unwanted industrial waste and dumping the same at the nominated place within the shed complex. 8. To keep floor, side walls of DEMU Care Centre pits free from muck / grime / arises due to dropping of oil / grease / effluents and industrial waste by using highpressure cold / hot jet cleaner. Removal of unwanted industrial waste and dumping the same at the nominated place within the shed complex. 9. De-silting and cleaning of man holes less than two mts. deep. 10. De-silting and cleaning of man holes more than two mts. deep. 11. De-silting and cleaning of connected underground drains / Sewerage / well through truck mounted suction sum high pressure jet sewer cleaning machine. 12. De-silting and cleaning of open drain 13. Cleaning of toilets by high-pressure water jet cleaner, removal of silt and muck from urinals. 14. Cutting of grass and sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... washing, housekeeping, waste management etc. is under a works contract. No doubt certain chemicals and solvents are used by the petitioner in the execution of the said contract but property in the said chemicals and solvents does not pass on to the Contractee. The use of chemicals and solvents is integral to the very execution of the works contract. The chemicals and solvents are not required by the Contractee for any purpose other than that for execution of the contract i.e. of cleaning, washing, housekeeping etc. The chemicals and solvents are of no independent use to the Contractee. 25. There is a distinction between consumables required for running an equipment and consumables required for servicing or maintaining an equipment. Take the example of a motor car. For running a motor car, petrol and Mobil oil are required and for servicing the car chemicals and solvents are required. Both are consumables but one is required for running the car and the other is required for servicing the car. Petrol and Mobil Oil which is required for running the car is not composite with the purpose of running of the car and the owner can also independently purchase the same for filling in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions, we would think that the learned Special Government Pleader is right in his contention based on the decision of the Apex Court in Xerox Modicorp Ltd's case (supra). It is no doubt true that the contract as such is not placed before us, if it is one which is reduced to writing. But we will proceed on the basis that the process involved is substantially the same as has been indicated by the assessee and which we have extracted. It is undoubtedly true that even after the 46th amendment, sales tax cannot be levied merely because there is a works contract. There must be transfer of property in the form of goods or otherwise than in the form of goods. What is taxable is the transfer of property in goods (See the definition of sale in the Act in this regard). It does not matter whether the transfer of property takes place in the form of goods or in any other form. It is undoubtedly also true that in view of the decision of the Apex Court in M/s. Gannon Dunkerley And Co. And Others v. State of Rajasthan And Others (1993 (1) SCC 364) that the cost of consumables involved in works contract cannot be taxed. 14. That the chemical in question is goods, is beyond doubt. It c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds. The builder has no right to detach them from the soil or building, even though the building owner may himself be entitled to sever them as against some other person - for example, tenant's fixtures. Nor can the builder reclaim them if the building owner or anyone else has subsequently severed from the soil. Materials worked by one, into the property of another, becomes part of that property. This is equally true whether it be fixed or moveable property. Bricks built into a wall becomes part of the house, thread stitched into a cost which is under repair, or planks and nails and pitch worked into a ship under repair, become part of the coat or the ship. Until, however, the materials are actually built into the work, in the absence of some stipulation intended to pass the property in them, when delivered on the site, they remain the property of the contractor, notwithstanding that they might have been approved by the employer or his agent or brought into the site unless the agreement between the parties evinces a clear intention to the contrary. We would think that the said principle as such may not advance the case of the Revenue in a case where the works contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Mr Ganesh may appear attractive, on a proper consideration, we think that Mr Iyer was right when he submitted that the agreements are not just service contracts but also maintenance contracts. Mr Iyer is right that the machines belong to the customer after they are sold to them. If after the sale some part was to be replaced or some component supplied there would be sale as understood in law. Under the agreements, apart from the service element, for which no tax is sought to be levied, there is the element of supplying parts and components like toners/developers, etc. Mr Iyer is right in submitting that merely because price is not being separately charged for this, does not detract from the position that the supply is for a price. Such supply has all the elements of sale as understood in law. There is transfer of title in movables for a price. The mere fact that it is not known in the beginning whether or not a part will have to be replaced is irrelevant. If there were no such agreements, it would not be known whether or not a part would be required to be replaced. It could not be denied that, even in the absence of any such agreements, if a part was required to be replaced and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellants charging for toners and developers. In our view, Mr Iyer is right. The sale i.e. transfer of property takes place before the goods are consumed. The transfer takes place in respect of tangible goods. Just like petrol is consumed after sale or ink is consumed after sale in this case also the toners and developers get consumed after sale. The property passes the moment they are put in the machine. At that stage they are not consumed but are tangible goods in which property can pass. (Underlining supplied) 32. In both Enviro Chemicals (Supra) and Xerox Modicorp Ltd (Supra), the courts were not dealing with the goods which were integral to the service contract and which were completely consumed during the execution of the service contract. The goods were consumed for the purposes of the final output i.e. chemical treatment of effluent water (Enviro Chemicals) and spare parts and Toners and Developers (Xerox Modicorp Ltd.). The Courts were not concerned with goods (soaps/detergent/chemical/solvent) as in the present case which are consumed in the process of cleaning. 33. In the present case the contract inter alia requires the petitioner to perform the task ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aps, detergent, chemicals and solvents are deposited in the store of the Contractee would not make any difference to the exigibility, as is sought to be contended by the Revenue/respondents, because, admittedly, by mere deposit in the store, the property in them is not stated to pass. It is contended by the Revenue/Respondent, that the property passes when they are actually used. The Petitioners and the Railways have contended that the said soaps/detergent/chemical/solvent are deposited with the Railways and issued from their store to ensure that adequate quantity is used by the petitioner for the execution of the awarded work. 36. In view of the above, we hold that, the property in the consumable chemicals used in the process of cleaning does not transfer to the Contractee/Railways and accordingly the said goods are not exigible to tax. Since the said goods are not exigible to tax, the Contractee/Railways is not liable to deduct Tax at Source and the Commissioner VAT is liable to grant a certificate for NIL deduction of Tax Deducted at Source. 37. Accordingly, the impugned order dated 30.06.2014 is set aside. The Commissioner VAT is directed to issue the certificate of NIL d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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