#vat Archives - Prime Legal

24 Jan

ONGC Exempted from Sales Tax or VAT on Motor Vehicle/Crane Rentals When Contractor Retains Control: Supreme Court

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Blog #LegalNews #CourtCases, #ONGC, #SalesTax, #SupremeCourt, #vat

Case Title: M/s. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. & Ors.

Case No.: Civil Appeal No. 3548 of 2017

Decided on: 9^th January, 2024

CORAM: THE HON’BLE MR. JUSTICE ABHAY S. OKA AND HON’BLE MR. JUSTICE RAJESH BINDAL

Facts of the Case

In 2006, M/s. K.P. Mozika engaged in a contractual agreement with ONGC to supply truck-mounted hydraulic cranes for its operations. A dispute arose when ONGC threatened to deduct tax at source under the VAT Act. The case centered on ONGC’s practice of hiring motor vehicles and cranes from contractors, where the contractors retained control over the goods. This control included providing crew members, covering expenses for fuel, oil, maintenance, and addressing any loss or damage to equipment. The critical question at hand was whether such hiring constituted a transfer of the right to use, thereby attracting Sales Tax or VAT.

Initially, the High Court ruled in favor of tax liability, asserting that the contract involved the transfer of the right to use goods. The subsequent appeal to the Supreme Court challenged this decision.

Issue

The key issue revolves around whether the engagement of these motor vehicles/cranes constitutes a transfer of the right to use goods. If such a transfer occurs, it would qualify as a sale under Clause 29A(d) of Article 366 of the Constitution of India. To put it concisely, if the transactions fall outside the definition of ‘Sale’ in Clause 29A(d), they may not be subject to taxation under the Sales Tax Act or the VAT Act. Consequently, additional considerations arise, including whether the transactions qualify as services, potentially triggering liability for service tax.

Legal Provision

Clause (d) of Article 366(29A) of the Constitution of India covers supply of goods by a person to another person for some consideration which involves transfer or right to use the goods.

Court’s analysis and decision

The Supreme Court has clarified that the hiring of motor vehicles and cranes by ONGC from contractors is deemed a service and is exempt from Sales Tax or Value Added Tax (VAT). The ruling underscores the requirement that for a transaction to be considered the sale of goods, the transfer of the right to use must encompass both possession and control.

The bench, consisting of Justice Abhay S. Oka and Justice Rajesh Bindal, emphasized that substantial control over the goods must lie with the user for it to qualify as a transfer of the right to use. If control remains with the contractor during the hiring period, it is deemed a service, and only service tax can be imposed.

Referring to Entry 48 of List–II of the Seventh Schedule to the Government of India Act, 1935, the Supreme Court stressed that for a tax on the sale of goods, there must be a sale as defined in the Sale of Goods Act, 1930.

The Two-Judge Supreme Court Bench, led by Justice Abhay S. Oka and Justice Rajesh Bindal, held that, “Essentially, the transfer of the right to use will involve not only possession, which may be granted at some stage (after execution of the contract), but also the control of the goods by the user. When substantial control remains with the contractor and is not handed over to the user, there is no transfer of the right to use the vehicles, cranes, tankers, etc. Whenever there is no such control on the goods vested in the person to whom the supply is made, the transaction will be of rendering service within the meaning of Section 65(105)(zzzzj) of the Finance Act after the said provision came into force.”

The judgment highlighted the 46th Amendment to the Constitution, specifically Clause 29A, which taxed the transfer of the right to use goods. However, the court concluded that the contracts between ONGC and the contractors did not meet the criteria for a transfer of the right to use goods, as outlined in Bharat Sanchar Nigam Limited & Anr. v. Union of India & Ors. The Bench ruled that the contracts were not subject to the Sales Tax Act and VAT Act, as they did not involve the transfer of the right to use the goods. Consequently, the appeal was allowed, and the High Court order was set aside.

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Written by- Afshan Ahmad

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12 Oct

Rajasthan High Court rules ‘Kurkure’ and ‘Cheetos’ as ‘namkeen,’ not ‘snacks’ under VAT Act.

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Blog #pepsico, #Rajasthanhighcourt, #vat

Case Title: Ms Pepsico India Holdings Private Ltd. V. Assistant Commissioner

Decided on: 06 October, 2023

Writ no. S.B. Sales Tax Revision / Reference No. 119/2020
CORAM : HON’BLE MR. JUSTICE SAMEER JAIN

INTRODUCTION

This case concerns a dispute over the classification of ‘Kurkure’ and ‘Cheetos,’ snack products manufactured by PepsiCo India Holdings, for tax purposes under the Rajasthan Value Added Tax Act, 2003 (RVAT Act). The main issue is whether these snacks should be categorized as ‘namkeen’ (subject to a lower tax rate) or ‘snacks’ (subject to a higher tax rate) under the RVAT Act.

PepsiCo argued for ‘namkeen’ classification, while the Revenue authority classified them as ‘snacks.’ The case hinges on statutory interpretation, and the outcome has significant tax implications for these products.

Facts of the case

The case involved various Sales Tax Revision/Reference applications (STRs) and revolved around the interpretation of whether ‘Kurkure’ and ‘Cheetos’ should be classified as ‘namkeen’ or ‘snacks’ under the RVAT Act. Pepsico presented their case based on packaging labels, ingredients, FSSAI licenses, and legal judgments to support their classification as ‘namkeen.’ They argued that specific entries should take precedence over general entries in the tax schedule and that the Revenue authority had not provided sufficient evidence for their classification.

The Respondent’s argument rested on classifying these products as snacks and placing them under the residual entry, citing basic internet searches and ingredient lists.

Courts Analysis and Decision

After a comprehensive examination of the arguments and evidence presented, the court ruled in favour of the petitioner, PepsiCo India Holdings Pvt. Ltd. The court classified ‘Kurkure’ and ‘Cheetos’ as ‘namkeen’ under the Rajasthan Value Added Tax Act, 2003. This decision resulted in a lower tax rate for these products and effectively quashed the Tax Board’s orders that had classified them as snacks.

The court’s decision was based on the interpretation of a previous judgment by the Tax Board and the insufficient evidence presented by the respondent to support their classification of the products as snacks. As a result, PepsiCo’s products were classified as ‘namkeen,’ leading to a lower tax liability for the company.

Written by- Kusuma R

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1 Aug

“The purchases” mentioned in the Condition 3 of VAT Notification dated 9th July refers to all the purchases; no exceptions: Bombay High Court

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Uncategorized #mvat #thepurchases, #vat

Title: Oasis Realty v. The Commissioner of Sales Tax and The State of Maharashtra

Decided on: 26^th July, 2023

+ CRL.A. 530 OF 2016

CORAM: FIRDOSH P. POONIWALLA

Facts of the Case:

The appellant, Oasis Realty, is engaged in the real estate business of construction, purchase and sale of buildings. It is registered under the Maharashtra Value Added Tax Act, 2002 (“the MVAT Act”) and Central Sales Tax Act, 1956.

For the purpose of payment of VAT towards the aforesaid construction activity, the Appellant opted for the Scheme of Composition under Section 42(3A) of the MVAT Act.

Issues

Whether conditions in the VAT notification restricts set-off only in respect of purchases of those goods involved in the execution of a works contract the property in respect of which (goods) are transferred in the execution of such works contract?

Contentions

The appellants claimed that only those purchases (of inputs) in which the property has been transferred be considered for the sake of setting-off. It was submitted that the expression “the purchases” in Condition No.3 had to be read harmoniously with the enabling powers in Section 42(3A) of the MVAT Act whereunder the Scheme of Composition was introduced as well as the purpose of the Scheme of Composition, which is to levy tax at a reduced rate.

The Respondents contented that as per the case of Maharashtra Chamber of Housing Industry and Others that there is no compulsion or obligation upon a dealer to opt for such a scheme. As per the Composition Scheme composition amount is one percent of the agreement amount specified in the agreement or the value specified for the purpose of stamp duty in respect of the said agreement under Bombay Stamp Act, 1958, whichever is higher. Thus, the Scheme provides for tax at a flat rate of one percent on the aforesaid amount. However, Condition No.3 provides that a dealer who opts to pay composition under the said Scheme shall not be eligible to claim set-off of taxes paid in respect of the purchases.

Decision

There is no merit in the argument of the Appellant that, just because Condition No.3 refers to “the purchases”, it applies only in respect of certain kind of purchases and does not apply in respect of certain other purchases. If Condition No.3 wanted to make an exception in respect of certain kind of purchases, then it would have expressly stated so. In the absence of any such exception made by Condition No.3 applies to all purchases.

The appeal was thereby dismissed.

Written by- Aparna Gupta, University Law College & Dept. of Studies in Law

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