Peerless Shipping and Oil Field Services Ltd. and anr. Vs. State of Assam and ors. - Court Judgment

Excerpt:
- - the submissions made on behalf of ongc, is that the ongc is a statutory corporation falling within the category of state and is duty-bound to exercise its power in deducting tax at source as per the relevant statute, failure of which may entail other untoward consequences upon it. , of the contract, submits that undoubtedly the petitioners are to provide the services to ongc, but by such services, the right to use the concerned vehicles has been transferred to ongc who has effective control over those vehicles, so as to utilise the vehicles in the manner they like and consequently it squarely attracts the provisions of section 7 of the assam general sales tax act and section 105 of the assam value added tax act, 2003, saddling the liability to pay tax to the state. the contract in..... h.n. sarma, j. 1. this batch of writ petitions having given rise to a common question of law for adjudication based on similar basic facts, is taken up together for disposal, analogously as requested by the learned counsel for the parties.2. i have heard learned counsel for the respective parties. the petitioners of all these writ petitions having been allotted with certain contractual works for providing service by the oil india ltd. [in w. p. (c) no. 178 of 1999] and ongc (in rest of the cases), they are entitled to get necessary payments from their respective principals on account of the services so provided claiming which they raised respective bills and the principals were, viz., oil and ongc having sought to make necessary deduction of taxes at source, the petitioners approached.....

Judgment:

H.N. Sarma, J.

1. This batch of writ petitions having given rise to a common question of law for adjudication based on similar basic facts, is taken up together for disposal, analogously as requested by the learned Counsel for the parties.

2. I have heard learned Counsel for the respective parties. The petitioners of all these writ petitions having been allotted with certain contractual works for providing service by the Oil India Ltd. [in W. P. (C) No. 178 of 1999] and ONGC (in rest of the cases), they are entitled to get necessary payments from their respective principals on account of the services so provided claiming which they raised respective bills and the principals were, viz., OIL and ONGC having sought to make necessary deduction of taxes at source, the petitioners approached this Court. Petitioners contend, inter alia, that the services rendered by them do not fall within the category of 'sale' under the relevant Act, viz., under the Assam General Sales Tax Act, 1993 [in W. P. (C) No. 178 of 1999] and Assam Value Added Tax Act, 2003 (in rest of the cases). The State Finance Department, contesting the writ petitions filed the affidavit-in-opposition in [W. P. (C) Nos. 7180, 7587 and 6718 of 2005] and it is submitted by the learned State Standing Counsel that the same is the stand of the Finance Department in all the writ petitions. The ONGC also submitted their counters in W. P. (C) Nos. 6718 , 8040, 8042, 8047, 8062, 8063, 8061, 8852, 7975 and 8379 of 2005 and 109 of 2006. The basic contentions of the State respondents are that the nature of the contract allotted to the petitioners and services rendered by them squarely attract imposition of taxes under the relevant statute. The submissions made on behalf of ONGC, is that the ONGC is a statutory corporation falling within the category of State and is duty-bound to exercise its power in deducting tax at source as per the relevant statute, failure of which may entail other untoward consequences upon it. Regarding the liability of the petitioners, the ONGC has nothing to submit.

3. At this stage it would be relevant to have a cursory view about the subject-matter of contract which covers this batch of writ petitions. W. P. (C) No. 178 of 1999 relates to hiring of services of the petitioners for drilling oil in its oil fields. W. P. (C) Nos. 7180, 7587, 7403 and 7378 of 2005 relate to hiring of services of crane by ONGC for its operational purposes. W. P. (C) Nos. 7494, 7446, 7447, 7488, 7403, 8040, 8042, 8047, 8062, 8049, 8063, 8061, 8852, 2416, 7975, 8539, and 8379 of 2005, 8163 of 2004, 109 of 2006 and 7533 of 2005 relate to services of oil tanker. W. P. (C) No. 7381 of 2005 relates to service of driller/trailer provided to ONGC. Similarly W.P. (C) Nos. 8040, 8042, 8047, 8062, 8049, 8063 and 8061 of 2005 relate to services providing light motor vehicle such as Ambassador car, Maruti car, Tata Indica car, etc., whereas W. P. (C) Nos. 8163 of 2004, 109 of 2006, relate to services of school bus. Similarly W. P. (C) No. 2416 of 2005, wherein 14 petitioners are joined together, relates to services offered to the ONGC by providing light motor vehicles (LMV's).

4. At the outset, the learned Standing Counsel, Finance Department, raised an objection about maintainability of W. P. (C) No. 2416 of 2005, submitting that all the petitioners impleaded in this writ petition, have different causes of action as they entered into separate contract/agreement with ONGC and as such a single petition filed by them is not maintainable. It is further submitted that the causes of action of the petitioners being distinct and separate for each of them, and their not having filed separate petitions, no effective relief can be granted in such a defective petition.

5. In support of the contentions raised in the writ petitions, learned Counsels led me to the different clauses in the respective agreement so executed while entering into the drilling contract [annexure 1 in W. P. (C) No. 178 of 1999]. Attention of the court has been drawn to the agreement between the petitioners and OIL entered into on July 20, 1995. The learned Counsel referring to clauses 1.1.1, 3.1, 6.1, 6.2, 6.3, 6.8, 8.1, 8.2, 10.3, 11.4, 11.10, 11.11, 11.13,11.16,11.22, 11.23, 13.1, 14.5, 14.6, 18.1, 21.8, 22.15 and such other relevant clauses, submits that a true and proper construction of the relevant clauses of the agreement does not disclose that by virtue of the said contractual agreement the 'right to use' was transferred nor it was sale/lease within the meaning of Section 2(19) and 2(33) of the Act and such liability to pay taxes under Section 7 of the Act would not arise. Contrary to it, the learned Standing Counsel for the Finance Department, submits that as per the agreement dated July 20, 1995 which can be visualised from reading of clause 29.0, OIL reserves its right to use drilling unit and all the contractor's equipment provided in the contract during such time the company or the contractor is engaged in drill oil under its control. Further attention has been drawn to the provisions of clause 21.21 whereby it is reserved that taxes would be deducted at source from the payments released to the contractors at specified rate of income-tax and any other enactment/Rules. All incomes/payments under the contract would be deducted from the contractor's account. Clause 21.8 has also been referred to, wherein it is provided that all local taxes, levies and duties, sales tax, octroi, etc., on purchases and sales made by contractor shall be borne by him. Referring to the various clauses of the contract it is submitted that the transaction amounts to transfer of right to use the drilling equipment in favour of ONGC and as such the petitioners are liable to pay the necessary taxes under the Act, in accordance with the provisions contained therein.

6. Referring to those provisions vis-a-vis Section 2(27), 2(28), 2(43) of the Value Added Tax Act and Section (10) (iv) of the Sales Tax Act, G. N. Sahewala, learned Senior Counsel, submits that the terms of the contract never contemplate that there had been transfer of right to use the articles by ONGC. It is contended that the petitioners were allotted contract works by the ONGC by inviting tenders and the petitioners being successful in the tender process, were allotted the contracts. The transaction in question is purely a contractual one and it has no relevance to the concept of transfer of use of goods. Counsel submits that at no point of time right to use the articles involved in the contract was transferred to the ONGC and, in fact, it is the respective petitioners who continued to exercise effective control over the articles in question which are the subject-matter of the contract and on such counts imposition of sales tax and for that matter deduction of taxes at source is wholly unjustified and impermissible.

7. Mr. P. J. Saikia, learned Counsel appearing in W. P. (C) Nos. 7494, 7446, 7447, 7448, 7403, 8040, 8042, 8047, 8062, 8049, 8063, 8061, 8852, 2416, 7975, 8539 and 8379 of 2005, 8163 of 2004, 109 of 2006 and 7533 of 2005 submits that the agreements in question entered between ONGC and the petitioners of these petitions are different ones, containing certain different clauses.

8. Referring to the various terms of the agreement, more particularly clauses 1.3, 1.8, 4.0, 7.0, 11.3, 20.2, 20.3. 21.1, 24.0, 27.3,31.1,31.2, 31.3, 39.0, 48.1, 58, Mr. Saikia submits that through the related trucks which are involved in the contract in question, transport services are rendered to ONGC and a proper interpretation of the clauses discloses that there was no transfer of right to use the vehicles in question for any purpose.

9. Per contra, the learned Standing Counsel, referring to clauses 10.1, 10.42, 10.44, 15.1, 15.2, 20.2, 20.3, 21.2, 31.1, 31.2, 31.33, 31.6, 31.7, 31.8, 38.1, etc., of the contract, submits that undoubtedly the petitioners are to provide the services to ONGC, but by such services, the right to use the concerned vehicles has been transferred to ONGC who has effective control over those vehicles, so as to utilise the vehicles in the manner they like and consequently it squarely attracts the provisions of Section 7 of the Assam General Sales Tax Act and Section 105 of the Assam Value Added Tax Act, 2003, saddling the liability to pay tax to the State.

10. So far as W. P. (C) No. 2416 of 2005 is concerned, this petition has been filed jointly by as many as 14 petitioners, challenging the action of ONGC, proposing to deduct tax at source from the bills of respective petitioners which they raised for the purpose of providing transport services through their vehicles, such as Ambassador car/Tata Indica car/Maruti car, etc. Although separate agreements were executed in respect of each petitioner as submitted by the learned Counsel for ONGC, not a single agreement has been annexed with this writ petition. The petitioners have annexed some temporary work orders issued by ONGC. The averments made in these writ petitions disclose separate causes of action for each of the writ petitioners and as such they ought to have filed separate writ petitions challenging the impugned action of ONGC, independently and separately and as such the petition is not maintainable on this count.

11. Be that as it may, the cases of these 14 writ petitioners in W. P. (C) No. 2416 of 2005 are also similar to the petitions in W. P. (C) Nos. 7494, 7446, 7447, 7448, 7403, 8040, 8042, 8047, 8062, 8049, 8063, 8061, 8852, 2416, 7975, 8539 and 8379 of 2005, 8163 of 2004, 109 of 2006 and 7533 of 2005. In the remaining writ petitions, the submissions made by the learned Counsel are also similar and identical to the effect that there has been no transfer of use of goods, attracting definition of 'lease' under Section 2(43) (iv) of the Value Added Tax Act and as such, ONGC has no authority to deduct tax at source from the respective bills of the petitioners.

12. The learned Counsel for the petitioners, in support of their submissions, referred to the following decisions:

1. Saumya Mining Pvt. Ltd. v. Commissioner of Taxes [2006] 146 STC 343 (Gauhati) : W.P. (C) No. 2230 of 1999 disposed of on April 2, 2004.

2. Computalog v. State of Assam W.P. (C) No. 5634 of 2000 disposed on May 18, 2004.

3. Lakshmi Audio Visual Inc. v. Assistant Commissioner of Commercial Taxes .

4. Ahuja Goods Agency v. State of Uttar Pradesh [1997] 106 STC 540 (All).

5. State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. : AIR2002SC1305 .

13. On the other hand the learned Standing Counsel relied on the following decisions:

1. Someswara Cement & Chemicals Limited v. Government of Andhra Pradesh .

2. Mahabir Transport Agency v. Chairman, Food Corporation of India [1998] 109 STC 99 (Gauhati).

3. HLS Asia Ltd. v. State of Assam [2007] 8 VST 314 (Gauhati) Writ Application No. 314 of 2003 disposed of on November 10, 2006.

4. Bharat Sanchar Nigam Ltd. v. Union of India : [2006]282ITR273(SC) .

5. Aggarwal Brothers v. State of Haryana : AIR1999SC2868 .

14. In the conspectus of the rival and apposite submissions of the learned Counsel for the petitioners and respondents, the question that falls for adjudication in this batch of writ petitions, is, as to whether, rendering of services by the writ petitioners to OIL/ONGC falls within the category of 'transfer of right to use any goods' within the meaning of clause 2(27) and/or within 2(43) of the Assam Value Added Tax Act, 2003 and/or 2(33) of the Assam General Sales Tax Act, 1993, thereby attracting liability to pay necessary sales tax to the State Government, authorising deduction of tax at source from the bills of the petitioners.

15. In W. P. (C) No. 178 of 1999, OIL hired the services of crane for drilling equipment from the petitioners and in other cases ONGC hired services of crane and vehicles of different categories for its use. Such hiring as indicated above is regulated and guided by different terms as contained in the respective agreements entered into between the parties. A search for source of power, relating to imposition of such tax straightway leads us to the provision of Article 366(29A) of the Constitution. Parliament has amended the provision of Article 366 in the 46th Constitution Amendment Act, 1982 adding a new provision as (29A) in this article which is quoted hereinbelow:

Article 366(29A). 'Tax on the sale or purchase of goods' includes-

(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;

(b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

(c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments;

(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment 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;

16. By the aforesaid amendment of the Constitution 'taxes on the sale and purchase of goods' has been provided. The definition is an inconclusive one. As per the said amended provision of the Constitution in exercising the right to collect tax on the sale or purchase of goods by a State extended also to user of goods for any purposes. Interpreting the said provisions in the case of Bharat Sanchar Nigam Ltd. reported in [2006] 145 STC 91 (SC) at 124 : [2006] 3 SCC 1 at 38 (para 75), it was held as follows:

In our opinion, the essence of the right under Article 366(29A)(d) is that it relates to user of goods. It may be that the actual delivery of the goods is not necessary for effecting the transfer of the right to use the goods but the goods must be available at the time of transfer, must be deliverable and delivered at some stage. It is assumed, at the time of execution of any agreement to transfer the right to use, that the goods are available and deliverable. If the goods, or what is claimed to be goods by the respondents, are not deliverable at all by the service providers to the subscribers, the question of the right to use those goods, would not rise.

17. After the aforesaid amendment of the Constitution, the Assam Value Added Tax Act, 2003, was enacted wherein the 'lease' and 'sale' have been defined under Section 2(27) and 2(43), respectively. As per the said definition, 'lease' includes the arrangement whereby the right to use any goods for any purpose is transferred by one person to another. The definition of 'sale' given in the Act, included transfer of right to use any goods for any purpose (whether or not for a specific period) for valuable consideration under the AGST (Assam General Sales Tax Act). Thus it is manifest from the measuring of the term 'lease' as defined under Section 2(19) that it includes transfer of right to use goods for any purpose and so also 'sale' includes transfer of use of any goods under the operating lease. Section 7 of the AGST Act provides the liability to pay tax by a 'dealer' and 'dealer' as defined under Section 2(10) means any person who carries on business of selling or purchasing goods and includes lessee or a lessor. The Assam Value Added Tax Act has also the power to impose tax provided under Section 7 whereunder every dealer who is liable to pay tax before the appointed day under the AGST Act, 1993, shall pay tax in accordance with the Act with effect from the appointed day and every dealer whose turnover of sale or purchase exceeds the taxable quantum is also liable to pay such taxes after the coming into operation of the Act. Section 10 provides the provisions relating to levy of taxes on sale whereby the dealer liable to pay tax under Section 7 is to pay output tax on his taxable turnover for the year. A 'dealer' has been defined under Section 2(15) of the Act to mean any person who carries on business by buying, selling for deferred payment or commission, remuneration or other valuable consideration.

18. Transfer of right to use goods is provided under the relevant statute in case of hiring services of machinery and necessarily includes effective control upon such machinery or articles by the transferee/hirer in question, was entered between the parties, in this batch of writ petitions, including the offer of contract, where no such agreement discloses that the petitioners would remain as owner of their machinery/vehicles during the period of continuance of contract. The contract in question clearly discloses that after the placement of the materials of contract, viz., machinery, vehicles, it is the absolute will and discretion of the principals, viz., OIL and ONGC as to how or in what manner those are to be used. Even for the period, if no work is provided, certain fixed charges are to be paid to the petitioners and when such articles become the subject-matter of the contract, the respondents are not entitled to deduct the same from the purview of the said contract and to use it in the contrary manner, i.e., otherwise than what have been provided under the contractual clauses. The relevant clauses of the agreement specifically provide that in the event of violation of such clauses the contractors would be liable to penalties as provided therein.

19. The contract in question has been made in respect of specific movable property at the deliverable stage and in terms of such contract, those goods/articles have been delivered to OIL or ONGC. In the agreement relating to the hiring of crane also it is specifically provided that in the event of failure of the contractors to provide the required services quantitatively or qualitatively, in time and efficiently which will otherwise result in substantial losses to ONGC, liquidated damages as have been quantified shall be charged. In case of hiring of service of oil tankers, the petitioners are not to produce other tankers whether they fail or not to deliver the same at the destination point as per the specific instruction as may be provided by ONGC and the goods should be carried in a sealed state. Any breach of the seal or other damages would necessarily entail liability upon the owner in accordance with the different clauses of the agreement and the terms offered. It is clear, that once this machinery/vehicles are placed at the disposal of OIL/ONGC which is the subject-matter of the contract, the owner loses the effective control of use over them.

20. Similar matters also came up for consideration before the apex court in the cases of State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. : AIR2002SC1305 , Aggarwal Brothers v. State of Haryana : AIR1999SC2868 and lastly in Bharat Sanchar Nigam Ltd. : [2006]282ITR273(SC) . The findings of the apex court having relevance to the issue are quoted below : (paras 84 and 97 in STC Vol. 98)

As we have said Article 366(29A) has no doubt served to extend the meaning of the word 'sale' to the extent stated but no further. We cannot presume that the constitutional amendment was loosely drawn and must proceed on the basis that the parameters of 'sale' were carefully defined. But having said that, it is sufficient for the purposes of this judgment to find, as we do, that a telephone service is nothing but a service. There is no sales element apart from the obvious one relating to the handset, if any. That and any other accessory supplied by the service provider in our opinion remain to be taxed under the State sales tax laws. We have given the reasons earlier why we have reached this conclusion..

To constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes:

(a) there must be goods available for delivery;

(b) There must be a consensus ad idem as to the identity of the goods;

(c) The transferee should have a legal right to use the goods- consequently all legal consequences of such use including any permissions or licenses required therefor should be available to the transferee;

(d) For the period during which the transferee has such legal right, it has to be to exclusion to the transferor-this is the necessary concomitant of the plain language of the statute, viz., a 'transfer of the right to use' and not merely a licence to use the goods;

(e) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same right to others.

21. Such a question has also cropped up for consideration before a learned single Bench of this Court in the case of HLS Asia Ltd. v. State of Assam [2007] 8 VST 314 (Gauhati) and the learned single Judge repelling the contention of the petitioners held in that case that the hiring of wire-line logging and perforation activities by the petitioners/contractor fall under the Assam General Sales Tax Act, 1993. The aforesaid decision of the learned single Judge having assailed in Writ Appeal No. 314 of 2003 the division Bench, affirming the same dismissed the appeal, vide judgment and order dated November 10, 2006 See HLS Asia Ltd. v. State of Assam [2007] 8 VST 314, holding that transfer of right to use equipment, plants/machinery are the lease within the meaning of Section (2)(33) (4) of the AGST Act.

22. The apex court again in the case of Bharat Sanchar Nigam Ltd. : [2006]282ITR273(SC) has laid down the necessary criteria for determining a transaction to be the transfer of the right to use the goods within the meaning of the Act as follows : (para 97)

To constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes:

(a) there must be goods available for delivery;

(b) There must be a consensus ad idem as to the identity of the goods;

(c) The transferee should have a legal right to use the goods- consequently all legal consequences of such use including any permissions or licences required therefor should be available to the transferee;

(d) For the period during which the transferee has such legal right, it has to be to exclusion to the transferor-this is the necessary concomitant of the plain language of the statute, viz., a 'transfer of the right to use' and not merely a licence to use the goods;

(e) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same right to others.

23. From a survey of the various decisions of the apex court and of this Court including those of the division Bench, the legal position relating to the connotation of 'transfer of right to use any goods' has been almost crystallised.

24. In interpreting the clauses of a contract, the real intention of the parties are required to be looked into and mere isolated references to some of the definition of the clauses of the contract would not depict the correct legal picture. The petitioners agreed to the terms of the contract incorporated in the relevant clauses with their eyes open and it becomes binding on the parties (Ref. Bihar State Electricity Board v. Green Rubber Industries : [1989]2SCR275 ). The jural relationship that existed by virtue of entertaining the said contracts between the parties incurs certain statutory liabilities upon the parties. In this batch of writ petitions the terms of the contract on their proper construction, disclose that the transaction in question amounts to transfer of right to use equipment/machinery/vehicles to OIL/ONGC. Accordingly the definition of 'dealer' is attracted in respect of the transaction/agreement arrived by the petitioners and that being a position, the liability for payment of taxes under the relevant financial statutes of the State under references, cannot be denied. However, what should be the rate of taxes or extent of the liability, would depend on the facts of each case as per the provision contained in the Schedule of the respective Acts.

25. In view of the aforesaid discussions, I do not find any merit in this batch of writ petitions and the same stands dismissed. Earlier interim order stands vacated.