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Tripura High Court · body

2015 DIGILAW 246 (TRI)

Asian Oilfield Services v. State of Tripura

2015-05-05

DEEPAK GUPTA, S.C.DAS

body2015
ORDER : Deepak Gupta, J. The petitioner, Asian Oilfield Services is a company incorporated under the Companies Act, 1956. It entered into a contract with the respondent No.4, Jubilant Oil and Gas Private Limited whereby it agreed to provide 2D Seismic Data Acquisition & Basic Processing Services to Jubilant Oil and Gas Private Limited which is engaged in oil exploration in the State. The contract between the parties has been produced before this Court and the only question is whether the services being rendered by the petitioner company are in the nature of works contract or are pure and simple services. The other issue is whether the equipment which have been brought in by the petitioner for their own use to carry out the surveys has been transferred to Jubilant Oil and Gas Private Limited and there is any sale within the meaning of Section 2(25)(d) of the Tripura Value Added Tax Act, 2004 read with Rule 7(2) of the Tripura Value Added Tax Rules, 2005 and exigible to tax under Section 4(2) of the Tripura Value Added Tax Act, 2004. [2] At this stage it would be pertinent to refer Article 366(29A) of the Constitution of India which reads as follows: “366 (29A) tax on the sale or purchase of goods includes- (a) a tax on the transfer, otherwise than in pursuance of a contact, 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) involed in the execution of a works contract; (c) a tax on the delivery of goods on hire purchase or any system of payment by installments; (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;” [3] The case of the State is that since a tax on the sale or purchase of goods includes in terms of sub-clause (d) of Article 366(29A) tax on the transfer of the right to use any goods for any purpose the petitioners are liable to pay value added tax on such transfer of right to use goods. The contention of the petitioners is that they have entered into a service contract and only the Union can levy tax on services and not the State. The contention of the petitioners is that they have entered into a service contract and only the Union can levy tax on services and not the State. The petitioners have also urged that they are paying service tax to the Central Government under the provisions of law and since they are paying service tax, if there is conflict between the Central Law and the State Act the Tripura Value Added Tax Act must necessarily give way to the provisions which provide for imposition of service tax in the Finance Act of 1994. [4] Before dealing with other issues it would be pertinent to mention that the Apex Court in State of Madras Vrs. Gannon Dunkerley & Co (Madras) Ltd., AIR 1958 SC 560 held that the State had no power to tax a composite contract of goods and services (works contract) to be taxed as sale of goods. The Court further held that the law also does not permit the severance of the contract for determining the value of the goods. [5] In view of this decision of the Apex Court, it was felt necessary to amend Constitution with a view to widen the definition of sale as traditionally understood. In common law, sale was understood to mean an agreement to transfer title in the goods on payment of consideration. The Constitution was amended and sub article (29A) was introduced in the Constitution by the Constitution Forty-sixth Amendment Act, 1982. By means of this Constitutional amendment, tax on the sale or purchase of goods now covered six more categories which may otherwise not have fallen within the definition of sale. Sub-clauses (a) to (f) to Clause 29A of Article 366 of the Constitution bring within the ambit of sale, transactions where one or more of the essential ingredients of sale as traditionally understood were absent. By legal fiction such transactions, transfers and supply of goods were deemed to be sale and purchase of the goods. [6] After amendment of the Constitution the Apex Court in Gannon Dunkerley and Co. Vs. State of Rajasthan: 1993(1) SCC 364 dealing with works contracts held that only the value of the goods involved in the execution of works contract could be taxed and this would have to be determined by taking into account the value of the entire works contract after deducting therefrom the charges towards labour, services etc. Vs. State of Rajasthan: 1993(1) SCC 364 dealing with works contracts held that only the value of the goods involved in the execution of works contract could be taxed and this would have to be determined by taking into account the value of the entire works contract after deducting therefrom the charges towards labour, services etc. The Apex Court in the Second Gannon Dunkerley Case concluded that only the value of the goods involved in the execution of a works contract were amenable to the provisions of the Sales Tax/VAT Act of the State. [7] In the cases before us the contracts are for hiring of goods and services. The stand of the State is that ONGC has exclusive use and right to use the goods involved in the contracts and therefore there is transfer of the right to use goods and as such tax is leviable under Section 4(3) of the TVAT Act read with Rule 7(2) of the Rules. It is further contended that in terms of Section 4(3) of the Act the person making payment on this account is bound to deduct tax as leviable under law. Section 4 of the TVAT Act reads as follows: ”4. Tax on deemed sales - (1) Notwithstanding anything contained elsewhere in this Act, any transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract shall be deemed to be a sale of those goods by the person making the transfer and shall liable to be taxed at the rate specified in the Schedule: Provided that in respect of any such transfer, only so much value of the goods involved in the works contract which has actually been paid to the dealer during the period, shall be taken into account for determining the turnover for the period. Explanation :- For the purpose of this section, “Property in goods” shall mean the aggregate of the goods for which amounts have been received or receivable by a dealer during such period as valuable consideration, whether or not such amount has been separately shown in the works contract. Explanation :- For the purpose of this section, “Property in goods” shall mean the aggregate of the goods for which amounts have been received or receivable by a dealer during such period as valuable consideration, whether or not such amount has been separately shown in the works contract. The amount as received or receivable shall include the value of such goods purchased, manufactured, processed, or procured otherwise by the dealer, and the cost of freight or delivery as may be incurred by such dealer for carrying such goods to the place where these are used in execution of such works contract, but shall not include such portion of the aforesaid amounts as may be prescribed. (2) Tax on transfer of the right to use any goods- Notwithstanding anything contained elsewhere in this Act, any transfer of the right to use any goods for any purpose (whether or not for a specified period) shall be taxable at the rate as specified in the Schedule. (2) Tax on transfer of the right to use any goods- Notwithstanding anything contained elsewhere in this Act, any transfer of the right to use any goods for any purpose (whether or not for a specified period) shall be taxable at the rate as specified in the Schedule. (3) Deduction of tax at the time of payment- Every person responsible for paying) any sum to any person on account of works contract and right to use any goods for any purpose, shall at the time of credit of such sum to account of the person or at the time of payment thereof in cash or by issue of a cheque or draft or any other mode, deduct such amount towards sales tax (not being more than the total tax payable by the dealer) as may be prescribed.” ***** ******* ******* ******* ****** ****** Rule 7(2) of the TVAT Rules reads thus: “7(2) Every person responsible for making payment to any person for discharge of any liability on account of valuable consideration payable for any transfer of the right to use any goods other than the goods in exempted list of the Act for any purpose (whether or not for a specified period) for cash or in any manner, shall at the time of making such payment deduct an amount at the rate as notified by the Government from time to time of the payment on account of such transfer of right : provided that till the Government notify the rate, the prevailing rate shall continue : Provided no such deduction shall be made from the bill(s) or invoice(s) of the transferer where the amounts received as penalty for defaults in payment or as damages for any loss or damage caused to the goods by the person to whom such transfer was made, ****” The main issue is whether there is a transfer of the right to use any goods or not? [8] A Constitution Bench of the Apex Court in 20th Century Finance Corpn. Ltd. and another Vrs. State of Maharashtra : (2000) 6 SCC 12 dealt with the issue with regard to the power of the State legislature to levy tax under Clause 29A(d) of Article 366 of the Constitution on the transfer of the right to use any goods. This is the leading judgment on the point. Ltd. and another Vrs. State of Maharashtra : (2000) 6 SCC 12 dealt with the issue with regard to the power of the State legislature to levy tax under Clause 29A(d) of Article 366 of the Constitution on the transfer of the right to use any goods. This is the leading judgment on the point. The following questions were framed by the Apex Court: “The questions therefore, that arise for consideration in these cases are, whether a State can levy sales tax on transfer of right to use goods merely on the basis that the goods put to use are located within its State irrespective of the facts that— (a) the contract of transfer of right to use has been executed outside the State: (b) sale has taken place in the course of an inter-State trade; and (c) sales are in the course of export or import into the territory of India.****” Answering this question the Apex Court held as follows: “27. Article 366(29A)(d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods. 28. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods. 28. No authority of this Court has been shown on behalf of respondents that there would be no completed transfer of right to use goods unless the goods are delivered. Thus, the delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods. We are, therefore, of the view that where the goods are in existence, the taxable event on the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is executed. Thus, where goods to be transferred are available and a written contract is executed between the parties, it is at that point situs of taxable event on the transfer of right to use goods would occur and situs of sale of such a transaction would be the place where the contract is executed.” According to the Apex Court the taxable event on the transfer of right to use goods would be the place where the contract is executed. In the case of M/s. Oil field Instrumentation (India) Ltd., the contract was executed in Maharastra whereas in other cases the contracts were executed within Tripura. [9] The Apex Court in Rainbow Colour Lab Vrs. State of M.P ; (2000) 2 SCC 385 was dealing with the issue as to whether the job rendered by a photographer in taking photographs, developing and printing films would amount to a works contract within the meaning of sub-clause (b) of Article 366 Clause 29A of the Constitution. It held as follows: "Prior to the amendment of Article 366, in view of the judgment of this Court in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. (1958) 9 STC 353 : AIR 1958 SC 560 the States could not levy sales tax on sale of goods involved in a works contract because the contract was indivisible. It held as follows: "Prior to the amendment of Article 366, in view of the judgment of this Court in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. (1958) 9 STC 353 : AIR 1958 SC 560 the States could not levy sales tax on sale of goods involved in a works contract because the contract was indivisible. All that has happened in law after the Forty-sixth Amendment and the judgment of this Court in Builders' case (1989) 2 SCC 645 is that it is now open to the States to divide the works contract into two separate contracts by a legal fiction: (i) contract for sale of goods involved in the said works contract, and (ii) for supply of labour and service. This division of contract under the amended law can be made only if the works contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer in property takes place as an incident of contract of service……...What is pertinent to ascertain in this connection is what was the dominant intention of the contract… ….On facts as we have noticed that the work done by the photographer which as held by this Court in STO vs. B.C. Kame (1977) 1 SCC 634 is only in the nature of a service contract not involving any sale of goods, we are of the opinion that the stand taken by the respondent State cannot be sustained". However, this view taken in Rainbow Colour Lab’s case was doubted in case of Associated Cement Companies Ltd. Vrs. Commr. Of Customs : (2001) 4 SCC 593 and the Apex Court observe as follows: “The conclusion arrived at in Rainbow Colour Lab Case, in our opinion, runs counter to the express provision contained in Article 366(29-A) as also of the Constitution Bench decision of this court in Builders Assn. Of India Vrs. Union of India : (1989) 2 SCC 645 .” [10] In State of A.P and Another Vrs. Rashtriya Ispat Nigam Ltd.: (2002) 3 SCC 314 the Apex Court dealt with meaning of the phrase “transfer of right to use goods”. In that case the Rashtriya Ispat Nigam was the owner of the Visakhapatnam Steel Project. It engaged various contractors to do the work and supplied sophisticated machines to the contractors for being used in execution of the contracted works. In that case the Rashtriya Ispat Nigam was the owner of the Visakhapatnam Steel Project. It engaged various contractors to do the work and supplied sophisticated machines to the contractors for being used in execution of the contracted works. The Rashtriya Ispat Nigam Ltd. received hire charges for the same. The tax was levied on this transaction on the ground that there was a transfer of the right to use goods. The Andhra Pradesh High Court in its judgment held that there was no transfer of the right to use this machinery in favour of the contractor. While coming to this conclusion the High Court of Andhra Pradesh analysed the various clauses of the agreement and held that the contractors were not free to make use of the machinery for works other than the project work of the respondent or move out the machinery during the period of contract. The Court went on to hold that the condition that the contractor would be responsible for the custody of the machinery while it was on the site did not militate against the possession and control of the Ispat Nigam over the property. The Apex Court upheld the judgment of the High Court of Andhra Pradesh. [11] In Bharat Sanchar Nigam Ltd. and another Vs. Union of India and others, (2006) 3 SCC 1 the Apex Court was dealing with the issue as to whether the transaction by which mobile phone connections are enjoyed is a sale or a service or both. The Apex Court held that if it was a sale only the State would be competent to levy sale tax on such a transaction under Entry 54 of List-II of the Seventh Schedule to the Constitution. If it was a service then the Central Government alone could levy service tax under Entry-97 of List-I or Entry-92-C of List-I after 2003. The Apex Court further held if the nature of the transaction has characteristics of both sale and service then the moot question would be whether legislative authorities could levy separate taxes together or only one of them. The Apex Court dealt with the following question: “The principal question to be decided in these matters is the nature of the transaction by which mobile phone connections are enjoyed. Is it a sale or is it a service or is it both? The Apex Court dealt with the following question: “The principal question to be decided in these matters is the nature of the transaction by which mobile phone connections are enjoyed. Is it a sale or is it a service or is it both? If it is a sale then the States are legislatively competent to levy sales tax on the transaction under Entry 54 List II of the Seventh Schedule to the Constitution. If it is a service then the Central Government alone can levy service tax under Entry 97 of List I (or Entry 92C of List I after 2003). And if the nature of the transaction partakes of the character of both sale and service, then the moot question would be whether both legislative authorities could levy their separate taxes together or only one of them.” [12] In the BSNL case the petitioners before the Supreme Court argued that they were only providing service and there was no transfer of right to use goods. On the other hand it was contended by the State that there was transfer of the right to use goods and hence the transactions should be treated to be sales and were amenable to sales tax. Dealing with sub clause (29A) of the Article 366 of the Constitution the Apex Court held as follows: “41. Sub-clause (a) covers a situation where the consensual element is lacking. This normally takes place in an involuntary sale. Sub-clause (b) covers cases relating to works contracts. This was the particular fact situation which the Court was faced with in Gannon Dunkerley and which the Court had held was not a sale. The effect in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley was directly overcome. Sub-clause (c) deals with hire purchase where the title to the goods is not transferred. Yet by fiction of law, it is treated as a sale. Similarly the title to the goods under Sub-clause (d) remains with the transferor who only transfers the right to use the goods to the purchaser. In other words, contrary to A.V. Meiyappan decision a lease of a negative print of a picture would be a sale. Yet by fiction of law, it is treated as a sale. Similarly the title to the goods under Sub-clause (d) remains with the transferor who only transfers the right to use the goods to the purchaser. In other words, contrary to A.V. Meiyappan decision a lease of a negative print of a picture would be a sale. Sub-clause (e) covers cases which in law may not have amounted to sale because the member of an incorporated association would have in a sense begun as both the supplier and the recipient of the supply of goods. Now such transactions are deemed sales. Sub-clause (f) pertains to contracts which had been held not to amount to sale in State of Punjab vs. M/s. Associated Hotels of India Ltd. (supra). That decision has by this clause been effectively legislatively invalidated. 42. All the sub-clauses of Article 366 (29A) serve to bring transactions where one or more of the essential ingredients of a sale as defined in the Sale of Goods Act 1930 are absent, within the ambit of purchase and sales for the purposes of levy of sales tax. To this extent only is the principle enunciated in Gannon Dunkerly limited. The amendment especially allows specific composite contracts viz. works contracts (Sub-clause (b)), hire purchase contracts (Sub-clause (c)), catering contracts (Sub-clause (e)) by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax. 43. Gannon Dunkerley survived the 46th Constitutional Amendment in two respects. First with regard to the definition of 'sale' for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Art.366 (29A) operate. By introducing separate categories of 'deemed sales', the meaning of the word 'goods' was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery etc. would continue to be defined according to known legal connotations. This does not mean that the content of the concepts remain static. The courts must move with the times. But the 46th Amendment does not give a licence, for example, to assume that a transaction is a sale and then to look around for what could be the goods. The word "goods" has not been altered by the 46th Amendment. This does not mean that the content of the concepts remain static. The courts must move with the times. But the 46th Amendment does not give a licence, for example, to assume that a transaction is a sale and then to look around for what could be the goods. The word "goods" has not been altered by the 46th Amendment. That ingredient of a sale continues to have the same definition. The second respect in which Gannon Dunkerley has survived is with reference to the dominant nature test to be applied to a composite transaction not covered by Article 366 (29A). Transactions which are mutant sales are limited to the clauses of Article 366 (29A). All other transactions would have to qualify as sales within the meaning of Sales of Goods Act, 1930 for the purpose of levy of sales tax. ***** ****** ****** ****** ****** ***** ***** 45. The reason why these services do not involve a sale for the purposes of Entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley's case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366 (29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29A) continues to be:- Did the parties have in mind or intend separate rights arising out of the sale of goods? If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is 'the substance of the contract’. We will, for the want of a better phrase, call this the dominant nature test.” [13] Thereafter the Court dealt with the question as to whether the dominant nature test would continue to apply even in respect of contracts falling within the ambit of Clause 29A of the Constitution. The Apex Court held as follows: “49. We agree. We will, for the want of a better phrase, call this the dominant nature test.” [13] Thereafter the Court dealt with the question as to whether the dominant nature test would continue to apply even in respect of contracts falling within the ambit of Clause 29A of the Constitution. The Apex Court held as follows: “49. We agree. After the 46th Amendment, the sale element of those contracts which are covered by the six sub-clauses of clause (29A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying. Therefore when in 2005, C.K. Jidheesh vs. Union of India (2005) 13 SCC 37 held that the aforesaid observations in Associated Cement (2001) 4 SCC 593 were merely obiter and that Rainbow Colour Lab (2000) 2 SCC 385 was still good law, it was not correct. It is necessary to note that Associated Cement did not say that in all cases of composite transactions the 46th Amendment would apply. 50. What are the "goods" in a sales transaction, therefore, remains primarily a matter of contract and intention. The seller and such purchaser would have to be ad idem as to the subject matter of sale or purchase. The Court would have to arrive at the conclusion as to what the parties had intended when they entered into a particular transaction of sale, as being the subject matter of sale or purchase. In arriving at a conclusion the Court would have to approach the matter from the point of view of a reasonable person of average intelligence.” [14] After referring to 20th Century Finance Corpn. Ltd. case the Apex Court went on to hold that the delivery of the goods was also an essential part of the right to transfer of the goods. The relevant observations are as follows: “75. 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 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 arise.” [15] BSNL case has been relied upon by both the parties and the opening portion of the judgment makes it clear that the State is competent to levy sales tax only on the sale part of the contract and it is the Central Government alone it can only levied tax on the service part of the contract. [16] The other relevant judgment on the point is Imagic Creative(P) Ltd. Vrs. Commissioner of Commercial Taxes and Others; (2008) 2 SCC 614 . In this case, the appellant before the Apex Court was an advertisement agency. It had entered into a contract with ISRO for conceptualizing, designing and producing computer artwork. It also supplied the advertising material to its customers. It raised bills under two heads; (1) the bills raised for conceptualizing and designing were treated to be in the nature of service and service tax was paid on the same. (2) With regard to the goods it supplied to its customers, the company treated the said transaction as sale and paid sales tax on the same. When the matter came up before High Court it rejected the plea of the assessee holding that the contract was a comprehensive contract for supply of printed material developed by the company. The High Court held that the indivisible contract was divided by the company under different heads. The Apex Court after discussing all the relevant law on the point including the judgments which we have referred to hereinabove set aside the judgment of the High Court and held as follows: “27. What, however, did not fall for consideration in any of the aforementioned decisions is the concept of works contract involving both service as also supply of goods constituting a sale. What, however, did not fall for consideration in any of the aforementioned decisions is the concept of works contract involving both service as also supply of goods constituting a sale. Both, in Tata Consultancy (2005) 1 SCC 308 as also in Associated Cement Company (2001)4 SCC 593 , what was in issue was the value of the goods and only for the said purpose, this Court went by the definition thereof both under the Customs Act as also the Sales Tax Act to hold that the same must have the attributes of its utility, capability of being bought and sold and capability of being transmitted, transferred, delivered, stored and possessed. As a software was found to be having the said attributes, they were held to be goods. 28. We have, however, a different problem at hand. The appellant admittedly is a service provider. When it provides for service, it is assessable to a tax known as service tax. Such tax is leviable by reason of a parliamentary statute. In the matter of interpretation of a taxing statute, as also other statutes where the applicability of Article 246 of the Constitution of India, read with the Seventh Schedule thereof is in question, the Court may have to take recourse to various theories including “aspect theory” as was noticed by this Court in Federation of Hotel & Restaurant Association of India, etc. v. Union of India& Ors. [ (1989) 3 SCC 634 ]. 29. If the submission of Mr. Hegde is accepted in its entirety, whereas on the one hand, the Central Government would be deprived of obtaining any tax whatsoever under the Finance Act, 1994, it is possible to arrive at a conclusion that no tax at all would be payable as the tax has been held to be an indivisible one. A distinction must be borne in mind between an indivisible contract and a composite contract. If in a contract, an element to provide service is contained, the purport and object for which the Constitution had to be amended and clause (29A) had to be inserted in Article 366, must be kept in mind. 30. We have noticed hereinbefore that a legal fiction is created by reason of the said provision. Such a legal fiction, as is well known, should be applied only to the extent for which it was enacted. 30. We have noticed hereinbefore that a legal fiction is created by reason of the said provision. Such a legal fiction, as is well known, should be applied only to the extent for which it was enacted. It, although must be given its full effect but the same would not mean that it should be applied beyond a point which was not contemplated by the legislature or which would lead to an anomaly or absurdity. 31. The Court, while interpreting a statute, must bear in mind that the legislature was supposed to know law and the legislation enacted is a reasonable one. The Court must also bear in mind that where the application of a Parliamentary and a Legislative Act comes up for consideration; endeavours shall be made to see that provisions of both the acts are made applicable. 32. Payments of service tax as also VAT are mutually exclusive. Therefore, they should be held to be applicable having regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract as contradistinguished from an indivisible contract. It may consist of different elements providing for attracting different nature of levy. It is, therefore, difficult to hold that in a case of this nature, sales tax would be payable on the value of the entire contract, irrespective of the element of service provided. The approach of the assessing authority, to us, thus, appears to be correct.” [17] The Apex Court in BSNL’s case clearly held that in a contract falling under Clause 29A of Article 366 of the Constitution the dominant nature test would not apply and the contract could be split up to determine the value of that part of the contract which amounted to services and that portion of the contract which amounted to a deemed sale. This aspect has been also explained in Imagic Creative (P) Ltd. case. The Apex Court has clearly taken a view that the service part of the contract cannot be taxed by the State. This view is in line with the view taken by the Apex Court in the Second Gannon Dunkerley Case. [18] The Delhi High Court in Commissioner, VAT, Trade and Taxes Department vrs. The Apex Court has clearly taken a view that the service part of the contract cannot be taxed by the State. This view is in line with the view taken by the Apex Court in the Second Gannon Dunkerley Case. [18] The Delhi High Court in Commissioner, VAT, Trade and Taxes Department vrs. International Travel House Ltd. (Sale Tax Appeal No. 10 of 2009 decided on 8th September, 2009) reported in VAT and Service Tax Cases 77 STC 182 was dealing with a case wherein the International Travel House had entered into a contract with M/s. New Delhi Power Limited (NDPL) for hiring of Maruiti Omni Cabs by the former to the latter. The conditions laid down provided that all the chauffeurs should wear uniforms and should know both Hindi and English. They should all have mobiles. The cars should be kept clean and the rates would be inclusive of fuel, maintenance and driving charges etc. There were many other conditions. The Division Bench of the Delhi High Court held that such a contract was in the nature of contract for service. Dealing with the Article 366 (29A) of the Constitution the Delhi High Court held that only those contracts which fall within sub-clauses (a) to (f) of Article 366 (29A) could be severed by the State to tax the sale element. Even in cases falling under sub clauses (a) to (f) of Article 366 (29A) the Delhi High Court held that only if it was the intention of the parties to sever the contract into two separate values in respect of goods and services could the contract be so divided. The Delhi High Court held as follows: “10. Where the sale is distinctly discernible in the transaction i.e. the contracts are by intention of the parties severable so that there are separate values with respect to goods and services, only then one cannot deny the legislative competence of the State to levy sales tax on the value of the goods. This, however, does not allow the State to entrench upon the Union List and tax services by including the cost of such services in the value of goods. Even in the composite contracts which are by legal fiction deemed to be divisible under Article 366(29-A), the value of the goods involved in the execution of the whole transaction cannot be assessed to sales tax. Even in the composite contracts which are by legal fiction deemed to be divisible under Article 366(29-A), the value of the goods involved in the execution of the whole transaction cannot be assessed to sales tax. Referring to the decision in Gujarat Ambuja Cements Ltd. & Anr. V. Union of India & Anr., (2005) 4 SCC 214 it was held that mutual exclusivity which is referred to in Article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Though liberal interpretation must be given to the taxing entries, however in substance if the statute is not referable to a field given to the State, then the Court will not by a principle of interpretation allow a statute to include in its field what is not covered in its field. The ‘aspect’ theory (viz. the aspect of goods in composite contracts) would not apply to enable the value of the services to be included in the sale of the goods or the price of the goods in the value of the service. 11. The conclusion, therefore, which emerges with respect to the facts of the present case on applying the ratio of the BSNL’s case is that, since the contract in question is a composite contract of sale of goods and services, clearly, it is not permissible for the State Legislature by applying DVAT Act to tax composite contracts comprising of both goods and services. Not only the contracts cannot be artificially split up so as to enable the sale element to be taxed, further, the States cannot treat the contract as only a contract of sale of goods and tax the whole value of the transaction as a sale of goods. Since the parties have not intended the contract to be mutilated/severable inasmuch as no different values are specified in the subject contract towards goods value separately and the value of services separately, it is not permissible by the DVAT Act to impose sales tax on the whole transaction value because that would amount to the State to entrench upon the Union List and tax services by including the cost of such services in the value of the goods. Thus, the contract in question being a composite contract is to be treated as a contract for services and no sales tax can be imposed on the contracts in question.*****” The Delhi High Court thereafter went on to hold that there was no transfer of right to use goods because the control of the cabs remained with the owner. [19] Both sides have made reference to a number of decisions of the Gauhati High Court. In Dipak Nath Vrs. Oil and Natural Gas Corporation Ltd. and Ors.: (2010) 2 GLR 496 the petitioner had entered into a contract with the ONGC for hire of trucks, trailers, tankers and cranes to the ONGC. The question was whether by means of such contract there was transfer of a right to use goods. After referring to a large number of conditions of the contract the Division Bench held that a reading of the core provisions of the terms of the contract indicated that insofar as the cranes are concerned they were under the control of the ONGC and therefore, it was the ONGC which had exclusive control and domain over the crane during the subsistence of the contract. The judgment in Dipak Nath’s case was delivered on 25th November, 2009. [20] However, a learned Single Judge of the Gauhati High Court in D.P. Agarwala Vrs. Oil & Natural Gas Corporation Ltd. and Others : (2010) 5 GLR 38 took a different view. Here also the question was whether the contract for hiring of Hydraulic Cranes by the petitioner to the ONGC amounted to transfer of the right to use goods. After referring to various judgments including those referred to herein above the learned Single Judge made reference to the various portions of the contract and then went on to hold as follows: “28. 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 in exigible 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.****” However, dealing with the Dipak Nath’s case the learned Single Judge held that the facts of that case were different and distinguished the said judgment. [21] A Division Bench of the Agartala Bench of the Gauhati High Court dealt with a similar question in HLS Asia Ltd. Vrs. State of Tripura and Ors; (2011) 5 GLR 277. In this case, the Court was dealing with a case where the contract was for well logging, perforating and other wire line services and the question was whether such a transaction amounts to transfer of right to use any goods. The Division Bench held as follows: “47. Of all the different kinds of composite transactions, the drafters of the Forty-sixth Amendment chose three specific situations, a ‘works contract’, a ‘hire-purchase’ contract and a ‘catering contract’ to bring them within the fiction of a ‘deemed sale’. Of these three, the first and third, namely, ‘works contract’ and ‘catering contract’ involve a kind of ‘service’ and ‘sale’ at the same time. Apart from these two cases, covered by sub-clauses (b) and (f) of clause (29A) of article 366, where splitting of the service and supply has been constitutionally permitted, there is no other service, which has been permitted to be so split. If there is an instrument of contract, which may be composite, in form, in any case other than the exceptions, which article 366(29A) makes, the State would have no power to separate the agreement to sell from the agreement to render service, and thereby impose tax on the component of ‘sale’ unless the transaction, in truth, represents two distinct and separate contracts and is discernible as such. 48. In other words, if a contract is a composite contract for the sale of goods and services, it is not permissible for State Legislature to tax composite contracts comprising of both, ‘sales’ and ‘services’. Not only the contracts cannot be artificially split up so as to enable the sale element to be taxed, the State cannot treat the contract as only a contract of sale of goods and tax thereby the whole value of the transaction as a sale of goods. Not only the contracts cannot be artificially split up so as to enable the sale element to be taxed, the State cannot treat the contract as only a contract of sale of goods and tax thereby the whole value of the transaction as a sale of goods. Thus, a composite contract of sale of goods and service, i.e., consisting of both transfer of right to use and of rendering of service, has to be treated as a contract of service and no sales tax can be imposed on such a type of contract. This takes us to the question as to whether the contract, in the present case, is a contract for transfer of right to use goods. ****” We are not in total agreement with this judgment especially in view of the law laid down in Imagic Creative (P) Ltd. case which has not considered by the Division Bench. However, we are clearly of the view that the State will be entitled to levy tax only if the sale portion of the contract can be ascertained with exactitude. [22] In HLS Asia Ltd. Vrs. State of Tripura and Ors; (2013) 1 GLR 107 another Division Bench of the Agartala Bench of the Gauhati High Court of which one of us (S.C. Das, J) is the author was dealing with a matter relating to well logging perforating and other wire line services and it was held that the petitioner was a service provider and could not be compelled to be registered as a dealer under the TVAT Act. [23] On the contrary, in two other Division Bench judgments of the Gauhati High Court in Motlib Ali Vrs. ONGC and others (W.P(C) No.5280 of 2011 decided on 24.07.2012) and M/s. Brahmaputra Valley Construction and Suppliers Vrs. ONGC and others (W.P(C) No. 578 of 2009 delivered on 24.07.2012) the Court has come to the conclusion that on consideration of various factors the transaction clearly involved, a transaction for right to use. [24] A Division Bench of this Court in W.P(c) No. 75 of 2013 (M/s. Oil Field Instrumentation (India) Ltd. Vrs. The State of Tripura and others) and other connected matters decided on 10th September, 2014 after discussing the entire law on the subject held that no person can be directed to pay both sales tax and service tax on the same transaction. The State of Tripura and others) and other connected matters decided on 10th September, 2014 after discussing the entire law on the subject held that no person can be directed to pay both sales tax and service tax on the same transaction. It was also held that if there are both elements of service and transfer of right to use goods are present in a contract and the contract is not divisible then if service tax has been paid to the Central Government, the State cannot be levy sales tax. [25] In Quippo Oil and Gas Infrastructure Limited Vrs. State of Tripura and others : (2015) 1 TLR 38 this Court after discussing the entire law on the subject held that no person can be directed to pay both sales tax and service tax on the same transaction. It also held that there must be transfer of right to use goods to make it exigible to tax and lastly, it was held that if a contract is composite in nature, the State Government can levy tax only if the contract is easily divisible. [26] As far as the facts of this case are concerned Jubilant Oil and Gas Private Limited had entered into a joint venture with Gas Authority of India Limited and by the contract in question the petitioner was to carry out seismic surveys to assist the respondent No.4 and GAIL in carrying out the gas exploration. From the terms of the contract dated 28th April, 2010, we find that there was no transfer of any property. In fact none of the machinery of the petitioner was to remain with the respondent No. 4. The nature of the work to be done is found in the contract and reads as follows: “Introduction: In seismic survey, shot holes are drilled to predetermined depth for creating energy source with explosives. The energy travels across sub-surface in the form of seismic waves. From each interface between rock layers having different velocity and density, a part of energy is reflected back to the surface and recorded by seismic recording equipment. The energy travels across sub-surface in the form of seismic waves. From each interface between rock layers having different velocity and density, a part of energy is reflected back to the surface and recorded by seismic recording equipment. The amount of energy reflected back to the surface is a measure of rock properties above and below the interface and the time taken is a measure of depth of the interface.” Learned counsel for the respondents-State has failed to point out any stipulation in the contract which would indicate that there is any transfer of right to use property. It is also obvious that this was not a works contract because no work was to be done except carrying out a survey. A “Works Contract” has been defined under Section 2 (36) of the TVAT Act which reads as follows: “(36) “Works Contract” means any agreement for carrying out for cash or deferred payment or other valuable consideration – (i) the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property, or (ii) the installation or repair of any machinery affixed to a building or other immovable property, or (iii) the overhaul or repair of- (a) any motor vehicle, (b) any vessel propelled by internal combustion engine or by any other mechanical means, (c) any aircraft, (d) any component or accessory or part of any of the items mentioned in paragraph (a) to (c) above, (iv) the altering, ornamenting, finishing, improving or otherwise processing or adopting of any goods.” [27] The present contract does not fall within the ambit of a works contract. It however, appears that on 02.02.2010 on behalf of the petitioner a letter was addressed to the Superintendent of taxes where they prayed that they may be registered for the purpose of sales tax and agreed to pay all taxes of charges. While granting the certificate of registration the nature of business was described as works contract. Since it was treated to be a work contract deductions were made by respondent No.4 from the amounts payable to the petitioner in terms of the TVAT Act. It is also true that the petitioner in the communication dated 07.12.2010 referred to their contract as a works contract. Since it was treated to be a work contract deductions were made by respondent No.4 from the amounts payable to the petitioner in terms of the TVAT Act. It is also true that the petitioner in the communication dated 07.12.2010 referred to their contract as a works contract. At the same time it may be mentioned that on 29th September, 2010 the company had sent a communication to the Superintendent of Taxes, Charge-VIII, Agartala, relevant portion of which reads as follows: “***** Herewith, we are requesting you to provide the details of Works Contract Tax for the Geophysical Survey and advise whether Geophysical Survey is coming under the Works Contract Tax or not? ****” Therefore, right from the very beginning the petitioner had asked the Superintendent of Taxes to clarify as to whether the work of Geophysical Survey falls within the ambit of works contract or not. Later, the petitioner-company made demands that the tax had wrongly been deducted and the same be refunded. These demands were rejected vide order dated 05.03.2011 which reads as follows: “No.F.5/Charge VIII/2007/1026-1029 GOVERNMENT OF TRIPURA OFFICE OF THE SUPERINTENDENT OF TAXES CHARGE-VIII, AGARTALA Date: 05.03.2011 The Party Chief M/s. Asian Oilfield Services Ltd. Amtali, Agartala, Tripura (W). Sub: Amendment of Registration Certificate. Ref.: Your letter dated 17.01.2011. Sir, With reference to your letter on the subject noted above, I am to inform you that it appears from the agreement between Jubilant Oil & Gas Private ltd. and Asian Oilfield Services Ltd. made on 28.04.2010 that your firm is engaged in drilling Service Work which falls under Works Contract and attract @ 4% tax under section 4(3) of the TVAT Act, 04 read with sub-Rules-7 of the TVAT Rules, 2005. It also appears from the records that your firm imported taxable goods from outside the state for drilling works. So, in view of the above, your application regarding amendment of Registration Certificate by way of changing economic code from Works Contract to Service Contract may not be considered. This is for your information. Yours faithfully (K.R. Das) Superintendent of Taxes, Charge-VIII, Agartala.” [28] There are inherent fallacies in this rejection. The petitioner is not engaged in drilling work but was only engaged for carrying out seismic survey work. The said work does not fall within the ambit of Section 4(3) of the TVAT Act. This is for your information. Yours faithfully (K.R. Das) Superintendent of Taxes, Charge-VIII, Agartala.” [28] There are inherent fallacies in this rejection. The petitioner is not engaged in drilling work but was only engaged for carrying out seismic survey work. The said work does not fall within the ambit of Section 4(3) of the TVAT Act. The Seismic survey is carried out to investigate the Earth’s subterranean structure. There was no transfer of the right to use goods. The equipment of the petitioner contractor remained the equipment and material owned and provided by the contractor. The equipment remained in the control of the petitioner. The petitioner remained in exclusive possession and control of the said equipment and all the resources were supplied by the contractor. Reference may be made to certain clauses of the agreement which read as follows: “******* ******* ****** …..1.1.11 “Contractor’s Equipment” shall mean all equipment and materials owned or provided by the Contractor. ***** ***** ****** ****** …..1.1.16 “Mobilisation” shall mean the arrival at a location designated by the Company of equipment, materials and personnel necessary for the Contractor to perform the Work, and including the completion of system installation and calibration, instrument tests and deployment of all Contractor’s Equipment. The time of completion of mobilization shall be subject to the agreement in writing by company Representative(s). …..1.1.22 “Services” shall mean the Work and the services to be provided by the Contractor as provided for hereunder. ****** ****** ******* 4.1 Contractor’s Equipment : The Contractor shall provide at its own cost the Contractor’s Equipment described in the Contract in accordance with the terms set out therein. The Contractor shall be responsible for ensuring that the Contractor’s Equipment includes all necessary equipment and materials and is of the quality required for the performance of the Work. ****** ****** ****** ****** 4.2 Personnel: 4.2.1 The Contractor undertakes to provide sufficient personnel at all times to ensure performance and completion of the Services in accordance with the provisions of the Contract. If the Company is of the opinion that the Contractor is operating with a deficiency in the number or quality of the Contractor’s personnel or that part thereof, the Company in consultation with Contractor, may require the Contractor to provide additional personnel or remove and replace personnel to provide numbers and quality of Contractor’s personnel as Company sees fit and Contractor shall comply and bear the cost thereof. 4.2.2 All personnel employed on the Services shall, for the work, which they are required to perform, be competent, properly qualified, skilled and experienced in accordance with good industry practice. The Contractor shall verify all relevant qualifications of such personnel. Contractor shall provide in prior CV’s of personnel intended to be deputed. 4.2.3 The Contractor shall keep relevant medical records, wages books and time sheets and full records of all personnel employed in connection with the work. The Company shall be entitled at all times to inspect and take copies from all or any such documents. ***** ****** **** **** 4.2.5 The Contractor shall make own arrangements for the engagement of personnel, local or otherwise, and, save in so far as the Contract otherwise provides, for their payment and transport, housing, maintenance and board and lodging. The Contractor shall be as responsible for any Services performed by any agency personnel and by any other person provided by the Contractor in connection with the Services as if the employees of the Contractor performed the Services. 4.2.6 The Contractor shall ensure that all employees of the Contractor and any Subcontractor engaged in the performance of the Services comply with applicable laws including immigration laws, labour laws etc. and where required are in possession of a visas or other valid work permit for the duration of the Contract. When requested details of such work permits shall be submitted to the Company prior to the employee being engaged in the Services. To the extent that such visas or permits are required to be issued by any Government authority, the Company shall, at the Company’s sole discretion, endeavour to assist the Contractor to obtain such visas and permits. The costs of obtaining such visas or permits shall be borne by the Contractor. ******* ******** ******* 5.1 Company Equipment and Company Services: At its option, the Company shall provide at the Company’s sole cost certain equipment and services. These shall be identified as Company Equipment and Company Services and the Contractor shall use the same solely for the execution of the Work. ******* ******** ******* 5.1 Company Equipment and Company Services: At its option, the Company shall provide at the Company’s sole cost certain equipment and services. These shall be identified as Company Equipment and Company Services and the Contractor shall use the same solely for the execution of the Work. The Contractor shall, to the extent that the Contractor is required, have custody of and maintain in good condition, repair and shall take all due care of all Company Equipment and shall return it to the company in good condition, due allowance being made for fair wear and tear, Contractor shall be entitled to the warranty and insurance for the equipment, upon the Completion Date or upon termination of the Contract or as directed hereunder, if earlier. 5.2 Obligation of the Company: Contractor shall be responsible for all formalities related to importation of equipment, consumables etc. under the Contract till the delivery at site. For all import of consumables, which are directly purchased by Jubilant, Consignee name shall be Jubilant. For all other materials, Equipments, Contractor shall be the consignee. All Essentiality Certificate applications will be signed and approved by Company. For any reason if Essentiality Certificate is not obtained, then Company shall pay the Customs duty. ***** ***** ****** 19.1 Obligations of the Contractor: The Contractor shall at its own expense, if required by the Company for operational reasons or by the Government, prepare for removal from the Location any equipment or materials belonging to any of the Contractor or its Affiliates, agents or subcontractors which may have been rendered unserviceable through any cause during the course of operations hereunder or otherwise deal with equipment or materials in accordance with the Company’s instructions. Notwithstanding that the equipment or materials may be insured and whether or not declared a loss.” [29] These provisions of the contract clearly indicate that the contractor’s equipment remained his equipment solely under his control and even the equipment of the company, if any, given to him did not become his equipment but remained the equipment of the company. Therefore, there was no transfer of right to use goods and the petitioner was only rendering services which are only amenable to tax by the Union of India and not by the State. [30] The writ petition is accordingly allowed. The contract of the petitioner shall not be treated as a Works Contract. Therefore, there was no transfer of right to use goods and the petitioner was only rendering services which are only amenable to tax by the Union of India and not by the State. [30] The writ petition is accordingly allowed. The contract of the petitioner shall not be treated as a Works Contract. The order of deduction dated 5.1.2011 and the order dated 5.3.2011 are quashed. The tax, if any, deducted from the account of the petitioner be refunded along with statutory interest on or before 31st July, 2015, failing which the State shall be liable to pay interest @ 12% per annum from today. No order as to costs.