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2018-VIL-23-GUJ

VAT High Court Cases

Gujarat VAT Act, 2003 – legislative competence of the State to tax workover service contracts - contracts for carrying out workover operations using workover rigs imported specifically for the purpose of the contract - whether the contract entered into between the petitioners and the ONGC for workover operations on oil wells of the ONGC is purely service contract or composite contract involving both, an element of service as well as transfer of right to use goods - Levy of VAT on the ground that such contracts involve transfer of right to use goods – Pure service contract or Composite contract – HELD - At no point of time during the execution of the contract, is the contractor required to deliver the goods viz., the workover rigs to the ONGC. The control over the rigs at all times is with the contractor and it is the contractor alone who is to use it - on a plain reading of the contract executed between the parties, the intention of the parties is clearly to enter into a contract for services and the workover rigs are merely equipment to be used by the contractor for the purpose of executing such contract. The contract is not a composite contract of service and transfer of right to use the goods. However, assuming for the sake of argument that the contract is a composite contract, even then it is not severable and hence, it would not be permissible to the State to impose value added tax on the whole transaction because that would amount to the State entrenching upon the Union List and taxing services by including the cost of such service in the value of goods. Thus, even if the contract were to be treated as a composite contract, it has to be treated as a contract for services and no value added tax can be imposed on the transactions in question - the mere use of the words charter hire in relation to workover rigs would not change the nature of the contract to one of transfer of right to use goods when there is none – the case does not involve even hire charges and is a case where the petitioners providing service to the ONGC, for which purpose they use their own equipment, including the workover rigs. Under the circumstances, it is not possible to say that the transaction involves the transfer of right to use in favour of the ONGC attracting levy of value added tax - the contract entered into between the petitioner and the ONGC for workover operations of oil wells of ONGC is a pure contract of services – tribunal order is set aside and assessee appeal is allowed

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