WP(C) 5462/2009 BEFORE HON’BLE MR. JUSTICE AMITAVA ROY The proposed deduction of tax at source under the Assam Value Added Tax Act, 200 3 (hereafter referred to as the Act) by the Oil and Natural Gas Corporation (for short hereafter referred to as the Corporation) from the petitioner’s entitleme nts under the contract for hiring of Hydraulic cranes by it is under impeachment in the present series of proceedings at the instance of the contractors providi ng the machines. The quintessential features of the contract agreements and the legal issues centering the debate being inseverably identical permitting analogo us adjudication, a common determination would suffice. The prolix rival pleas no twithstanding, the essential factual details for reference have been culled from the pleadings of WP(C) 5453/2009 and WP(C) 5456/2009. 01. I have heard Dr. A.K. Saraf, Sr. Advocate for the petitioners, D r. B.P. Todi, Sr. Advocate for the Corporation, Mr. D. Saikia, learned Standing Counsel, Finance Department, Government of Assam, for the Revenue and Mr. B. Sha rma, learned Central Government Standing Counsel, for the Union of India. 02. The pleaded accounts of the parties in the fray are indispensabl e to appropriately comprehend the contentious arguments based thereon. The petit ioners represent to be proprietorship firms carrying on business in various loca tions of the State and own Hydraulic Cranes with necessary licence and other tes timonials to be legally, possessed thereof. In response to the Notice Inviting T enders (for short hereafter referred to as the NIT) issued by the Corporation fo r the hire of services of Hydraulic Cranes for carrying out its operations on st ipulations as mentioned therein, the petitioners’ responded thereto and eventual ly individual contract agreements were executed between the parties 22/23.06.200 9. Meanwhile the Act had been enforced on and from 1/5/2005 mandating imposition and collection of tax on sales and purchases of goods in the State of Assam and matters connected therewith and incidental thereto. 03. According to the petitioners, in terms of the clauses of the con tracts, the transactions are evidently not of sale as envisaged under the Act or within the meaning of Clause (29A)(d) of Article 366 of the Constitution of Ind ia and, therefore, no tax is payable by them. Inspite thereof, the Corporation b asing on the decision of this Court in WA 138/2007 and other connected cases ren dered on 25/11/2009 had informed them that tax under the Act for the instant con tracts would be deducted at source construing the transactions to be those of le ase. The petitioners have asserted that the contracts herein are distinctly diff erent from those involved in the aforementioned proceedings decided by this Cour t, and service tax leviable under the Finance Act, 1994, was only contemplated b y the parties. 04. Moreover the present contract agreements in categorical terms en visage that the transactions would not be by way of lease or transfer of the rig ht to use the vehicle/equipments. As the express intention of the parties is for providing and availing the services of the Hydraulic Cranes which do not concei ve of any transfer of right to use the same, the proposed deduction of tax under the Act is constitutionally as well as legally impermissible. The petitioners i n the alternative have also averred that even if the contracts could be perceive d to evidence an element of transfer of the right to use of the cranes, as those are of composite nature also inclusive of the service component, the same do no t admit of splitting under Article 366(29A) and, therefore, the sale segment the reof cannot be made exigible to tax under the Act. 05. The Corporation in its affidavit while expressing nescience abou t the payment of service tax by the contractors to the Central Government for th e contracts in question has maintained that the agreements involved and the tran sactions embodied therein are exactly the same as those analysed with by this Co urt in WA 138/2007 and matters connected therewith and that, therefore, it has n o option but to deduct the tax at source while making the petitioners’ bills les t it would be subjected to penalty leviable under sub-section 12 of Section 47 o f the Act. 06. The Revenue in its counter affirmed by the Joint Commissioner of Taxes, Assam, however, has insisted that a bare perusal of the contract agreeme nts demonstrate transactions involving transfer of right to use the cranes in fa vour of the Corporation, superficial trappings to the contrary notwithstanding a nd that therefore the petitioners are liable to pay tax under the Act. While con tending that the contract agreements proclaim a clear dominion of the Corporatio n over the cranes during the subsistence of the contract as an unmistakable inde x of transfer of right to use thereof by the contractors, the answering responde nt has dismissed the recital to the contrary as inconsequential being a delusive representation to avoid the tax liability. It has been maintained that the peti tioners’ claim of payment of service tax in the transactions per se would not be extinctive of the other discernible attributes of sale and that in the facts an d circumstances of the case, having regard to the scope and ambit of the Act, th e proposed deduction of tax thereunder is valid in law. 07. The Union of India in its affidavit while reinforcing the petiti oners’ plea of providing service through their cranes under the contract agreeme nts and the consequent inessentiality to pay tax under the Act, has contended th at they being engaged in Business Auxiliary Service upto 15/5/2008 under the Fin ance Act, 1994 and thereafter, any supply of tangible goods service is subject t o service tax. According to this answering respondent, from the scope of the wor k in the contracts, the petitioners though are liable to pay service tax w.e.f. 1/7/2003 under section 65(19) of the Finance Act, 1994, under the category Busi ness Auxiliary Service they have not done so. It has been maintained that notwi thstanding the fact that the supply of tangible goods services have been effecte d w.e.f. 16/5/2001 and consequentially they are liable to pay service tax from 1 /7/2003 under Business Auxiliary Service the petitioners have omitted to do so f or which meanwhile a show cause notice on 15/10/2009 had been issued to them dem anding an amount of Rs. 21,64,769/-. The Union of India, therefore, has refuted the petitioners’ claim of paying service tax. 08. In the above backdrop of pleadings, Dr. Saraf has emphatically u rged that as the contract agreements read as a whole would unequivocally attest that the transactions contemplated therein are out and out for hiring the servic es of the cranes with no element of transfer of right to use thereof to draw the same within the purview of sale and or lease under the Act, the proposed deduct ion of tax is ex-facie illegal and unauthorised. Referring to various clauses of the contract agreements bearing on the nature and extent of the use of the cran es, the period of service to be rendered, the responsibility of maintenance ther eof as well as the unalienable control of the device by the contractors, the lea rned Sr. Counsel has argued that those clearly demonstrate against the lease or transfer of right to use of the machines. While contending that mere position or the location of cranes in course of their engagement in the oil fields of the C orporation per se would not signify the lease thereof or transfer of right of us e of the same, Dr. Saraf has maintained that having regard to the essential feat ures of the contract agreements, even if service as well as lease components the reof can be comprehended, no bifurcation of the lease/sale segment is permissibl e to make it exigible to tax under the Act. According to the learned Sr. Counsel , such a segregation in the case of a composite contract comprised of sale and s ervice constituents is permissible only in cases envisaged in Clause (b) and (f) of Article 366 (29A) of the Constitution of India. He has thus pleaded that for the application of clause (d) thereunder the transfer of right to use goods sho uld be in absolute terms encompassing the contract as a whole. In case such a tr ansfer of right to use of goods is a unit of a composite contract, clause (d) ca nnot be invoked and the same cannot be set apart to enable the State to levy tax thereon. As in the case in hand, the contract agreements envisage payment of se rvice tax by the contractors, the parties consciously construed the transactions to be one of hiring of the service of the cranes and, therefore, on that count as well sales tax on the cranes is not payable, he urged. Dr. Saraf further argu ed that the contracts involved in the present proceedings are distinguishably di fferent from those scrutinised by this Court in WA 138/2007 and, therefore, the analogy of that decision being inapplicable to the facts and circumstances herei n, the plea of the Corporation and the Revenue based thereon is wholly misconcei ved. The learned Sr. Counsel has persuasively insisted that apart from the obvio us distinctive attributes of the two sets of contracts, the aspects of payment o f service tax and the indivisibility of a composite contract, under Article 366( 29A)(d) did not figure for adjudication in the aforementioned writ appeals and, therefore, the verdict rendered therein has no bearing on the present impugnment . Further the principle of res judicata is inapplicable in taxation lis, he urge d. While pointing out that the petitioners’ plea that the contracts involved wer e of hiring of the service of the cranes had remained uncontroverted by the Corp oration in its counter, Dr. Saraf has contended that mere possession sans custod y and control is of no consequence and that, therefore, having regard to the var ious clauses of the contract, it by no means can be construed that the same envi saged any transfer of right to use thereof. Referring to section 65(105)(zzzzj) of the Finance Act, 1994, the learned Sr. Counsel has insisted that it being app arent from the contracts that the parties had consciously agreed on the payment of service tax only, levy under the Act, was clearly not in their comprehension. To reinforce his arguments Dr. Saraf has placed reliance on the decision of the Apex Court in BSNL versus Union of India, (2006) 3 SCC 1 and of the Delhi High Court in Commissioner, VAT, Trade and Taxes Department versus International Trav el House Ltd., 2009 [25 VST] 653. 09. Dr. Todi for the Corporation abiding by its pleaded stand has re iterated that the contracts in question being similar to those involved in WA 13 8/2007 are construable as lease and, therefore, it being obliged under section 4 7 of the Act to deduct the tax at source thereunder, its action cannot be faulte d in law. 10. Mr. Saikia for the Revenue on a detailed reference to the variou s clauses of the contract agreements has persuasively insisted that the subject matter thereof is evidently the cranes and not the service to be rendered thereb y and, therefore, as a transfer of the right to use thereof is conspicuous, the proposed deduction of tax under the Act is valid in all respects. According to t he learned Standing Counsel, the clauses of the contracts demonstrate with parti cularity the exclusive dominion of the Corporation over the cranes and the emplo yees of the contractors during the subsistence thereof which testify the transfe r of right to use of the machines to it. As the hire rent under the contracts is payable for the cranes irrespective of the use thereof, the concept of hiring o f the same for the services only is misconceived, he urged. According to Mr. Sai kia, the right reserved to the Corporation to get the unexecuted work completed by other agencies evinces its prerogative and control over the transactions. Whi le emphasising that the contractors under the contract are not entitled to withd raw the cranes once placed with the Corporation, Mr. Saikia has insisted that th e contracts as involved in WA 138/2007 are exactly similar to those in hand and, therefore, the decision rendered therein is final and binding. Further the stan d of the Corporation in this regard is also decisive, he urged. According to him, viewed in the context of the definition of taxable service as provided in section 65[105(zzzzj] read with the notification dated 29/2/2008, sa les tax is clearly payable in the face of the effective control of the cranes wi th the Corporation which denotes transfer of right of user thereof. The learned standing Counsel however agreed that the contract agreements in question are ind ivisible and that these do not admit of the concept of dominant intention theory but are within the purview of clause (d) of Article 366(29A). As the requisites of sale as contemplated in law are conspicuously present in the transactions in hand the State is competent to levy sales tax under the Act, he urged. Mr. Saik ia to buttress his submissions has placed reliance on the decisions of the Apex Court in Federation of Hotel and Restaurant Association of India etc. versus Uni on of India and others, (1989) 3 SCC 634 and in BSNL versus Union of India, (200 6) 3 SCC 1. 11. The learned Central Government Standing Counsel has argued that as the petitioners have been registered as service providers under section 69 of the Finance Act, 1994, in terms of the circular/letter DOF No. 334/1/2008/TRU d ated 29/2/2008, service tax is payable as no transfer of right to use of the cra nes in the contracts involved is deductible. He however contended that the petit ioners though liable to pay service tax on and from 1/7/2003 have not done so fo r which a proceeding has already been initiated. 12. The competing pleadings and the submissions have received the du e consideration of this Court. The legality and/or validity of the proposed dedu ction of tax under the Act would essentially be contingent on the interpretation of the contract agreements involved. The transactions evidenced thereby if exud e a transfer of the right by the petitioners to use the manned cranes only with no service element, those would tantamount to lease/sale under the enactment and would be exigible to tax thereunder under Article 366[29A(d)] of the Constituti on of India. 13. Whereas, the petitioners contend that the contract agreements te stify taxable service as defined in Section 65(105) (zzzz j) of the Finance Act, 1994 without transferring the right of possession and effective control of the cranes involved, the Revenue and the Corporation plead that an overall view ther eof would unambiguously proclaim a deemed sale as contemplated by the Act and th e above constitutional provision. The litmus test to unravel the conundrum is an indispensable analysis of the contract agreements engrafting the intention of t he parties thereto. Decisive significantly herein is the Revenue’s concurrence on the indivisibility of the contract agreements if ascertained to be an amalgam of sale and service segments. 14. For the sake of brevity and certitude the contract agreement in WP(C) No.5453/2009 would be referred to. As all the contract agreements share a common paradigm, the reference to any one would adequately depict the quintess ence thereof, sans any prejudice to the parties. Noticeably, the contracts are p ost 16.5.2008 with effect from which Clause (zzzz j) was inserted in Section 65( 105) by the Finance Act,2008 bringing within the purview of taxable service, the service provided or to be provided to any person by any other person in relat ion to supply of tangible goods including machinery, equipment and appliances fo r use without transferring the right of possession and effective control of su ch machinery equipment and appliances. The opening recital of the contract agre ements discloses that the same were for hiring of hydraulic cranes for carrying out the Corporation’s operations in conformity with the specifications as set-fo rth in the Scope of Works enumerated therein. The entrustment of the enterprise was in view of the assurance of the contractors of their necessary experience for carrying out such operations by offering the required service as per the Cor poration’s tender to that effect. A few clauses of the common contract agreement with the above preface need be extracted for ready reference and obvious insigh t into the contracting minds: Section A 1.3 SITE Shall mean the place in which the operations/ services are to be carrie d out or places approved by the ONGC for the purposes of the contract togethe r with any other places designated in the contract as forming part of the site. 1.13 WORKS/OPERATIONS Shall mean all work to be performed by the contractor as specified in th e Scope of Work under this contract. 1.15 MOBILISTION: Shall mean rendering the equipment fully manned and equipped as per contract and ready to begin work at site designated by ONGC after on hire survey and ONGS’s acceptance thereafter. The date and time of ONGC’s acceptance of onhire survey w ill be treated as the date and time of mobilization. 1.25 CRANE Shall mean a Truck mounted/All Terrain hydraulic crane in good working condition with its certified lifting capacity of minimum 40 MT for Type II Crane and mini mum 20 MT for Type III Crane at an operating radius of 3 meters and meeting the other technical specifications given herein. It should comply with Motor Vehicl e Act as applicable and in possession of valid documents as applicable such as C ertificate of Registration, Fitness, Insurance, test Certificate, etc. 1.26 CREW Shall mean the staff required for operation of crane such as Drivers, Crane oper ations, Riggers, Slingers, Handymen, Khalasi etc. provided by the contractor. 1.29 WORKING DAY Working day normally starts at 07.00 hours, or the time given by the authorize d officer of the ONGC and shall normally extend for a period of 10(ten) hours in cluding any spill over time necessitated for the continuity of the operation. 1.30 OPERATION ALTIME Shall mean the time spent by the crane at the site of work in actual operation i .e. loading, un-loading and movement required for positioning including waiting time on duty. 1.31 OPERATIONAL CHARGES Operational Charges are the charges mentioned below: Operation Time charges per working day- Per day hire charges as per schedule of rates. Operational Time charges per working hour= Operational Time charges per working day/10 Hrs. (Pro-rata hourly rate). 1.34 COMMENCEMENT OF CONTRACT PERIOD Commencement of Contract Period means the date on which the crane, fully equip ped with crew and in perfect working condition has been placed at the disposal o f NOGC at Sivasagar or any other appointed place in the Eastern Region of ONGC ( Refer clause 6 of this Contract agreement) 3.0 DURATION OF THE CONTRACT This contract shall remain valid for a period of Three years from the actual dat e of mobilization (the date when the crane is deployed for ONGC duty) as per the rates given at Annexure-A. The date of commencement of contract for each crane for reckoning its period of contract shall be date on which the said crane unde r the contract is deployed for duty of the ONGC. 6.4 Assignment The contractor shall not, save with the previous consent in writing of the ONGC, sublet/sub-contract, transfer or assign the contract or any part thereof in any manner whatsoever. However, such consent shall not relieve the contractor from any obligation, duty or responsibility under the contract and contractor shall be fully responsible for the services hereunder and for the execution and perfor mance of the contract. 7.1 ONGC shall pay to contractor for the services, to be provided by the contra ctor as per the Scope of Work as per the Schedule of rates attached as Annexure A. The rates payable shall be firm during the entire contract period. 8.1 CLAIMS Contractor agrees to pay all claims, taxes and fees for equipment, labour, mater ials, services and supplies to be furnished by it hereunder and agrees to allow no lien or charge resulting from such claims to be fixed upon any property of ON GC. ONGC may, at its option, pay and discharge any liens or overdue charges for contractor’s equipment, labour, materials, services and supplies under this cont ract and may thereupon deduct the amount or amounts so paid from any sum due, or thereafter become due, to contractor hereunder. TAXES Contractor, unless specified otherwise in the contract , shall bear all tax liab ilities , duties ,Govt. levies etc. including Service tax, customs duty, Corpor ate and personnel taxes levied or imposed on the Contractor on account of payme nts received by it from the CORPORATION for the work done under this contract. It shall be the responsibility of the Contractor to submit to the concerned Ind ian authorities, the returns and all other concerned documents required for this purpose and to comply in all respects with the requirements of the laws in this regard, in time. 9.0 PERFORMANCE The contractor shall undertake to perform all services under this contract with all responsible skill, diligence and care inn accordance with sound industry pr actice to the satisfaction of the ONGC and accept full responsibility for the s atisfactory quality of such services as performed by them. Any defect, deficien cies noticed in the contractor’s service will be promptly remedied by the contra ctor within 10 days upon the receipt of written notice from ONGC to improve thei r performance failing which ONGC may terminate the contract by giving the contra ctor 30(thirty) days written notice. 10.0 PERFORMANCE BOND The contractor has submitted Security Deposit/Performance Bond vide BG No.191/09 dated 9/6/2009 for Rs.7,35,000.00 from Canara Bank, Sivsagar Branch, Hospital R oad, Sivasagar, valid upto 30/11/2012. The security deposit /performance guarantee is to secure satisfactory performanc e and execution /completion of all jobs by the contractor against the said con tract. The performance Bond/Bank Guarantee shall be kept valid for 60 days beyond the e xpiry period of the contract. In absence of above validity period of performance bond (back guarantee), payment of all dues to the contract upto the limit of SD shall be returned as part of the SD, which shall be refunded after receipt of r equisite bank guarantee. The security deposit is refundable only after successful completion of work/cont ract, without any interest thereon and after the adjustment of any dues of the O NGC, if so arises during the execution/currency of the contract. In the event contractor fails to honour any of the commitments entered into unde r this agreement or in the event of termination of the contract under provisions of Integrity Pact, and/or in respect of any amount due from the contractor to t he ONGC, the ONGC shall have unconditional option under the guarantee to invoke the above bank guarantee and claim the amount from the bank. The bank shall be o bliged to pay the amount to the ONGC on demand. 11.0 DISCIPLINE Contractor shall carry out operations hereunder with due diligence and in a safe and workman like manner according to good international oilfield practice. Cont ractor shall maintain strict discipline and good contract among its employees an d its sub-contractor’s employees and shall abide by and conform to all rules and regulations promulgated by the ONGC governing the operations. Should ONGC feel that the conduct or any of contractor/sub-contractor’s employees is detrimental to ONGC’s interest, the ONGC shall have the unqualified right to request for the removal of such employee either for incompetence, unreliability,