The assessment order passed by the Deputy Commissioner of Commercial Tax has been set aside by the Madras High Court on 13th July 2017 in SHV Energy Pvt Ltd v. The State of Tamil Nadu & Ors (W.P. No. 17728 of 2017) holding that an assessee should not be made to suffer two levies of tax viz, service tax and sales tax. The Company paid service tax for the services rendered by it under the head ‘storage and warehousing’ under the Finance Act.
Facts of the Case
The Petitioner filed a writ petition challenging the order of the Deputy Commissioner (Commercial Tax) –IV for the assessment year 2015-16 to the extent that the order demanded VAT under the Tamil Nadu VAT Act on terminalling services provided to BPCL and prayed for the issue of the Writ of Certiorarified Mandamus . The Petitioner had set up a storage and distribution facility of LPG at Tuticorin to render its services to various customers.
Issue of the Case
Whether the petitioner could be made to suffer two levies, namely sales tax and service tax on the same transaction?
Contentions of the parties
The petitioner company had challenged the order on the ground that the said transaction was classified as a taxable service under Section 65(102) of the Finance Act read with Circular dated 1.8.2002 of the Central Board. Thus, as the company had paid the service tax and it could not be made to bear the sales tax liability on the same transaction.
The main contention of the petitioner was that the storage houses of the petitioner were permanent structures and therefore they could not be called as goods. Thus the transaction was not a transfer of the property in the goods. Similarly, the services rendered by it did not involve transfer of ownership as the services were not exclusive to BPCL.
It was also contended that the petitioner’s contract was not a contract falling within the ambit of Art.366 (29A) of the constitution and as such it should not be separated to tax the sales element in it. To substantiate this they relied on an earlier decision in Commissioner, VAT, Trade and Taxes Departments v. International Travel House Ltd.(2009) VST 653 (Del).
However the respondents averred that since the activities of the company had amounted to transfer of right of usage of goods, VAT was to be levied upon it in respect of consideration received by the company for its services to BPCL. Even though the storage facility was fixed on the land, it was not a fixed asset like a land or building space, but a gadget for intake of LPG from ship, storage, dosing of ethyl Mercaptan and loading to tank truck. Thus , the amount of network provided by the petitioner required periodical maintenance with necessary replacement of spaces or consumables which would carry ITC after the advent of TNVAT Act.
The respondents also challenged the right of the petitioner to move the SC on the ground that he had not exhausted his right of appeal to the appellate authority.
The court upheld the contentions of the petitioners and observed that the third respondent had failed to address the important aspect raised by the petitioner that they having discharged the service tax liability could not be directed to pay VAT for the same transaction.
The court maintained that the Commissioner must have taken note of the definition of the “storage and warehousing” under S.65(102) of the Finance Act. The non-exclusivity of the agreement between the petitioner and BPCL was also a relevant fact which should have been reckoned by the Commissioner. Similarly, the third respondent did not appreciate the legal principle that except specific contracts under Art.366 (29A), no other contracts can be artificially severed to tax sale element with respect to the goods as comprised in such composite contracts. Moreover, the installation erected by the petitioner is fixed to the ground and therefore, the finding of the respondents was held to be incorrect.
The court was of the view that the assessment order was made neglecting several legal questions in the matter and therefore it requires to be redone.
This judgment in fact has reinforced the basic natural law norm that no one should be double taxed to his detriment. However, some criticized the judgment as encroachment upon the functioning of the executive.