In today’s Global Economy BOT Contracts are playing vital role in the Development of infrastructure but there is no proper legislation and pronouncements which clarifies the status of taxability on these type of transactions. It is very disappointing to point out that tax authorities in their enthusiasm to generate more revenue are trying their level best to cover these types of transactions in the category of works contract whereas infact in my opinion these transactions are outside the purview of taxability under the works contract.
The nature of BOT Contracts does not fit in to the fundamentals of goods taxation qua for the reason that there is no transfer of property in goods beside this there is no element of sale is involved as for sale there must be transfer of goods for cash, deferred payment or other valuable consideration and sale price is the amount of valuable consideration received or receivable for any sale, so in the absence of basic ingredients of sale it can be safely concluded that BOT Contracts cannot be taxed under the category of works contract beside this it is pertinent to point out that the purpose of these types of contract is not to purchase goods as movable or immovable, the main objective is to build or improve the infrastructure for furtherance of Economic growth and development without any financial burden on the grantor as in the BOT Contracts, concessionaire never build the infrastructure merely for the purpose of Construction and transfer rather their aim is to enjoy the fruits of infrastructure for a specified period in shape of Toll Tax or User fee so by no stretch of imagination there is a deemed sale by virtue of which tax can be attracted under the Punjab Value Added Tax Act, 2005
At this juncture, it will be useful to refer to the Relevant Section of Punjab VAT Act, 2005.
Section 2 (zf) of Punjab VAT Act, 2005 define “Sale” as:-
“Sale” with all its grammatical or cognate expressions means any transfer in goods for cash, deferred payment or other valuable consideration and includes:-
(i) Transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
(ii) Transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(iii) Delivery of goods on hire-purchase or any system of payment by installments;
(iv) supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
(v) supply, by way of or as part of any service or in any other manner whatsoever, of goods or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration; and
(vi) every disposal of goods referred to in Explanation (4) to clause (t) of this section;
and such transfer, delivery or supply of any goods shall be deemed to be a sale of these goods by the persons making the transfer, delivery or supply to a person to whom such transfer, delivery or supply is made, but does not include a mortgage, hypothecation, change or pledge.
Similarly, the definition of “Sale price” is given in section 2 (zg) as:-
“sale price” means the amount of valuable consideration received or receivable by a person for any sale made including any sum charged for anything done by the persons in respect of the goods at time of or before the delivery thereof;
(1) In relation to the transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract, ‘sale price’ means such amount as is arrived at by deducting from the amount of valuable consideration paid or payable to a person for the execution of such works contract, the amount representing labour and other charges incurred and profit accrued other than in connection with transfer of property in goods for such execution. Where such labour and other charges are not quantifiable, the sale price shall be the cost of acquisition of the goods and the margin of profit on them plus the transferring the property in the goods and all other expenses in relation thereto till the property in such goods, whether as such or in the other form, passes in a different form, it shall include the cost of conversion.
(2) In relation to the delivery of goods on hire purchase or any system of payment by installments, the amount of valuable consideration payable to a person for such delivery.
(3) In relation to transfer of right to use any goods for any purpose (whether or not for specified period), the valuable consideration received or receivable such transfer.
(4) The amount of duties levied or leviable on goods under the Central and Salt Act, 1944 (1 of 1944), or the Customs Act, 1962 (52 of 1962), or the Punjab Excise Act, 1914 (1 of 1914), shall be deemed to be part of the sale price of such goods, whether such duties are paid or payable by or on behalf of the seller or the purchase or any other person.
(5) Sale price shall not include tax paid or payable to a person in respect of such sale.
There is no consideration which is basic ingredient of sale transaction
In the BOT Contracts valuable consideration is missing which is essential ingredient for Sale as the Hon’ble judges of Kerla High Court held while deciding the case of Rama Vs. STO (1993) 91 STC 216. whereas Further the definition of work contract under section 2 (zu) of PVAT Act, 2005. Also talks about valuable consideration “works contract” included any agreement for carrying out, for cash, deferred payment or other valuable consideration. Building, construction, manufacturing, processing, fabrication, erection, installation, filling out, improvement, modification, repairs or commissioning of any movable or immovable property. But with respect to the BOT Contracts there is no receipt of any deferred payment or valuable consideration. Receipt made on account of toll has nothing to do with cost of the project. In the guise of definition of deferred payment, which is not definite, amount of toll cannot be regarded as sale price. Beside this the very nature of this transaction doesn’t fit into the fundamentals of goods taxation. Apparently because there is no transfer of property in any goods so there could be no liability to either work contract tax under the PVAT Act.
BOT Contracts are infact in the nature of enjoyment of immovable property
Here it is worth while to mention that the transaction is in the nature of enjoyment of the immovable property and not works contract. As this view was held by the judges of Hon’ble Supreme Court of India, while delivering the judgement of Titaghur Papers Mills Co. ltd. (1985) 60 STC 213 followed by the Karnataka High Court in Muninagaiah (1997) 106 STC 294 and the Madras High Court in Tamilnadu Magnesite Limited (2007) 9 VST 360 it will be interesting to find if the BOT transaction could be held as a profit prendre that is granting a pure and simple conferment of a right to be exercised in the projects site accompanied by a right to collect a toll or fees for users of lanes constructed. In the Titagarh case it was held that any attempt on the part of state government to tax the amount payable under the contracts would be unconstitutional as being beyond the taxing power of the State Legislature under entry 54 of list II of the seventh Schedule of the constitution of India. And the similar view was also up held in the judgement of Muninagaiah as well as in the Tamilnadu Magnesite. So the question of Taxability on BOT Contracts does not arise.
Concessionaire will not transfer the property even after the completion of specified period rather it is a case of handing over the site
The Project will be owned by concessionaire for a specified period and thereafter the same will be handed over and no transfer is involved. It is not disputed that concessionaire will be the owner of the property erected on the site for a specific period.
Concessionaire will be treated as owner even under the Income Tax Act and entitled for claiming the Depreciation
Here it is pertinent to point out that depreciation under the applicable laws on the property representing the capital investment made by the concessionaire in the project shall be allowed to the concessionaire.
Concessionaire has to insure the property at its own costs and expenses as if the owner of the property
In BOT Contracts it was observed that concessionaire has to insure the property at its own costs and expenses as the owner of the property so under these circumstances it can be safely said that concessionaire enjoys the fruit for a specified period and will remain as a owner for a specified period and thereafter the same will be handed over.
As per my opinion it can be safely concluded that BOT Contracts cannot be taxed under the category of works contract as the transaction neither involves sale or transfer of property in goods nor valuable consideration is involved so by no stretch tax can be levied and any attempt to tax the transaction was beyond the states power under entry 54 in list II of the Seventh Schedule of the Constitution of India. Although commissioner Punjab while deciding the application u/s 85 (Advance Ruling) has given the verdict in case of M/s Chetak Enterprises P Ltd. Vs. State of Punjab that BOT transactions are covered under the category of works contract and are subject to tax under the Punjab Value Added Tax Act, 2005 but an appeal against the order of commissioner is still pending before the Hon’ble Punjab VAT Tribunal.
Authored by… J S BEDI Advocate
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