1. In the present case the contract inter alia requires the petitioner to perform the task of Mechanized scrubbing of shed floor to keep it free from muck / grime arising due to dropping of oil / grease / effluents and industrial waste by using biodegradable floor chemicals / solvent. Mechanized scrubbing by floor scrubbing / scarifying machine, removal of industrial waste along with muck, unwanted / useless and dumping the same at the nominated place within the shed complex. Cleaning of floor of main shed, SMM store, Lab & Administrative block to keep it free from dropping of oil / grease / grime / effluent including removal of cobwebs from covered area. Cleaning of DEMU Care Centre, DEMU Block and Diesel Training Centre SSB to keep it free from dropping of oil / grease / grime / effluent including removal of cobwebs from covered area. Cleaning of rooms, veranda, etc. of Lab, Administrative block and offices of Sr. Subordinate Super visors with wiping by wet and dry moppers. Cleaning of rooms, veranda, etc. of DEMU Block and Diesel Training Centre SSB with wiping by wet and dry moppers. To keep floor, side walls of inspection pits free from muck / grime / arises due to dropping of oil / grease / effluents and industrial waste by using high-pressure cold / hot jet cleaner. Removal of unwanted industrial waste and dumping the same at the nominated place within the shed complex. To keep floor, side walls of DEMU Care Centre pits free from muck / grime / arises due to dropping of oil / grease / effluents and industrial waste by using high-pressure cold / hot jet cleaner. Cleaning of toilets by high-pressure water jet cleaner, removal of silt and muck from urinals. Loco Washing / cleaning of Pit wheel lathe machine complex to keep it free from dropping of oil / grease / grime / effluent / Waste metal chips including removal of cobwebs from covered area.
2. The soaps, detergent, chemicals and solvent used purely for the purposes of cleaning and which are completely consumed, in the process of the execution of the above referred tasks, cannot by any stretch of imagination be said to goods in which property could pass to the Contractee. Similarly, water is also used in the above-referred process of cleaning and execution of the contract. Can it be said, that even property in water, that is used and consumed in the said process of cleaning and execution of the contract, is also transferred to the Contractee and the value of the water consumed should be exigible to tax.
3. The mere fact that soaps, detergent, chemicals and solvents are deposited in the store of the Contractee would not make any difference to the exigibility, as is sought to be contended by the Revenue/respondents, because, admittedly, by mere deposit in the store, the property in them is not stated to pass. It is contended by the Revenue/Respondent, that the property passes when they are actually used. The Petitioners and the Railways have contended that the said soaps/detergent/chemical/solvent are deposited with the Railways and issued from their store to ensure that adequate quantity is used by the petitioner for the execution of the awarded work.
4. In view of the above, we hold that, the property in the consumable chemicals used in the process of cleaning does not transfer to the Contractee/Railways and accordingly the said goods are not exigible to tax. Since the said goods are not exigible to tax, the Contractee/Railways is not liable to deduct Tax at Source and the Commissioner VAT is liable to grant a certificate for NIL deduction of Tax Deducted at Source.
Extract of the High Court Judgment
1. The petitioner (Contractor) impugns the order dated 30.06.20 14 passed by the Commissioner Valued Added Tax holding that the chemicals/Solvents used in the process of cleaning, amounted to sale of goods and the moment the chemicals were poured on the property of the Contractee, even though used for the purposes of cleaning, amounted to delivery of the same and thus the same was exigible to Tax.
2. The questions that arise for consideration in the present writ petition are whether the consumable chemicals/solvents used in the process of cleaning amounts to transfer of property in the goods between the contractor and the Contractee and is thus exigible to tax. The second question raised by the petitioner, i.e. whether the Commissioner was liable to grant a certificate for NIL deduction of Tax Deducted at Source, is dependent on the answer to the above question.
3. The petitioner is engaged in the business of providing services of maintenance, cleaning, washing, housekeeping, waste management,
4. The petitioner was awarded a contract by the Northern Railways (hereinafter referred to as the Contractee) in relation to the management, cleaning, washing, housekeeping, waste management, at Diesel Shed Shakurbasti and at Training School Shakurbasti.
5. It is contended by the petitioner that the contract was for cleaning of sites of Northern Railways (Contractee) and was a pure service contract and no transfer of property from the Petitioner (Contractor) to Northern Railways (Contractee) was involved. It is contended that the activities undertaken by the petitioner did not constitute a sale within the meaning of Delhi Value Added Tax, 2004 (hereinafter referred to as the DVAT Act).
6. It is contended that being a service contract the petitioner is paying service tax @ 12.36% on the entire consideration received by it from the Contractee. There is no separate payment made for the use of consumables. It is contended that as the payment made by the Contractee to the petitioner was not because of transfer of property in goods, no tax was required to be deducted at source under Section 3 6(A) of the DVAT Act. It is contended that the Contractee (Railways) to be on safe side insisted on deduction of tax at source.
7. It is contended that for the purposes of providing the service of cleaning, the petitioner was required to use soap/detergent/chemical of a very minimal quantity and a very nominal value. The soap/detergent/chemical was used for removing the muck/grime and the same got completely ‘consumed’ in the process and were not transferred to the Railways. It is contended that the contract involved pure labour and service and was a mere works contract.
8. An application was filed before the Commissioner of DVAT under Section 36(A) (2) of the DVAT Act seeking certificate to the effect that the Railways should not deduct tax at source.
9. By the impugned order dated 30.06.2014, the Commissioner (DVAT) relying on the judgment of the Kerala High Court in ‘Enviro Chemicals Vs. State of Kerala 39 VST 434 (Ker) held that the moment the applicant pours the chemical on to the property of the Contractee, he will cease to be the owner and at that point of time the awarder must be deemed to have taken delivery of the same.
10. In Enviro Chemicals (Supra) the court held that upon chemical being poured into the effluent, it loses its identity and that, it is consumed will not detract from the fact that there is delivery of the same to the awarder (Contractee), accordingly, the exigibility to tax is beyond any doubt.
11. Northern Railways arrayed as Respondent No. 2 filed its counter affidavit contending that there is no transfer of property involved from the petitioner to the Railways and these materials are not supplied directly to the Railways and Railways does not release any payment against the said materials.
12. The counter affidavit lists out the material/accessories and its quantity required per month. It is also contended that all consumable items are to be deposited in the sheds store (with the Railways) per month and these materials are to be issued after recommendations of the competent authority or nominated supervisor. The counter affidavit further contends that the arrangement of handing over the material to Railways is an operational procedure to ensure that the requisite quantity of consumables is used by the contractor. It is specifically averred that transfer of property is not involved in this contract.
13. Per contra, Special Commissioner, Department of Trade & Taxes filed the counter affidavit on behalf of Department of Trade & Taxes and defended the impugned order contending that the contract between the parties i.e. the petitioner and the Railways is a works contract of a composite nature. The property in goods i.e. chemical is transferred by the petitioner to the Railways. The petitioner is required to calculate chemical/solvent per month and the same has to be delivered by the petitioner to the Railways. The contract stipulates that cost of chemicals and machines is included in activities mentioned in the schedule of unit rates.
14. It is contended that it is not just a service contract but a composite contract including transfer of property in goods involved in execution of the work contract. It is contended that the chemicals have been used extensively in the process of preparing, improving and cleaning of Railways property. The chemicals/solvents used are goods involved in execution of the works contract and the moment the petitioner poured chemicals on the property of the Railways he ceased to be the owner and at that point of time, the Railways is deemed to have taken delivery of the same. Thus, it is contended that the scope of work to be performed is such that there is transfer of property from the petitioner to the Railways, in the chemicals/solvents involved, in the execution of the works contract.
15. To settle the controversy, let us examine the relevant provision of the DVAT Act.
16. Section 2(1) (zc) of the DVAT Act defines ‘sale’ as under:
“ sale’ with its grammatical variations and cognate expression means any transfer of property in goods by one person to another for cash or for deferred payment or for other valuable consideration (not including a grant or subvention payment made by one government agency or department, whether of the Central Government or of any State Government, to another) and includes-
(i) ********
(ii) ********
(iii) transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(iv) ********”
17. In terms of Section 2(1) (zc) of the DVAT Act, when goods are used in execution of a works contract and there is transfer of property in such goods, then there is a deemed sale of the goods irrespective of the fact that the goods are in the same form or their form has changed.
18. The core issue is whether there is any transfer of property in the chemicals etc. that are used by the petitioner in the execution of the awarded work.
19. The Petitioner has been awarded the contract for execution of the work of Housekeeping, maintenance, cleaning, waste management and Locomotives cleaning & washing. The scope of work awarded to the petitioner is as under:-
