Decided on April 06,2021

John Energy Limited Appellant


AKIL KURESHI,J. - (1.) This petition is filed by company registered under the Companies Act and who is engaged in providing services of drilling and work over rig. The petitioner specializes in servicing and recharging oil wells of ONGC as per the requirements and specifications of ONGC. Carrying out such works includes drilling, work over rig and allied services. For such purpose, the petitioner possesses its own equipments, tools, has high-skilled and semi-skilled manpower including engineers. As and when the contract is awarded by the ONGC the petitioner deploys its machinery and manpower for the specific work assigned by ONGC. At the time of completion of the work, the petitioner company removes all its equipments and tools and also withdraws the manpower deployed for the work. The petitioner was awarded a contract by ONGC under a work order dated 28.07.2016 for carrying out one such oil servicing work for and on behalf of ONGC. This contract was awarded to the petitioner pursuant to a tender floated by ONGC for such purpose. The Tripura Value Added Tax department sought to levy VAT on the transaction in question on the premise that in the process of execution of the work in question, there was transfer of right to use the machinery and equipments. The Value Added Tax department issued instructions to ONGC to deduct tax at source on such transactions upon which the petitioner filed the present petition.
(2.) It is not necessary to take note of the relevant terms and conditions of the work order, i.e. the agreement under which the petitioner had carried out the work in question for ONGC since it is an undisputed position that identical situation had come up before this Court and by a judgment in case of Quippo Oil and Gas Infrastructure Ltd. v. State of Tripura and others reported in (2015) 1 TLR 38 the Court had held that the transaction in question is not exigible to Value Added Tax. This was on the premise that according to the Court the contract comprised mainly of hiring of services and a very small element of transfer of right to use goods was involved. It was held that the intention of the parties was to treat the contract as a contract for hiring of services and it was not permissible to divide the contract into two separate parts namely of engagement of services and transfer of right to use the goods. On such basis, the Court came to the following conclusions: '[34] After carefully going through the contracts we are of the view that the contracts are mainly for hiring of services. There may be a very small element of transfer of right to use goods but according to us the predominant portion of the contract relates to hiring of services and not to transfer of right to use the goods. We are aware that the dominant nature test is not to be used in composite contracts falling within the ambit of Article 366(29A) but from the reading of the contract it is more than apparent that the intention of the parties was to treat the contract as a contract for hiring of services. Moreover, it is impossible to divide the contract into two separate portions. Every element of the digging directional wells and Mobile Drilling Rig service contains a major element of provisions of services. In such an eventuality it is virtually impossible to divide the contract. It is not possible to work out the value of the right to use goods transferred under the contract. In cases, where the contracts are easily divisible or where the parties have by agreement clearly indicated what is value of the service part and what is value of the transfer of right to use goods part, the contract may be divided. We are in agreement with the Delhi High Court that when the contract cannot be divided with exactitude then the Central Law must prevail. [35] Parties have also been paying service tax and if the State is allowed to tax any portion of the value of the contract then there has to be a proportionate refund of the service tax to that extent. This cannot be done without hearing the Union of India. If there is any dispute between the State or the Union of India then they must resolve it between themselves. The petitioners or the ONGC cannot be made liable to pay both the taxes for the same transaction. [36] In view of the above discussion, we are clearly of the view that in all the cases the transactions do not amount to sale within the meaning of the TVAT Act, 2004. Therefore, all the writ petitions have to be allowed. The State is not entitled to levy any sales tax or Value Added Tax on the transactions in question. It is, therefore, directed that the amount of tax, already deducted and received by the State shall be refunded to the petitioners along with statutory interest latest by 28th February, 2015. In case the amount is not refunded by that date then the State shall be liable to pay interest @12% per annum with effect from 1st January, 2015. [37] All the petitions are disposed of in the aforesaid terms. No order as to costs.'
(3.) We are informed that the State of Tripura had challenged this judgment before the Supreme Court and the SLP was dismissed by an order dated 01.02.2017. Thus, this judgment has achieved finality and the issues so far as this Court is concerned must rest here.;

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