# **IN THE HIGH COURT OF KERALA AT ERNAKULAM**
# **PRESENT**
**THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN**
**&**
**THE HONOURABLE MR. JUSTICE ASHOK MENON**
**MONDAY ,THE 28TH DAY OF JANUARY 2019 / 8TH MAGHA, 1940**
**OT.Appeal.No. 11 of 2010**
## **APPELLANT/S:**
**ELECTRONICS CORPORATION OF INDIA LTD. III FLOOR, MARKET ROAD NORTH, THURUTHUMMEL BUILDING, TATAPURAM POST, COCHIN 682031.**
**BY ADVS. SRI.E.K.NANDAKUMAR (SR.) SRI.P.GOPINATH (SR.) SRI BENNY P THOMAS SRI.K.JOHN MATHAI SRI RAJAKANNAN**
## **RESPONDENT/S:**
**STATE OF KERALA REPRESENTED BY THE SECRETARY, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM**
## **OTHER PRESENT:**
## **SRI V.K SHAMSUDHEEN, SR.GP**
**THIS OTHER TAX APPEAL HAVING BEEN FINALLY HEARD ON 28.01.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:**
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## **JUDGMENT**
## Vinod Chandran, J.
The appeal is from an order of clarification under Section 94 of the Kerala Value Added Tax Act, 2003. The order is appended at Annexure D. The issue raised by the appellant is as to whether the Build Operate Maintain and Transfer (BOMT) contract entered into by the appellant with the Motor Vehicles Department of the State of Kerala was a works contract or a right to use the goods. The clarificatory authority found that it is a works contract, against which the appeal is filed.
2. The learned Counsel for the assessee would contend that the contract was entered into in pursuance
of the decision of the Government of Kerala to fully computerise the Motor Vehicles Department (MVD) under the Fully Automated Services of Transport (FAST project). The appellant herein was the Service Provider for the MVD. As per the contract, the appellant has to build up infrastructure, including
site preparation, air conditioning, site maintenance,
procuring, installing and maintaining hardware and
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system software, net work equipments, accessories as also establishing net work connectivity to MVD Headquarters from FAST counters. The installation, commissioning and putting into operation of MVD software, providing stationery and required consumables, providing assistance for the operation aspects of the infrastructure, training of the user department personnel in the usage of the computerized systems and other works as discussed in the request for proposals and amendments thereto, was the sole responsibility of the appellant for a period of three years from the time when the system “goes-live”. The payments were to be made in twelve quarterly instalments, running through out the three year period.
3. The assessee's contention is that the assessee
does not transfer the right in the property over the goods installed or incorporated as infrastructure. The
entire operation and maintenance is the sole
responsibility of the assessee. For the purpose of
software installation, there was a back to back agreement with another, M/s Tera Software Ltd.,
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Hyderabad. The specific contention of the appellant is
that it retains the ownership in the goods till it is transferred to the MVD after three years, the period of the contract for operation and maintenance. The MVD officials in operating the system are merely using it and hence there is only a transfer of right to use involved in the transactions. Specific reference is made to clause (9) of the agreement produced as
Annexure B to advance their contention.
4. The learned Senior Government Pleader, however, points out that at no point during the three year period, when the appellant is operating and maintaining the system, could there be replacement of the goods already installed unless there is a defect, which would require such replacement; which as per the contract is the responsibility of the appellant. It is
specifically argued that the transfer of goods occurs
on the system going-live. The further obligation of
the appellant is only to maintain and operate the system and it can exercise no right to property in the goods. The entire exercise is also covered by the
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decision of the Hon'ble Supreme Court in _**Larsen &**_
_**Toubro Ltd. v. State of Karnataka, 2014 (303) ELT 3**_
## _**(SC)**_ .
5. We specifically notice clause (9) of Anenxure B, which is as under:
_“9. Statute of assets on completion or termination of Contract.- All assets deployed at the offices of the MVD by the SPMVD as per the RFP shall be at the disposal of the MVD and the same shall become the property of the MVD on completion or termination of the contract.”_
6. We do not see any transfer of right to use by the specific clause relied on by the appellantassessee. The contract as entered into by the assessee is to build, operate, maintain and then transfer. We
specifically notice that it is not a transfer of goods,
but the fully operational computerised system, that is occassioned at the end of the three year period. The
property in the goods definitely gets transferred on the system being made operational, which occurs as described in the agreement, when it “goes-live” and the
works contract is completed therein for which deferred payments are made every quarter for the three year
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period when the assessee has the further obligation to operate and maintain the system. The entire system is placed at the disposal of the MVD and there can be discerned no transfer of right to use, since the property in goods gets transferred on the system becoming live. The further obligation on the appellant is only to maintain and operate the system for three years to make it fully functional and free of any technical glitches that may arise in its operation. The obligation to operate and maintain the goods does not confer any title of the goods on the appellant, who has already executed the works contract with transfer of the goods occassioned on its accretion to the works. 7. The learned Counsel for the assessee then has a
contention that the transfer as such occurs only after the three year period, on which there could be sale discerned and tax could be only on the goods, the value of which is available in the schedule to the contract.
We see from the application in Form No.24, as produced by the learned Government Pleader across the bar, that the clarification sought was “Whether turnover involved
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is a right to use or works contract ?”. We do not think that such a contention can be raised at this stage and we also do not favour it, since there can be no sale discernible at the end of the three year
period. Already the sale occurred on accretion of goods as has been deemed after the introduction of
Section 366(29A)(b) in the Constitution of India.
8. We also see from the decision of the Hon'ble
Supreme Court cited herein above that when the
essential characteristics of a works contract of transfer of goods, not in the form of goods is satisfied,
then irrespective of additional obligations, the contract would be covered by the term works contract.
9. The learned Counsel for the appellant has a
contention that the assessee is entitled to deductions
insofar as the civil works carried out, the labour component therein and also the expenditure incurred for
deployment of personnel, as also training of MVD officials in the three year period after “go-live”,
when the assessee had only the obligation to operate and maintain the system. The learned Government
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Pleader specifically points out that the clarification order is only with respect to taxing the transfer of value of goods involved in the contract. The Assessing Officer definitely would look into such contentions and make appropriate deductions as available for a works contract, when taxing the same; if not already done. If the assessment is completed, it is for the assessee to challenge such orders, if deductions in accordance with law, have not been granted. In such circumstances, there is no purpose served by a direction in this appeal.
We, hence, do no find any reason to interfere with the order of the authority for clarification and appeal stands rejected. No order as to costs.
## **Sd/-**
## **K.VINOD CHANDRAN**
## **JUDGE**
## **Sd/-**
## **ASHOK MENON**
_dkr_
**JUDGE**
**APPENDIX**
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## **APPELLANT'S/S ANNEXURES:**
**ANNEXURE A TRUE COPY OF THE REQUEST FOR PROPOSAL, PUBLISHED BY THE MOTOR VEHICLES DEPARTMENT OF THE STATE OF KERALA DATED 04.04.2004.**
**ANNEXURE B TRUE COPY OF THE AGREEMENT ENTERED INTO BETWEEN THE MOTOR VEHICLES DEPARTMENT OF THE GOVERNMENT OF KERALA AND THE APPELLANT, DATED 12.09.2005.**
**ANNEXURE C TRUE COPY OF THE AGREEMENT DATED 15.07.2006, ENTERED INTO BETWEEN THE APPELLANT AND M/S.TERRA SOFTWARE LIMITED.**
**ANNEXURE D TRUE COPY OF THE PETITION FOR CLARIFICATION, SUBMITTED BY THE APPELLANT UNDER SECTION 94 OF THE KVAT ACT. ANNEXURE E TRUE COPY OF THE ORDER OF THE AUTHORITY FOR CLARIFICATION UNDER SECTION 94 OF THE KVAT ACT, DATED 12.12.2009.**
