MODI XEROX LTD Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) THIS sales tax revision Petition is filed aggrieved by the order of the Karnataka Appellate Tribunal, Bangalore, in S. T. A. No. 1397 of 1994 and also assessment order dated October 15, 1996. The petitioner is a public limited company doing business in xerox machines, parts and accessories. It is having registered office and factory at Modipuram in U. P. , head office in Delhi and branches all over the country including one at Bangalore. It filed a return disclosing total and taxable turnovers at Rs. 4,23,58,510 and Rs. 1,63,58,556, respectively. The assessing authority who verified the books of accounts rejected the declared turnovers and determined total and taxable turnovers at Rs. 10,34,70,495 and Rs. 4,70,23,693. While doing so it held that the petitioner is not entitled to exemption from the tax on amounts received towards execution of works contract. Aggrieved by that assessment order the petitioner filed an appeal before the Joint Commissioner of Commercial Taxes (Appeals), BCD IV, Bangalore. That appeal was remanded on the ground that certain reductions were not considered. Against that order appeal is filed before the Karnataka Appellate Tribunal, Bangalore. The Appellate Tribunal dismissed the appeal after elaborately considering entire material on record. In the meanwhile after remand the assessing authority passed an order holding that the spare parts supplied and the goods supplied during course of service even though some of the goods are consumed in the course of maintenance of machines amounts to sale, therefore liable to tax under section 5b of the Karnataka Sales Tax Act, 1957. Therefore, the petitioner filed this revision petition.

(2.) THE petitioner-company has entered into an agreement called SSMA (Spares and Service Maintenance Agreement) and FSMA. (Full Service Maintenance Agreement ). They are more in the nature of an insurance coverage for a bundle of services rendered. It is contended by the petitioner that there is no element of sale liable to tax. Therefore, section 5b of the Act is not attracted as it is purely service contract. The basis for the charge is the transfer of property in goods for price. In the instant case both under FSMA and SSMA there was no transfer of property of goods either spares or consumables for price. So, the charge under section 5b is not attracted. It is contended that as the terms of agreement replaced a non-functional part with a functional part, it was purely a case of barter not involving transfer of property for price. The remuneration both in respect of FSMA and SSMA was fixed for bundle of service irrespective of the nature and value of the materials to be used in service and maintenance. There was no consensus arrived at between parties; no agreement either to sell or to purchase any goods involved in service/maintenance contracts and so it cannot be said there is a sale of spares and consumables for the price so as to attract the tax under section 5b of the Act. It is further contended in Sl. No. 21 of the Sixth Schedule provides for levy of tax on full service and maintenance of the instruments, equipments, appliances, or plant and machinery, that levy related to a case of works contract where there was transfer of property in goods for price. When the works contract is of purely in the nature of service rendered that charge under section 5b read with section 2 (1) (vi) was attracted and there is no question of levy of any tax relying on serial No. 21 of the Sixth Schedule to the Act. It is further contended that goods which are consumable are essential for rendering service and they will be consumed in the course of functioning of machines and the goods will not be available in any other form, therefore it cannot be said that it has the element of sale. The exchange of the spare parts for the old parts though agreement provides that it will take away old parts, it is only a barter but not sale, for they have got the right to take away supplied spare parts whenever they want and therefore, there is no transfer of ownership of goods, so there is no sale. Further, as per the terms of the agreement, supply of spare parts are without any price. Therefore, in the absence of the transfer of ownership of goods and non-payment of price the transaction cannot be said as a sale in terms of the definition provided under the Act. So, the company is not liable for tax. It is further contended that nomenclature of the contract alleged should not be looked into but the entire terms of the contract must be considered for coming to a conclusion whether there is element of sale or not.

(3.) THE learned Government Advocate contended that though the contract is termed as service contract, the clause provide for supply of spare parts in exchange of old parts and supply of the other goods, even if they are consumable, amounts to sale. The company is entitled to take away the old parts. Further, the contract provides that for rendering service of supplying spare parts and consumable goods in toto the company received 0. 27 paise per copy and Rs. 7,000 per annum as per terms of contract. Therefore, the price for the goods is part and parcel of 0. 27 paise and Rs. 7,000 per annum. It is contended that though the price for the goods supplied and charges for the service rendered is indivisible the authority can come to a conclusion following the principle laid down under rule 6 of the Rules framed under the Karnataka Sales Tax Act. Therefore, the contention that there is no sale is incorrect. As per the definitions of the "goods" and "sale" in the Act, the supply of spare parts, the consumable goods and for service rendered the company is charging 0. 27 paise per copy and Rs. 7,000 per annum which include price for the goods supplied or replaced.