IN THE COURT OF COMMISSIONER DEPARTMENT OF TRADE AND TAXES GOVERNMENT OF N.C.T. OF DELHI VYAPAR BHAWAN, NEW DELHI

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1 IN THE COURT OF COMMISSIONER DEPARTMENT OF TRADE AND TAXES GOVERNMENT OF N.C.T. OF DELHI VYAPAR BHAWAN, NEW DELHI No.309/CDVAT/2012/59 Dated: M/s Aakash Educational Services Ltd., Aakash Tower, Plot No.-4 MLU, Sector-11, Dwarka, New Delhi ORDER Present for the Applicant : Sh. Raj Kumar Verma, Authorized Signatory Present for the Department : Sh. T.C. Sharma, DR The above named applicant filed an application on 30/04/2012 under section 84 of Delhi Value Added Tax Act, 2004 (hereinafter referred to as the said Act ) and the question put up for determination under the aforesaid provision of law is as under: - Whether providing Tablet PC (with accessories) for imparting coaching to students for Distance Learning Program (DLP) courses shall be considered as sale under the meaning of DVAT Act, 2004 and attracting the liability of payment of DVAT on the same? 2 The application has been preferred in the prescribed format DVAT-42 and the requisite fee of Rs.500/- paid through Bank Challan no dated 30/04/ The applicant is carrying on the business of providing coaching/teaching for Pre-Medical, Engineering and other exams to students. The applicant is running various courses like Regular Classroom courses, Distance Learning Program (DLP) courses. The course fee charged by the applicant from its students is inclusive of all the cost of Lectures, study material/course-ware, Mock Tests, Modules etc. and no additional amount from the students apart from course fee is charged.

2 4 Recently, the applicant has launched a new product known as Aakash itutor under its Distance Learning Program (DLP) courses. With this new product, the applicant has stepped ahead in the field of e-learning. The Tablet PC (with accessories) is being a part of student's course-ware/study Material and the same will be provided to the students who get enrolled to DLP course i.e. Aakash itutor along with other study material (books etc.). The Tablet PCs (with accessories) have been procured from M/s Edutor Technologies India Pvt. Ltd. after paying the applicable rate of VAT/CST. These Tablet PCs (with accessories) are to be customized as per the requirement of the applicant before they are provided to students who get enrolled for DLP courses. 5 The applicant has contended that coaching/teaching is the sole business and he is not engaged in the business of any type of sale purchase of tangible items or goods. The applicant is paying Service Tax to the Govt. on the entire course fee charged from the students. The Tablet PCs (with accessories) which are to be provided to the students, who get enrolled with the applicant for DLP courses, are a part of study material. Therefore, DVAT should not be levied on the event of providing Tablet PCs (with accessories). 6 Further in support of his contention the applicant has referred to the Press Release, dated titled Taxation of Services An Education Guide issued by Central Board of Excise & Customs, Department of Revenue,Ministry of Finance, Govt. of India which is to be implement/effective w.e.f. 1 st July, The applicant has referred to para of the said press release, which is regarding the taxability of composite transaction and is reproduced below: What is the manner of dealing with composite transactions which in addition to a transfer of title in goods involve an element of provision of service? The manner of treatment of such composite transactions for the purpose of taxation, i.e. are they to be treated as sale of goods or provision of service, 2

3 has been laid down by the Honorable Supreme Court in the case of Bharat Sanchar Nigam Limited vs Union of India [2006(2)STR161(SC)]. The relevant paras 42 and 43 of the said judgment are reproduced below Of all the different kinds of composite transactions the drafters of the 46th Amendment chose three specific situations, a works contract, a hire purchase contract and a catering contract to bring within the fiction of a deemed sale. Of these three, the first and third involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been Constitutionally permitted in Clauses (b) and (g) of Clause 29A of Art. 366, there is no other service which has been permitted to be so split. For example the clauses of Article 366(29A) do not cover hospital services. Therefore, if during the treatment of a patient in a hospital, he or she is given a pill, can the sales tax authorities tax the transaction as a sale? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. 43. The reason why these services do not involve a sale for the purposes of Entry 54 of List IIis, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley s case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29A) continues to be - did the parties have in mind or intend separate rights arising out of the sale of goods. If there 3

4 was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is the substance of the contract. We will, for the want of a better phrase, call this the dominant nature test. The following principles emerge from the said judgment for ascertaining the taxability of composite transactions- Except in cases of works contracts or catering contracts [exact words in article 366(29A) being service wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as part of the service ] composite transactions cannot be split into contracts of sale and contracts of service. The test whether a transaction is a composite transaction is that did the parties intend or have in mind that separate rights arise out of the constituent contract of sale and contract of service. If no then such transaction is a composite transaction even if the contracts could be disintegrated. The nature of a composite transaction, except in case of two exceptions carved out by the Constitution, would be determined by the element which determines the dominant nature of the transaction. _ If the dominant nature of such a transaction is sale of goods or immovable property then such transaction would be treated as such. _ If the dominant nature of such a transaction is provision of a service then such transaction would be treated as a service and taxed as such even if the transaction involves an element of sale of goods. In case of works contracts and service wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as part of the service the dominant nature test does not apply and service portion is taxable as a service This has also been declared as a service under section 66E of the Act. For guidance on these two types of composite transactions and the manner of determining the value portion of service portion of such composite 4

5 transactions please refer to point nos. 5.8 and Paper. 5.9 of this Guidance If the transaction represents two distinct and separate contracts and is discernible as such then contract of service in such transaction would be segregated and chargeable to service tax if other elements of taxability are present. This would apply even if a single invoice is issued. The principles explained above would, mutatis mutandis, apply to composite transactions involving an element of transfer of title in immovable property or transaction in money or an actionable claim. The applicant has claimed that the above judgement by Hon'ble Supreme Court of India does apply in its case and the interpretation of the above extract is applicable on the applicant as it is providing composite services which includes the sale of goods i.e. Tablet PC with accessories and sale of services i.e. coaching skill. Further, the applicant has claimed that the dominant nature in its case is the sale of service as it is a basically service provider and not engaged in the business of any type of sale purchase of tangible items or goods. 7 The dealer has relied on the above referred contents of the guide but in para 1.2 of the said guide it has been clarified that the said press release is not a legal document, the para reads as under: It is clarified at the outset that this guide is merely an educational aid based on a broad understanding of a team of officers of the issues. It is neither a Departmental Circular nor a manual of instructions issued by the Central Board of Excise and Customs. To that extent it does not command the required legal backing to be binding on either side in any manner. The guide is being released purely as a measure of facilitation so that all stakeholders obtain some preliminary understanding of the new issues for smooth transition to the new regime. 8 In this case there are all the ingredients of sale as ownership of the goods i.e. Tablet PC (with accessories) has been transferred. The dealer has received the consideration which is the differential value of the conventional course (with study material in the form of 5

6 notes etc) and the new itutor course (with Tablet PC). The website of dealer reveals that the consideration for one year conventional course ranges between Rs.6700/- to Rs.12100/- as compared to the itutor basic course which ranges between Rs.17600/- to Rs.36100/-. The difference in price range confirms that the cost of Tablet PC (with accessories) has been added and charged in the itutor Course Fees. Similarly, there is difference in other courses also. So, the higher value charged is the cost of goods i.e. Tablet PC (with accessories) and value addition thereon, hence taxable u/s 2 (1) (zc) of the DVAT Act, The relevant part of the definition of sale is 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) 9 The applicant has referred to para 42 & 43 besides other paras of the judgement delivered by the Hon'ble Supreme Court in the Writ cases of Bharat Sanchar Nigam Limited vs. U.O.I. (2006) 145 STC 91 (SC), but has failed to appreciate the observations of the apex court in the para 85 of the said judgement which reads as under: 85.For the reasons aforesaid, we answer the questions formulated by us earlier in the following manner: (A) Goods do not include electromagnetic waves or radio frequencies for the purpose of Article 366(29A)(d). The goods in telecommunication are limited to the handsets supplied by the service provider. As far as the SIM cards are concerned, the issue is left for determination by the Assessing Authorities. (B)There may be a transfer of right to use goods as defined in answer to the previous question by giving a telephone connection. (C) The nature of the transaction involved in providing the telephone connection may be a composite contract of service and sale. It is possible for the State to tax the sale element provided there is a discernible sale and only to the extent relatable to such sale. 6

7 (D) The issue is left unanswered. (E)The aspect theory would not apply to enable the value of the services to be included in the sale of goods or the price of goods in the value of the service. Further, it is noted that this view finds support from a recent judgement of the Andhra Pradesh High Court rendered in the case of State of A.P. vs. Bharat Sanchar Nigam Ltd. (2012) 49 VST 98 (AP). The court in para (51) of the judgement observed as under: 51. The concept of sale in a subscriber s mind would be limited to the handset that may have been purchased for the purposes of getting a telephone connection. That, and any other accessory supplied by the service provider, alone remain to be taxed under the State sales tax laws. [Bharat Sanchar Nigam Ltd. (supra)]. Modems are necessary to avail access to the broad band service. Modems are provided to customers who are given the option of paying either fixed monthly charges or the full cost of the modem. Telephone instruments, mobile handsets and modems are goods. If the service provider has sold these goods to the subscriber, then such sale is liable to tax under Section 4(1) of the Act. If, on the other hand, the service provider has supplied telephone instruments, mobile handsets, and modems to the subscriber for their use, it would then amount to a transfer of the right to use these goods both under Article 366(29A)(d) of the Constitution of India and under Section 4(8) of the Act, as such supply results in a transfer of the right to use these goods by the subscribers. While the title in the goods, in such cases, may remain with the service provider yet, by fiction of law, it is treated as sales as effective control and possession of these goods is with the subscriber and not the service provider. The contention urged on behalf of the petitioners, that these instruments are supplied free of charge as part of the end equipment and, as such, no tax can be levied thereon, does not merit acceptance. It is the admitted case of the petitioner-bsnl that, in cases where customers purchase their own instruments, they are offered a rebate in installation charges. It is, thus, evident that in cases where the telephone instruments, modems and mobile hand sets are supplied by the petitioners, the subscribers are not given any rebate in the installation charges. In effect, the rebate portion of the installation charges is, admittedly, the consideration received by the petitioners for supply of telephone instruments, hand sets and modems. This consideration would, undoubtedly, constitute either sale or transfer of the right to use goods liable to tax either under Section 4(1) or Section 4(8) of the Act. Even in cases where there is a transfer 7

8 of the right to use goods what can be brought to tax under the Act is only on value of such transfer of the right to use such goods and not on telecommunication services which the service provider also renders to the subscriber. 52. In cases where the subscriber purchases a telephone instrument, mobile handset or modem from a vendor other than the service provider, there cannot be any sale of goods or transfer of the right to use such goods by the service provider to the subscriber, and levy of sales tax on telecommunication services rendered by the service provider, and utilized by the subscriber through these goods which he has purchased elsewhere, would be illegal. 10 Therefore, in view of the detailed discussions made above, and the provisions of law as they stand on date, I am of the considered opinion that providing Tablet PC (with accessories) for imparting coaching to students for Distance Learning Program (DLP) courses shall be considered as sale under the meaning of DVAT Act, 2004 and attracts the liability of payment of VAT on the same. It is, therefore, so held and the application, stands disposed of accordingly. (Rajendra Kumar) Commissioner, VAT. Copy for information and necessary action to: 1. The Applicant. 2. The Addl. Commissioner (Law & Judicial). 3. The Value Added Tax Officer (Policy Branch). 4. President, Sales Tax Bar Association (Regd.). 5. Guard File. (Rajendra Kumar) Commissioner, VAT 8