In a service contract, consumable goods integral to the execution of the contract and completely consumed in the process do not result in the transfer of property, and thus, are not exigible to tax.

SANJEEV SACHDEVA, J.

WP(C) 7843/2014 & CM No. 18415/2014

1. The petitioner (Contractor) impugns the order dated 30.06.2014 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, etc.

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, etc. 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 36(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 pay