BY TIOL News Service

NEW DELHI, AUG 06, 2018: THE issue at hand before the bench is whether pesticides and chemicals used to provide pest control services constitutes deemed sale within the meaning of Article 366(29A)(b) and so attract VAT liability. YES is the answer.

Facts of the case

The assessee company, engaged in providing pest control services, received a work order from Reliance Industries. On assessment for the relevant AY, the Revenue opined that the pesticides and other raw material used to execute the works contract, would attract VAT. The Revenue worked on the assumption that there had been no sale of goods in the work contract. The assessee claimed that the contract involved provision of services & the title of the raw material used never passed from the assessee to the service receiver. However, the Revenue held such transaction as classifiable u/s 2(23)(b) of the VAT Act. Such findings were quashed by the Tribunal on grounds that the pesticides & chemicals used were consumed while rendering the service. Later, the High Court held that the works contract for pest control involving the use of pesticides & chemicals is pure process of rendering services & that no sale & supply of goods were involved which would attract VAT liability.

On appeal, the Apex Court was of the view that,

++ the salient features of the contract executed by and between the assessee and the consumer, namely, Reliance Petroleum Limited is to make services of pest control available to the consumer by use of chemicals to be procured and supplied by the assessee. Admittedly, in the course of the execution of the contract there is no trace of the goods or materials used for execution of the contract;

++ considering the decisions of this court in Larsen and Toubro Limited and another vs. State of Karnataka and another and in Kone Elevator India Private Limited vs. State of Tamil Nadu the view taken by the High Court that there is no deemed sale of the goods used in the contract executed by the assessee - contractor cannot have approval. We, therefore, set aside the order of the High Court and allow this appeal.

(See 2018-TIOL-310-SC-VAT)