HC : 'Smart cards' supplied under computerised system service agreement with RTO, not VATable

HC allows assessee’s appeal, smart cards specifically developed and designed for RTO under an agreement for providing computerized service delivery system, not liable to VAT under Karnataka VAT Act; Assessee had entered into agreement for supply, installation and maintenance of computer systems, supply and printing of smart cards, provision of data entry services and incidental activities at respective transport offices throughout State of Karnataka; Accepts assessee’s contention that, entire project, a ‘service contract’ and supply of smart card only incidental, major portion of value / consideration to contract is towards providing information technology services; Notes assessee’s submission that, loading data (i.e. particulars of each driver) into microchip embedded in smart cards requires lot of skill and ability, after which card gets laminated, made water and tamper proof and hence, money paid by Transport Dept. is towards skilled and sophisticated system; Further, observes that, Intellectual Property Right of project rests with Transport Dept. and smart cards obtained are consumables, having no value in commercial market, same are property of Dept., with no right, title, license conferred upon assessee; Law settled that essential test to be satisfied before an article can be said to be ‘goods’ is that of ‘marketability’; Smart cards have no utility or value to any other person than Dept. who paid for assessee’s services, hence it is not commodity saleable in open market, moreover notes that it contains official logo of Govt. of Karnataka with key management microchip; Observes, “Unless the transaction in truth represents two distinct and separate contracts and is discernible as such, the State does not have the power to separate the ‘agreement to sell’ from the ‘agreement to render service’, and impose tax on the sale”; Relies on SC ruling in BSNL and Idea Mobile Communication wherein it was held that value of SIM card forms part of taxable service on which service tax is payable  : Karnataka HC