Supply of Goods – Karnataka VAT Act

2015-VIL-433-KAR
M/s Zylog Systems Pvt Ltd Vs Addl. Commissioner Of Commercial Taxes, Zone-II, Bangalore

Karnataka Value Added Tax Act – Goods – Sale – Supply of goods – Supply, installation and maintenance of computer systems, supply and printing of smart cards for Transport Department – Demand on the basis of holding that the assessee had supplied the goods (smart cards) to the transport department for consideration and therefore, there is sale of goods – Work Contract –
HELD – 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 – The smart cards supplied to the department are not commercial commodities.
The smart cards, which are produced by the petitioner, have no utility or value to any other person than the department who paid for the service rendered by the petitioner. Another important aspect is that the smart cards also contained the official logo of the Government of Karnataka along with key management microchip. The same cannot be used or sold by the petitioner to any other person.
As such, it was a special kind of job and delicate in nature which is predominant in the transaction and not the value of the materials which are used in executing the job. The smart cards are not the commodities saleable in open market. It fetches no commercial value in the open market. Hence, supply of smart cards to RTO cannot be held as sale. It is a contract for labour and service – the contract entered into between the parties for supply of smart cards is for rendering service only and there is no element of sale – Assessee appeal allowed