State Of Tripura Has No Jurisdiction To Levy VAT For Supply Of LPG Cylinder Under Work Orders Executed Outside The State: Tripura High Court

The Court further held that transport of LPG cylinders by the assessee under the work orders issued by the Indian Oil Corporation Limited (IOCL), did not constitute “transfer of the right to use any goods” under Section 2 (25) of the TVAT Act in view of the fact that the owner of the cylinder was IOCL. Thus, it would not attract VAT, the Court said.

The petitioner, M/s Maharaja Gas Agency, is carrying on the business of distribution and transportation of Liquid Petroleum Gas (LPG). The Indian Oil Corporation Limited (IOCL) issued work orders to the petitioner for transportation of LPG and LPG cylinders.

The petitioner and the authorised representative of IOCL entered into an agreement for execution of the work orders and the same were executed at Guwahati, Assam. Thereafter, the petitioner started to transport LPG and LPG cylinders under the agreement.

During the process of execution of the work orders, the Superintendent of State Tax, Government of Tripura, initiated assessment proceeding against the petitioner under Section 31 of the Tripura Value Added Tax Act, 2004 (TVAT Act). It opined that transfer of LPG cylinders by the petitioner amounted to “transfer of right to use goods” and thus, it fell within the ambit of “sale” under TVAT Act.

Accordingly, an Assessment Order was passed against the petitioner levying value added tax (VAT). Subsequently, demand notices were issued against the petitioner for payment of VAT, interest and penalty. The petitioner filed a writ petition before the Tripura High Court to set aside the Assessment Order and the demand notices.

The petitioner, Maharaja Gas Agency, submitted before the High Court that there was ‘no transfer of right to use goods’ under the work orders and the agreement executed between the parties.

It further contended that the situs of sale would be the place where the property in goods passes, i.e., where the written agreement transferring the right to use is executed. The petitioner, thus, argued that since the written agreements between the petitioner and IOCL were executed in Guwahati, Assam, the situs of the sale would be at Guwahati, Assam. Therefore, the taxing authorities in Tripura would have no jurisdiction to levy any tax, in connection with such agreements, the petitioner said.

Referring to the provisions of the Tripura Value Added Tax Act, 2004 (TVAT Act), the High Court observed that as per Section 4 of the TVAT Act, any transfer of property in goods involved in the execution of a works contract, shall be deemed to be a sale and shall be liable to tax. Also, transfer of the right to use any goods for any purpose, shall also attract tax. Further, as per Section 2 (25) of the TVAT, “sale” includes the transfer of the right to use any goods for any purpose.

The bench noted that the Gauhati High Court in Indian Oil Corporation Ltd. versus Commissioner of Taxes, Assam & Ors. (2009) was dealing with a similar provision under the Assam General Sales Tax Act. The High Court had ruled that in order to constitute a transfer of right to use goods, the effective control of the goods must not remain with the owner, but must stand transferred to the lessee for his use at his will, and it is this transfer of the effective control of the goods, which attracts sales tax.

The respondent/ State submitted before the Court that under the terms and conditions of the agreement entered into between the parties, the IOCL had overall control over the vehicle carrying LPG Gas and LPG cylinder, though the driver and crew members were provided by the petitioner/dealer. Thus, it argued that the State of Tripura had jurisdiction to levy tax, in connection with such agreements.

Rejecting the arguments made by the State, the Court held that since the owner of the cylinder is IOCL, the transport or supply of the LPG cylinders by the petitioner under the work orders did not fall within the ambit of transfer of goods and thus, it did not constitute “sale”, as defined under Section 2 (25) of the TVAT Act.

The Court further noted that since the transaction had taken place in Assam, the State of Tripura had no jurisdiction in connection with the said agreements.

“.. we are of the considered view that the impugned Assessment Order dated 31.03.2021 and consequently, the two demand notices dated 31.03.2021 issued by the respondent no.3 are liable to be set aside and quashed on the point of jurisdiction and also with regard to the right to sale of goods and further with regard to the place of execution of the contract since the situs of the sale which has been executed at Guwahati, the State of Tripura has no jurisdiction in so far as levying of tax by the respondents upon the petitioner”, the Court ruled.

The Court thus allowed the writ petition, and set aside the assessment order and the demand notices.

Case Title: M/s Maharaja Gas Agency versus State of Tripura & Ors.

Dated: 21.12.2022 (Agartala Bench, Tripura High Court)

Counsel for the Petitioner: Mr. Somik Deb, Sr. Advocate. Ms. N. Gupta, Advocate

Counsel for the Respondent: Mr. K. De, Addl. G.A

Citation: 2023 LiveLaw (Trip) 1 

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