Page 77 - GSTL_3rd September 2020_Vol 40_Part 1

2020 ] TATA CONSULTANCY SERVICES v. COMMISSIONER OF TRADE TAX, U.P. 11
in a composite contract as contradistinguished from an indivisible
contract. It may consist of different elements providing for attract-
ing different nature of levy…….
31. Therefore, if computer programming and providing of computer
software involves two aspects, one falling within the power of the Parlia-
ment and the other falling within the power of the State Legislature to enact
the law, the law so enacted cannot be found fault with. When the pro-
gramming and providing of computer software is treated as works contract,
as the works contract necessarily involves an agreement to render service
and an agreement for sale of goods, service aspect could be taxed by the
Parliament and the sale of goods aspect could be taxed by the State Legisla-
ture. But, this distinctiveness of two transactions is to be ascertainable from
the terms of the composite contract. If such an intention is not discernible
from the terms of the contract then we have to find out what is the pith and
substance of the contract or in other words what is the true nature and
character of the contract. If on an examination of the contract as a whole, it
is not possible to discern that the contract involves sale of goods but is es-
sentially an agreement to render service, neither the concept of a works
contract nor the concept of aspect theory is attracted. It is by virtue of Entry
54 in List II of the VIIth Schedule to the Karnataka Value Added Tax Act is
enacted by the State Legislature, as the State Legislature is competent to en-
act laws in respect of sale of goods. By introducing a schedule to the said
enactment and describing under a works contract “programming and
providing a computer software is specified”, unless the said works contract
involves an element of sale of goods, the State Legislature has no power to
levy tax under the said Act. Similarly, the Parliament also has no power to
levy service tax on sale of goods if by including in the Finance Act, devel-
opment of information technology software, study, analysis, design and
programming, information technology software and various other aspects
touching software if it involves sale of goods. It has to be necessarily con-
fined to the service aspect. In both the enactments they specify the types of
activities which are liable for tax. A duty is cast on the Court to interpret
those provisions in such a harmonious way so as to uphold the right of
both the legislations to levy tax which fall within their respective sphere.
37. The Apex Court in the case of Bharat Sanchar Nigam Ltd v. Union of In-
dia, MANU/SC/1091/2006 : (2006) 3 STT 245 dealing with deemed sale has
stated as under :
43. All the clauses of article 366(29A) serve to bring transactions
where one or more of the essential ingredients of a sale as defined
in the Sale of Goods Act, 1930 are absent, within the ambit of pur-
chases and sales for the purposes of levy of sales tax. To this extent
only is the principle enunciated in Gannon Dunkerly Limited. The
amendment especially allows specific composite contracts, viz,
works contracts [(clause (b)], hire purchase contracts [clause (c)], ca-
tering contracts [clause (f)] by legal fiction to be divisible contracts
where the sale element could be isolated and be subjected to sales
tax where the sale element could be isolated and be subjected to
sales tax.
44. Gannon Dunkerley survived the 46th Constitutional Amend-
ment in two respects. First with regard to the definition of “sale” for
the purposes of the Constitution in general and for the purposes of
entry 54 of List II in particular except to the extent that the clauses
in Article 366(29A) operate. By introducing separate categories of
“deemed sales”, the meaning of the word “goods” was not altered.
Thus the definitions of the composite elements of a sale such as in-
tention of the parties, goods delivery, etc., would, continue to be de-
fined according to known legal, connotations. This does not mean
GST LAW TIMES  3rd September 2020  93