Page 79 - GSTL_3rd September 2020_Vol 40_Part 1

2020 ] TATA CONSULTANCY SERVICES v. COMMISSIONER OF TRADE TAX, U.P. 13
what the parties had intended when they entered into a particular
transaction of sale, as being the subject-matter of sale or purchase.
In arriving at a conclusion the court would have to approach the
matter from the point of view of a reasonable person of average in-
telligence.
Lastly, they held that no one denies the legislative competence of
States to levy sales tax on sales provided that the necessary concom-
itants of a sale are present in the transaction and the sale is distinct-
ly discernible in the transaction.
** ** **
88. This does not however allow State to entrench upon the Union
List and tax services by including the cost of such service in the val-
ue of the goods. Even in those composite contracts which are by le-
gal fiction deemed to be divisible under Article 366(29A), the value
of the goods involved, in the execution of the whole transaction
cannot be assessed to sales tax. As was said in Larsen &Toubro v. Un-
ion of India, (1993) 1 SCC 365.
The cost of establishment of the contractor which is relatable to
supply of labour and services cannot be included in the value of the
goods involved in the execution of a contract and the cost of estab-
lishment which is relatable to supply of material involved in the ex-
ecution of the works contract only can be included in the value of
the goods.
39. From the aforesaid Clauses; it is abundantly clear that the parties have
entered into an agreement whereby the assessee renders service to the cli-
ent for development of software, i.e., for software development and other
services. Pursuant to the agreement and the work orders, the service shall
be performed by the assessee. Services must be requested by issue of a valid
work order together with a statement of work. As compensation for the
service rendered to the customer, the fees specified in the relevant work or-
der or in the statement of work is payable and billing is done on a time and
material basis or on a fixed price on a monthly basis. Pricing for time and
material projects shall be fixed at a rate set forth in Annexure-A to the
agreement.
43. In the agreement or from any other material on record, there is noth-
ing to indicate that the assessee purchases the software from the market,
improves the same according to the specification of the client and then de-
livers the same to the client. On the contrary, the agreement clearly disclos-
es that the assessee’s technicians either work at their office or go to the
place of the client, carry out the project work and find solutions and if at the
end of the day, any software emerges, same is embedded on a CD. The
software so developed, from the inception is the property of the customer.
At no point of time the said software is the property of the assessee. Even
before the software/goods came into existence, it was the property of the
customer. The terms of the contract as set out above, do not indicate sale of
any software. On the contrary, those terms make it very clear that the
agreement is a simple service contract, whereunder the assessee provided
its staff and its employees who are well trained in the field and who would
develop the software according to the specification of the customer.
44. In fact, a careful reading of the agreement shows that, the employees
of the assessee and the employees of the customer have to work hand in
hand, consult at every stage, have interactions and understand the need
and requirement of the customer and through their employees, the software
is to be developed. The technicians of the assessee and the employees of the
customer are working together at the project site. In most of the cases, the
service rendered by the assessee is in the nature of making one of the inputs
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