In today’s Global Economy BOT Contracts are playing vital role in
the Development of infrastructure but there is no proper legislation and
pronouncements which clarifies the status of taxability on these type of
transactions it is sorry to point out that tax authorities in their enthusiasm
to generate more revenue are trying their level best to cover these types of
transactions in the category of works contract whereas infact in my opinion
these transactions are outside the perview of taxability under the works
contract.
The nature of BOT Contracts does not fit in to the fundamentals of
goods taxation qua for the reason there is no transfer of property in goods
beside this there is no element of sale is involved as for sale there must be
transfer of goods for cash, deferred payment or other valuable consideration
and sale price is the amount of valuable consideration received or receivable
for any sale so in the absence of basic ingredients of sale it can be safely
considered that BOT Contracts cannot be taxed under the category of works
contract beside this here it is pertinent to point out that the purpose of
these types of contract is not to purchase goods as movable or immovable, the
main objective is to build or improve the infrastructure for furtherance of
Economic growth and development without any financial burden on the grantor as
in the BOT Contracts, concessionaire never build the infrastructure merely for
the purpose of Construction and transfer rather their aim is to enjoy the
fruits of infrastructure for a specified period in shape of Toll Tax or User
fee so by no stretch of imagination there is a deemed sale by virtue of which
tax can be attracted under the Punjab Value Added Tax Act, 2005
At this juncture, it will be useful to refer to the Relevant Section
of Punjab VAT Act, 2005.
Section 2 (zf)
of Punjab VAT Act, 2005 define “Sale” as:-
“Sale” with all
its grammatical or cognate expressions means any transfer in goods for cash,
deferred payment or other valuable consideration and includes:-
(i)
Transfer, otherwise than in
pursuance of a contract, of property in any goods for cash, deferred payment or
other valuable consideration;
(ii)
Transfer of property in
goods (whether as goods or in some other form) involved in the execution of a
works contract;
(iii)
Delivery of goods on
hire-purchase or any system of payment by installments;
(iv)
supply of goods by any
unincorporated association or body of persons to a member thereof for cash,
deferred payment or other valuable consideration;
(v)
supply, by way of or as part of
any service or in any other manner whatsoever, of goods or any drink (whether
or not intoxicating) where such supply or service is for cash, deferred payment
or other valuable consideration; and
(vi)
every disposal of goods
referred to in Explanation (4) to clause (t) of this section;
and such transfer, delivery or supply of any goods shall be deemed
to be a sale of these goods by the persons making the transfer, delivery or
supply to a person to whom such transfer, delivery or supply is made, but does
not include a mortgage, hypothecation, change or pledge.
Similarly, the definition of “Sale price” is given in section 2 (zg)
as:-
“sale price” means the amount of valuable consideration received
or receivable by a person for any sale made including
any sum charged for anything done by the persons in respect of the
goods at time of or before the delivery thereof;
Explanation:-
(1)
In relation to the transfer
of property in goods (whether as goods or in some other form) involved in the
execution of works contract, ‘sale price’ means such amount as is arrived at by
deducting from the amount of valuable consideration paid or payable to a person
for the execution of such works contract, the amount representing labour and
other charges incurred and profit accrued
other than in connection with transfer of property in goods for such
execution. Where such labour and other charges are
not quantifiable, the sale price shall be the cost of acquisition of the goods
and the margin of profit on them plus the transferring the property in the
goods and all other expenses in relation thereto till the property in such
goods, whether as such or in the other form, passes in a different form, it
shall include the cost of conversion.
(2)
In relation to the delivery of
goods on hire purchase or any system of payment by installments, the amount of
valuable consideration payable to a person for such delivery.
(3)
In relation to transfer of
right to use any goods for any purpose (whether or not for specified period),
the valuable consideration received or receivable such transfer.
(4)
The amount of duties levied or
leviable on goods under the Central and Salt Act, 1944 (1 of 1944), or the
Customs Act, 1962 (52 of 1962), or the Punjab Excise Act, 1914 (1 of 1914),
shall be deemed to be part of the sale price of such goods, whether such duties
are paid or payable by or on behalf of the seller or the purchase or any other
person.
(5)
Sale price shall not include
tax paid or payable to a person in respect of such sale.
There is no consideration which is basic ingredient of
sale transaction
In the BOT Contracts valuable consideration is missing
which is essential ingredient for Sale as the Hon’ble judges of Kerla High
Court held while deciding the case of Rama Vs. STO (1993) 91 STC 216. whereas
Further the definition of work contract under section 2 (zu) of PVAT Act, 2005.
Also talks about valuable consideration “works contract” included any agreement for
carrying out, for cash, deferred payment or other valuable consideration. Building, construction, manufacturing,
processing, fabrication, erection, installation, filling out, improvement,
modification, repairs or commissioning of any movable or immovable property. But
with respect to the BOT Contracts there is no receipt of any deferred payment
or valuable consideration. Receipt made on account of toll has nothing to do
with cost of the project. In the guise of definition of deferred payment, which
is not definite, amount of toll cannot be regarded as sale price. Beside this
the very nature of this transaction doesn’t fit into the fundamentals of goods
taxation. Apparently because there is no transfer of property in any goods so
there could be no liability to either work contract tax under the PVAT Act.
BOT Contracts are infact in the nature of enjoyment of
immovable property
Here it is
worth while to mention that the transaction is in the nature of enjoyment of
the immovable property and not works contract. As this view was held by the
judges of Hon’ble Supreme Court of India, while delivering the judgement of
Titaghur Papers Mills Co. ltd. (1985) 60 STC 213 followed by the Karnataka High
Court in Muninagaiah (1997) 106 STC 294
and the Madras High Court in Tamilnadu Magnesite Limited (2007) 9 VST 360 it
will be interesting to find if the BOT transaction could be held as a profit
prendre that is granting a pure and simple conferment of a right to be exercised
in the projects site accompanied by a right to collect a toll or fees for users
of lanes constructed. In the Titagarh case it was held that any attempt on the
part of state government to tax the amount payable under the contracts would be
unconstitutional as being beyond the taxing power of the State Legislature
under entry 54 of list II of the seventh Schedule of the constitution of India.
And the similar view was also up held in the judgement of Muninagaiah as well
as in the Tamilnadu Magnesite. So the question of Taxability on BOT Contracts
does not arise.
Concessionaire will not transfer the
property even after the completion of specified period rather it is a case of
handing over the site
The Project will be owned by concessionaire for a specified period
and thereafter the same will be handed over and no transfer is involved. It is
not disputed that concessionaire will be the owner of the property erected on
the site for a specific period.
Concessionaire will be treated as owner
even under the Income Tax Act and entitled for claiming the Depreciation
Here it is pertinent to point out that depreciation under the
applicable laws on the property representing the capital investment made by the
concessionaire in the project shall be allowed to the concessionaire.
Concessionaire has to insure the property
at its own costs and expenses as if the owner of the property
In BOT Contracts it was observed that concessionaire has to insure
the property at its own costs and expenses as the owner of the property so
under these circumstances it can be safely said that concessionaire enjoys the
fruit for a specified period and will remain as a owner for a specified period
and thereafter the same will be handed over.
Conclusion:
As per my opinion it can be safely concluded that BOT Contracts
cannot be taxed under the category of works contract as the transaction neither
involves sale or transfer of property in goods nor valuable consideration is
involved so by no stretch tax can be levied and any attempt to tax the
transaction was beyond the states power under entry 54 in list II of the
Seventh Schedule of the Constitution of India. Although commissioner Punjab
while deciding the application u/s 85 (Advance Ruling) has given the verdict in
case of M/s Chetak Enterprises P Ltd. Vs. State of Punjab that BOT transactions
are covered under the category of works contract and are subject to tax under
the Punjab Value Added Tax Act, 2005 but an appeal against the order of
commissioner is still pending before the Hon’ble Punjab VAT Tribunal
