In a recent case, the Kerala High Court rejected the assessee’s claim for a service tax refund to meet the Value Added Tax(VAT) demand on the pest control contract and dismissed the writ petition.
M/S.Gaiagen Technologies Private Limited, the petitioner challenged the order by which, the Kerala Value Added Tax Appellate Tribunal (‘the KVAT Appellate Tribunal’) partly allowed the appeals filed by the State and modified the directions of the First Appellate Authority and directed the Assessing Authority to complete the assessment afresh, taking note of the decision of the Apex Court in State of Gujarat v. Bharat Pest Control.
There is a further prayer for a direction to respondents 4 and 5 to deposit the amount of service tax erroneously collected from the petitioner to the 1st respondent to discharge the VAT liability confirmed by order. Further challenged the order rejecting the request for refund of the service tax paid and notice issued under Section 25(1) of the Kerala Value Added Tax Act (‘the KVAT Act’).
The petitioner submitted that the question of whether the business of pest control undertaken by the petitioner would fall within the meaning of a service contract or not is a pure question of fact which has to be decided based on the specific terms of the contract entered into between the parties and that the blind reliance placed by the Appellate Tribunal on a decision of the Apex Court rendered in different fact circumstances is completely erroneous and unjustifiable.
It was submitted that a transaction cannot, at the same time, be a service contract and a works contract. It is submitted that in case there is no transfer of property like goods or otherwise and where all that is intended and executed is the performance of a service per se, there can be no element of sale involved and the imposition of VAT on such a transaction would be completely erroneous.
It was argued that the petitioner, based on its conviction that the transaction in question is a service contract had paid service tax in respect of the entire turnover for all the periods in question and that in case it is found that the contract was a works contract, it is for the Service Tax Authorities to pay the amount found due as VAT to the VAT Authorities in Kerala since in that case, the collection of service tax from the petitioner would be erroneous.
It was contended that the petitioner is admittedly providing services of pest control. It was submitted that the very specific clauses of the contract will show that the contract is a service contract simplicitor and that there is no transfer of property in the form of goods or otherwise involved in the said contract.
On the other hand, it was contended that a pest control contract cannot be carried out without the consumption of pesticides and chemicals and that it has been held that where such pesticides or chemicals are used for pest control in a contract, there is an element of sale involved and that the contract would, therefore, fall specifically within the four corners of a works contract.
It was found that if there is any amount payable by the petitioner as VAT for the period when it has already remitted service tax in respect of its entire turnover, then, the service tax authorities should be directed to make the payment.
The petitioner had made the payment of the service tax for the periods in question voluntarily and had never challenged the authority of the Service Tax Authorities. It was evident that there was no specific contention raised by the petitioner that the burden of the service tax that he had paid to the appropriate authorities had not been passed on to the end customer. In the absence of such a specific contention, the court observed that the petitioner cannot place any reliance on the doctrine of unjust enrichment against the revenue.
A single bench of Justice Anu Sivaraman has observed that the claim of the petitioner that the Service Tax Authorities must be directed to meet the demand of VAT, if any, found payable by the petitioner cannot be accepted under the circumstances. The said contention is devoid of merits. The prayer to that effect is declined.
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