Prodair Air Products INDIA Private Limited vs. The Deputy Commissioner Of State Tax

Held

The High Court held that the agreement was for the supply of industrial gases, not a works contract involving the transfer of property in the plant, as ownership remained with the appellant. The method of pricing, which included recovery of investment, did not alter the fundamental nature of the transaction. The taxing authority wrongly assumed jurisdiction by mischaracterizing the contract.

Facts

Prodair Air Products India Pvt Ltd, a supplier of industrial gases, entered into a Build, Own, Operate (BOO) contract with BPCL to supply gases for 15 years, retaining ownership of the plant. The KVAT assessing authority treated this as a works contract, applying KVAT Rule 10(2) proviso, and levied tax at 14% on the cost of the plant plus profit, instead of 5% on gas supply. The appellant challenged these assessment and penalty orders, but their writ petitions were dismissed by a Single Judge.

Key Issues

Whether a BOO contract for the supply of industrial gases, where the supplier retains ownership of the plant, constitutes a works contract under the KVAT Act. Whether the pricing mechanism, which includes recovery of investment, changes the nature of the transaction.