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. The ownership of the plant remained with the appellant, and the pricing mechanism, which included recovery of investment, did not alter the fundamental nature of the transaction. The Court found that the taxing authority assumed jurisdiction it did not have by wrongly classifying the contract.

Facts

Prodair Air Products India Private Limited, engaged in producing and selling industrial gases, entered into a Build, Own, Operate (BOO) contract with BPCL to supply gases for 15 years. The agreement involved installing a plant on BPCL's leased land, with the plant remaining Prodair's property unless BPCL exercised an option to purchase it. The assessing authority treated the transaction as a works contract, considering the recovery of investment in the plant as a disguised sale, and levied tax under the KVAT Act at the works contract rate on the plant's cost plus profit, instead of the gas supply rate on the actual gas turnover.

Key Issues

The key legal issue was whether the BOO contract for supplying industrial gases constituted a works contract involving the transfer of property in the plant, thereby attracting a higher tax rate under the KVAT Act, or if it was a mere supply of goods.