1. Recovery of dues of Company by attaching Property of Director – Not Permissible
Attachment of personal property of Director for recovery of possible dues of company under The Gujarat VAT Act is not justified as per section 45(1) assessee-company would be dealer and not its directors.
[M/s. Different Solution Marketing (P.) Ltd. v. Assistant Commissioner of Commercial Taxes,  71 taxmann.com 268 (Gujarat)].
2. Recovery of dues of Principal from Agent – Not Permissible
As per Contract Act, for act of agent, principal may be held responsible, but for liability of principal, agent cannot be made responsible. Therefore, the dues of principal cannot be recovered from agent.
[M. S. Jagadeesh Kumar v. Deputy Commissioner of Commercial Taxes,  71 taxmann.com 235 (Karnataka)].
3.i) Transfer of Technical Knowhow – Sale – Liable for VAT
ii) Franchise Agreements- Giving Permissive Use – Not a Sale
i) Monsanto India developed and commercialised insect-resistant hybrid cotton seeds using a proprietary “Bollgard technology”, one that is licensed to Monsanto India by Monsanto USA through its wholly-owned subsidiary, Monsanto Holdings Private Limited (“MHPL”). This technology is further sub-licensed by Monsanto India to various seed companies on a non-exclusive and non-transferable basis to use, test, produce and sell genetically modified hybrid cotton planting seeds. In return for this technology, Monsanto India received trait fees based on the number of packets of seeds sold by the sub-licensees. These sub-licensing agreements, with almost 40 seed companies, were subject matter of dispute before the Bombay High Court for levy of VAT.
The High Court held that it is true that the essence of a ‘transfer’ is the divesting of a right or goods from transferor and the investing of the same in the transferee, and this is what Salmond on Jurisprudence and Corpus Juris Secundum both say. The seeds embedded with the technology are, in fact, transferred. Monsanto India is divested of that portion of the technology embedded in those fifty seeds and those were fully vested in the sub-licensee The effective control over the seeds, and that portion of the technology that is embedded in the seeds, was entirely with the sub-licensee. That sub licensee was not bound to use the seeds (and the embedded technology) in accordance with Monsanto India’s wishes. Monsanto India cannot further dictate to the sub-licensee what he or it may do with these technology-infused seeds. The sub-licensee can do as it wishes with them. It may not use them at all. It may even destroy the seeds. Once the transaction is complete, i.e., once possession of the technology-imbued seeds is effected, and those seeds are delivered, Monsanto India has nothing at all to do with the technology embedded in those fifty seeds given to the sub-licensee. At no point does Monsanto India have access to this portion of the technology. In other words, the transfer is to the exclusion of Monsanto India. The technology could not have been given to the sub-licensee without them; and there is no other method demonstrated anywhere of effecting any such transfer. It was held that for the transfer of a trade-mark it was not necessary to ‘hand over’ the trade-mark to the transferee or give control or possession of trade-mark to such transferee. This represents the correct position in law.
The Monsanto India sub-licensing transaction could only be a service in one circumstance, i.e., if the seed companies gave Monsanto India a bag of seeds to mutate and improve with the Bollgard Technology which would, thereafter, be returned to the seed companies. That might perhaps be a service. The sub-licensing actually amounts to passage of effective control as well of the Bollgard Technology embedded in the seeds. Accordingly it is a sale and liable to VAT.
ii) The franchise agreement was subject matter of dispute before the High Court and the High Court held that the mere inclusion of ‘franchises’ under the MVAT Act would not automatically make all franchise agreements liable to sales tax. What must be looked at is the real nature of the transaction and the actual intention of the parties. The agreement must be considered holistically, and effect must be given to the contracting parties’ intentions. The label or description of the document is irrelevant. An agreement styled as a franchise might, on a proper examination, turn out to be nothing more than a mere licence (as in Subway’s case). On the other hand, an agreement that calls itself a licence might actually be a franchise. If, in a given case, a franchise agreement is effectively nothing more than a mere permissive use, it cannot be made liable to VAT. It would be a service, and hence liable to service tax. While interpreting a taxing statute, or for that matter any statute, full effect must be given to the words used by the Legislature. This, however, does not mean that this principle must be stretched to a point which leads to an absurd result, or one that was not contemplated by the legislature. The legislature is presumed to know the law and to have acted in accordance with it. Presumably, what the legislature intended was to include only those franchise agreements that involved a transfer of the right to use or some other aspect of a deemed sale as defined under Article 366(29A) of the Constitution. The Subway’s franchise agreement grants to the franchisee nothing more than mere permissive use of defined intangible rights. It is therefore a service, and is not amenable to VAT.
As regards situs of intangible assets the Court further held that while considering tangible assets, there is no doubt as to where their situs is. It is where the goods are physically located. But, an intangible asset does not have any physical form or existence in any physical location. The legislature could have, by some appropriate deeming fiction, expressly provided for the situs of an intangible asset. This it has not done, so far as intellectual property is concerned. It has, however, specifically so provided for shares. Therefore, where the legislature thought it necessary to make express provisions for intangible assets, it has done so. In this legislative vacuum, the internationally accepted principle of mobilia sequuntur personam would apply, i.e., the situs of the owner of an intangible asset would be the closest approximation of the situs of his intangible asset. This is the principle widely used, unless there is a local legislation to the contrary; there is not. Therefore, the situs of Subway’s agreement, would be Delhi where agreements are signed.
[M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd., v. The Union of India and Others, Writ Petition No. 9175 of 2015, and M/s.Subway Systems India Pvt Ltd v. The State of Maharashtra and Others, Writ Petition No. 497 of 2015, dated 11th August, 2016, Bombay High Court].
4. Works Contract – Use of Reinforced Steel – Continues to be Declared Goods – Liable to tax @ 4% – Iron and Steel used to Fabricate Doors and Windows – Not Declared Goods – Not Exempt
Iron and Steel products are used in the execution of works contracts for reinforcement of cement, the iron and steel products becoming part of pillars, beams, roofs, etc., which are all parts of the ultimate immovable structure that is the building or other structure to be constructed does not change form as such is liable to tax @ 4%.
However in works contracts of fabrication and creation of doors, window frames, grills, etc., in which the claim of exemption for iron and steel goods that went into the creation of these items, after which the said doors, window frames, grills, etc., were fitted into buildings and other structures was not accepted in as much as the iron and steel goods, after being purchased, are used in the manufacture of other goods, namely, doors, window frames, grills, etc. which in turn are used in the execution of works contracts and are therefore not exempt from tax.
[Smt. B. Narasamma v. Deputy Commissioner Commercial Taxes Karnataka & Anr., Civil Appeal No.4 318 of 2007, 4319 of 2007, 7400 of 2016, 7401-7872 of 2016 and 7873-7916 of 2016, dated 11th August, 2016, SC].