Transfer of right to use goods taxed at execution, so later lease receipts under a prospective VAT law were not taxable.

Lease rentals received after 1.4.2005 for cars leased and delivered before that date were not taxable under the Karnataka Value Added Tax Act, 2003. The taxable event in a transfer of the right to use goods occurs when the agreement is executed and the right is transferred, not when deferred rentals are later received. Because the transactions were completed under the Karnataka Sales Tax Act, 1957 and the cars had already suffered local tax, the assessee retained the vested immunity available under the proviso to Section 5-C of that Act. The VAT Act operated prospectively and contained no express retrospective levy to withdraw that protection or tax the later receipts.

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Issues: Whether lease rentals received after 1.4.2005 in respect of transfer of right to use KST suffered cars leased out prior to 1.4.2005 were exigible to tax under the Karnataka Value Added Tax Act, 2003.

Analysis: The lease transactions were entered into and the cars were delivered during the regime of the Karnataka Sales Tax Act, 1957. The taxable event in a transfer of right to use goods occurs when the agreement is executed and the right is transferred, not when the deferred rentals are subsequently paid. The cars had already suffered local tax, and the assessee had acquired a vested immunity under the proviso to Section 5-C of the Karnataka Sales Tax Act, 1957. The Karnataka Value Added Tax Act, 2003 was prospective from 1.4.2005 and contained no express provision taking away that vested right or creating a fresh levy on deferred receipts arising from a pre-existing sale transaction.

Conclusion: The lease rentals received after 1.4.2005 were not exigible to tax under the Karnataka Value Added Tax Act, 2003, and the finding of the Tribunal was upheld.

Ratio Decidendi: Where the taxable transfer of right to use goods is completed under the earlier sales tax regime, subsequent receipt of deferred consideration does not create a fresh taxable event under a later prospective VAT statute in the absence of express retrospective levy.

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