2008 (2) TMI 350 - HC - VAT and Sales Tax

Court Rules Lockers Rental Not Subject to Trade Tax

ORIENTAL BANK OF COMMERCE Versus STATE OF UP.

The court ruled in favor of the petitioners-Banks, holding that they are not liable to pay trade tax under the U.P. Trade Tax Act, 1948 for renting ... Whether the Banks are liable to pay trade tax under U.P. Trade Tax Act, 1948 for renting Lockers - whether Lockers are 'goods' and right to use Locker can be said to be 'transfer of right to use any goods' attracting liability of tax under the Act – held that locker facility provided by bank to keep valuables in a safe place is a “service” and “sale” element is not involved – hence bank is not liable to pay trade tax Issues Involved:1. Whether the petitioners-Banks are liable to pay trade tax under the U.P. Trade Tax Act, 1948 for renting Lockers to their customers.2. Whether Lockers are considered 'goods' under the Act.3. Whether the right to use a Locker can be said to be a 'transfer of right to use any goods' attracting tax liability under the Act.4. Whether the writ petitions should be dismissed on the grounds of alternative remedy.Issue-Wise Detailed Analysis:1. Liability to Pay Trade Tax for Renting Lockers:The primary question was whether the petitioners-Banks are liable to pay trade tax for renting Lockers under the U.P. Trade Tax Act, 1948. The court examined whether the renting of Lockers constitutes a 'transfer of right to use goods' under the Act. The court concluded that the renting of Lockers by banks does not constitute a 'transfer of right to use goods' and thus, does not attract tax liability under the Act.2. Definition and Nature of Lockers as 'Goods':The court analyzed whether Lockers qualify as 'goods' under the Act. It was argued that Lockers, being part of a Safe Deposit Vault embedded to the earth, are immovable property and not movable property, which is a prerequisite for being considered 'goods' under the Act. The court agreed with the petitioners that Lockers are part of an immovable property and cannot be considered 'goods' for the purposes of the Act.3. Transfer of Right to Use Lockers:The court examined whether the transaction of renting Lockers involves a 'transfer of right to use goods.' It was determined that the renting of Lockers involves providing a service of safety and security rather than transferring the right to use the Lockers as goods. The court noted that the relationship between the bank and the customer is more complex, involving services that are inseparable from the rental of the Locker. Therefore, the transaction does not constitute a 'transfer of right to use goods' under the Act.4. Alternative Remedy:The respondents argued that the petitioners should seek alternative remedies through appeals under Sections 9 and 10(2) of the Act. However, the court found that the issue at hand was a pure question of law regarding the taxability of renting Lockers, which, if decided in favor of the petitioners, would render the entire proceedings without jurisdiction. Hence, the court decided to address the matter on merits rather than dismissing the petitions on the grounds of alternative remedy.Conclusion:The court allowed the writ petitions, quashing the impugned assessment orders and notices. It declared that the petitioners-Banks are not liable to pay trade tax under the U.P. Trade Tax Act, 1948 for renting Lockers to their customers. The court restrained the respondents from proceeding with any assessments against the petitioners regarding the rental charges for Lockers.