VAT on plant and machinery in a composite lease is valid where the right to use goods is transferred

A composite brewery lease involving land, building, plant and machinery was treated as including a separable transfer of the right to use plant and machinery as goods. The Court applied Article 366(29-A)(d) and Entry 54 of List II to hold that the State could levy VAT on that component, because the lease deed and surrounding attributes showed the necessary transfer of the right to use goods. The presence of service elements and payment of service tax on another component did not take the plant and machinery portion outside the State's taxing power. Authorities cited by the taxpayer were distinguished because they did not govern the same composite renting arrangement.

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Issues: Whether the State was competent to levy VAT on the transfer of plant and machinery under a composite brewery lease by treating that component as goods and vivisecting the lease rent.

Analysis: The transaction was examined as a composite lease involving land, building, plant and machinery, with the lease deed showing transfer of the right to use plant and machinery for consideration. The constitutional scheme under Article 366(29-A)(d) permits taxation of a transfer of the right to use goods, and the State's power to tax sale of goods is traceable to Entry 54 of List II. On the facts, the attributes necessary for a transfer of the right to use goods were present, and the lease could not be treated as beyond the State's taxing power merely because service tax was also paid on another component. The authorities relied on by the petitioner were distinguished on the ground that they did not govern the present composite renting arrangement.

Conclusion: The levy of VAT on the plant and machinery component of the composite lease was held to be within the competence of the State, and the challenge to jurisdiction failed.

Ratio Decidendi: Where a composite lease includes a separable transfer of the right to use plant and machinery as goods, the State may levy VAT on that component under Article 366(29-A)(d) and Entry 54 of List II, notwithstanding that the transaction also contains service elements.

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