2021 (12) TMI 476 - HC - VAT and Sales Tax

High Court Rules Against Petitioner in Tax Case, Affirms Liability for VAT on Repossessed Assets

The High Court dismissed the Tax Cases, ruling against the Petitioner/Appellant on all substantial questions of law. The court affirmed that the ... Scope of 'dealer' as per section 2(15) of the TNVAT Act, 2006 - sale of repossessed vehicle - contractual agreements specifically states the Petitioner/Appellant as not the owner of the Vehicle - Resale of Plant and Machinery, Furniture and Fittings and Fixed Asset by the Petitioner/Appellant - HELD THAT:- The identical questions of law were already decided against the assessee by a Division Bench of this Court, in Tax Case (Revision) Nos.2 to 9 of 2019 on 25.09.2019 in the case of Cholamandalam Investment v. The State of Tamil Nadu [2019 (9) TMI 1597 - MADRAS HIGH COURT] where it was held that Tax case dismissed. Issues Involved:1. Determination of whether the Petitioner/Appellant qualifies as a 'dealer' under section 2(15) of the TNVAT Act, 2006.2. Tax liability on the sale of repossessed vehicles by the Petitioner/Appellant under the VAT Act.3. Classification of the Petitioner/Appellant as a dealer despite not owning the vehicles as per contractual agreements.4. Applicability of VAT on the resale of Plant and Machinery, Furniture and Fittings, and Fixed Assets used in the Petitioner/Appellant's business.5. Classification of the sale of Plant & Machinery, fixtures, furniture, air conditioners, etc., as scrap.Detailed Analysis:1. Determination of Dealer Status under Section 2(15) of the TNVAT Act, 2006:The court examined whether the Petitioner/Appellant qualifies as a 'dealer' under section 2(15) of the TNVAT Act, 2006. The court referred to a previous decision in the case of Cholamandalam Investment v. The State of Tamil Nadu, which established that entities like banks and non-banking financial companies (NBFCs) involved in the sale of repossessed vehicles fall within the definition of 'dealer.' The court noted that the definition of 'dealer' under Section 2(15) is broad and includes entities disposing of goods, even if they do not claim ownership but have the right to dispose of the goods.2. Tax Liability on Sale of Repossessed Vehicles:The court upheld the decision that the sale of repossessed vehicles by the Petitioner/Appellant is subject to VAT. The court emphasized that sales made by financial institutions like the Petitioner/Appellant are considered compulsory sales for debt realization and are not merely conducted as agents for the vehicle owners. The court referenced the HDFC Bank Ltd. case, where it was held that such entities are liable for sales tax on repossessed vehicles.3. Classification as Dealer Despite Contractual Non-Ownership:The court rejected the argument that the Petitioner/Appellant is not a dealer because the contractual agreements state that they are not the owners of the vehicles. The court pointed out that the nature of the transactions, which involve repossession and sale without the borrower's express consent, aligns with the activities of a dealer as defined under the TNVAT Act. The court also noted that the Petitioner/Appellant's actions are independent and not merely as agents of the borrowers.4. Applicability of VAT on Resale of Business Assets:The court addressed whether the resale of Plant and Machinery, Furniture and Fittings, and Fixed Assets used in the Petitioner/Appellant's business is subject to VAT. The court ruled that these transactions fall within the definition of 'sale' under the TNVAT Act and are thus subject to VAT. The court referred to the broad definitions of 'sale' and 'turnover' under the Act, which include the disposal of goods, whether on one's own account or on behalf of others.5. Classification of Sale of Business Assets as Scrap:The court dismissed the contention that the sale of Plant & Machinery, fixtures, furniture, air conditioners, etc., should be treated as scrap and thus not subject to VAT. The court held that these items, when sold, constitute a 'sale' under the TNVAT Act and are liable for VAT. The court emphasized that the classification of these items as scrap does not exempt them from VAT liability.Conclusion:The High Court dismissed the Tax Cases, ruling against the Petitioner/Appellant on all substantial questions of law. The court affirmed that the Petitioner/Appellant is a 'dealer' under the TNVAT Act, liable for VAT on the sale of repossessed vehicles and business assets. The court's decision was based on the interpretation of relevant statutory provisions and previous judicial precedents.