Situs of transfer of right to use goods controls VAT levy; tax cannot arise merely from later use within the State.

VAT on lease charges was held unsustainable where the transaction amounted to a transfer of the right to use goods. The taxable event under Article 366(29A)(d) of the Constitution and Section 2(s)(vi) of the Chhattisgarh VAT Act, 2005 is the transfer itself, not the later use or location of the goods. Because the contract transferring the right to use was executed outside Chhattisgarh, the State could not levy VAT merely on the basis that the goods were subsequently used within its territory. The assessment and revisional orders were quashed.

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Issues: Whether VAT could be levied on lease charges received by the assessee from the Railways on the footing that the transaction amounted to a transfer of right to use goods within the State.

Analysis: The decisive question was the situs of the taxable event in a transaction of transfer of the right to use goods. Under Article 366(29A)(d) of the Constitution of India and Section 2(s)(vi) of the Chhattisgarh Value Added Tax Act, 2005, the levy is attracted on the transfer of the right to use goods, not on the use of goods or their location. The legal fiction in the State Act could not extend tax liability where the contract transferring the right to use was executed outside the State and the goods were not brought within the State as the basis of the levy. The transfer was held to have occurred at the place of execution of the agreement, and the assessed lease charges could not be treated as taxable within Chhattisgarh merely because the goods were later used by the Railways.

Conclusion: The levy of VAT on the lease charges was not sustainable and the assessee succeeded.

Final Conclusion: The assessment and revisional orders were quashed, and the writ petition was allowed.

Ratio Decidendi: In a transaction of transfer of the right to use goods, the taxable event and situs of sale are determined by the place where the written contract effecting the transfer is executed, and the State cannot levy tax merely because the goods are located in or used within its territory.

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