2022 (12) TMI 595 - HC - VAT and Sales Tax

Court rules VAT on lease charges paid by Railways Department to Petitioner Company outside State jurisdiction

M/s. Ultratech Cement Limited, Versus State of Chhattisgarh, Commissioner of Commercial Tax, Raipur (C.G.) Additional Commissioner, Commercial Tax, Raipur (C.G.) Divisional Deputy Commissioner of Commercial Tax, Raipur (C.G.)

The Court held that the imposition of Value Added Tax (VAT) on lease charges paid by the Railways Department to the Petitioner Company was improper and ... Deemed sale - leasing of wagon - Levy of Value Added Tax (VAT) on the lease charges paid by the Railways Department to the Petitioner Company - interstate sale or local sale - Own Your Wagon Scheme - HELD THAT:- The High Court of Orrisa in “M/s Srei International Finance Ltd. Vs. State of Orissa & Ors.” [2008 (3) TMI 638 - ORISSA HIGH COURT[ in somewhat identical set of facts has held that since the sale or purchase was in the course inter-state trade and commerce, the State of Orissa has no jurisdiction to levy tax on the lease rent received. The taxable event is the transfer of right to use goods and not the right to use goods or the use of goods. Therefore, the right to use goods or the use of goods is not the relevant factor to justify the levy of tax. The Orders of the assessment so made by the Assessing Authority and the rejection of the Revision by the Revisional Authority both being in contravention to the provisions of law and also contrary to the Judgments of the Hon'ble Supreme Court, the same thus would not be sustainable and therefore both the Orders deserve to be set-aside/quashed. Issues Involved:1. Levy of Value Added Tax (VAT) on lease charges paid by the Railways Department to the Petitioner Company.2. Jurisdiction of the State of Chhattisgarh to levy VAT on transactions executed outside its territory.Issue-Wise Detailed Analysis:1. Levy of Value Added Tax (VAT) on Lease Charges:The primary issue in this case revolves around the imposition of VAT on the lease charges received by the Petitioner Company from the Railways Department. The assessment for the year 2009-10 was completed on 22.12.2014, where the Assessing Officer assessed the income of Rs.29,20,347/- as lease rent obtained by the Assessee from the Railways Department. This amount was treated as a deemed sale under Section 2(s)(vi) of the Chhattisgarh Value Added Tax Act, 2005 (VAT Act), and tax was assessed at the rate of 18%, amounting to Rs.4,08,849/-.The Petitioner Company argued that the assessment of tax by the State Authorities was flawed because the Agreement was executed outside the territories of Chhattisgarh, and the Wagons were neither delivered nor stationed within the State. The Counsel for Petitioner contended that the amount received as lease charges could not be considered taxable income under the VAT Act, as the transfer of goods occurred outside Chhattisgarh.2. Jurisdiction of the State of Chhattisgarh:The Petitioner's Counsel further argued that the situs of sale in the case of the transfer of the right to use goods should be the place where the Agreement was executed. Since the Agreement was signed in Kolkata and the Wagons were handed over in Rajasthan and West Bengal, the State of Chhattisgarh lacked jurisdiction to levy VAT on the lease charges. The Counsel relied on several Supreme Court judgments, including '20th Century Finance Corpn. Ltd. & Anr. Vs. State of Maharashtra' and others, to support the contention that the location where the contract is executed determines the situs of the sale.The State Counsel, however, argued that under the Explanation to Section 2(s)(vi) of the VAT Act, the sale or purchase shall be deemed to have taken place in Chhattisgarh irrespective of the place where the contract was made, if the goods are within the State.Court's Analysis and Conclusion:The Court examined Article 366 of the Constitution of India, which defines 'tax on the sale or purchase of goods' under Clause 29A, including a tax on the transfer of the right to use any goods. The Court also referred to the Explanation under Section 2(s) of the VAT Act, which deems the sale to have taken place in Chhattisgarh if the goods are within the State.The Court considered the Supreme Court's judgment in '20th Century Finance Corpn. Ltd. & Anr. Vs. State of Maharashtra,' which clarified that the taxable event for the transfer of the right to use goods is the execution of the contract, not the location or delivery of the goods. The Court concluded that the transfer of the right to use the Wagons took place outside Chhattisgarh, and thus, the State lacked jurisdiction to levy VAT on the lease charges.The Court also noted similar judgments by other High Courts, including the High Court of Orissa and the Division Bench of the Madhya Pradesh High Court, which supported the Petitioner's contention.Judgment:The Court held that the Orders of the assessment made by the Assessing Authority and the rejection of the Revision by the Revisional Authority were in contravention of the provisions of law and the judgments of the Supreme Court. Consequently, the Orders dated 22.12.2014 (Annexure P-5) and 30.5.2015 (Annexure P-6) were set aside/quashed. The Writ Petition was allowed, and the imposition of VAT on the lease charges was deemed improper and unjustified.