Transport Corporation vehicle contract ruled service, not deemed sale under Section 2(40) VAT Act

The HC allowed the revision petition, ruling that the contract for providing motor vehicles to the Transport Corporation did not constitute a deemed sale under Section 2(40) of the Uttarakhand VAT Act, 2005. Following SC precedent in the ONGC case, the court held there was no transfer of right to use specific vehicles, but merely a service contract for transportation. Since the transaction was not taxable as a deemed sale, the question of deducting driver salaries, cleaner costs, and diesel/lubricant expenses from gross turnover became irrelevant. The Tribunal's assessment treating it as deemed sale was overturned.

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Issues Involved:

A. Whether the transaction in question is a deemed sale as transfer of right to use within the provisions of Section 2 (40) of the Uttarakhand Value Added Tax Act, 2005Rs.

B. Whether the assessment made by the Assistant Commissioner, Commercial Tax was justified when the First Appellate Court had not decided the appeal on meritsRs.

C. Whether the deduction on account of salary of driver, cleaner and cost of diesel and lubricants is deductible from the gross amount received from the Uttarakhand Transport CorporationRs.

Summary:

Issue A: Deemed Sale as Transfer of Right to Use
The revisionist argued that the transaction should not be treated as a deemed sale u/s 2 (40) of the Uttarakhand Value Added Tax Act, 2005. The Tribunal, however, upheld the assessment orders treating the payments received for hiring the bus as a deemed sale. The Tribunal referred to Rule 15, which prescribes the determination of turnover relating to the transfer of the right to use goods, and concluded that the total amount received by the assessee was taxable as it exceeded Rs. 5 Lacs u/s 3 (7). The Tribunal's decision was based on the interpretation that the transaction fell under the category of "transfer of right to use goods" u/s 4 (5) (a).

Issue B: Justification of Assessment
The revisionist contended that the First Appellate Court had not decided the appeal on merits, and thus the Tribunal's upholding of the assessment was unjustified. The Joint Commissioner (Appeals) had previously allowed the appeals, holding that the giving of the bus on lease did not fall within the ambit of transfer of right to use, as there was no effective control by the Uttarakhand Transport Corporation on the bus. This was overturned by the Tribunal, which upheld the assessment orders.

Issue C: Deductibility of Expenses
The Tribunal held that the deduction on account of salary of driver, cleaner, and cost of diesel and lubricants was not deductible from the gross amount received from the Uttarakhand Transport Corporation. The Tribunal referred to Rule 15 (2) which prescribes the amounts that can be deducted from the total amount received by a dealer.

Court's Decision:
The High Court referenced the Supreme Court's judgments in State of Andhra Pradesh vs. Rashtriya Ispat Nigam Limited and K.P. Mozika vs. Oil and Natural Gas Corporation Ltd., which clarified that for a transaction to be considered a transfer of the right to use, there must be transfer of possession and control. The Court found that the revisionist did not transfer effective control of the bus to the Uttarakhand Transport Corporation, thus the transaction did not constitute a deemed sale. Consequently, the Tribunal's decision was set aside, and the common judgment and order dated 27th August 2011 by the Joint Commissioner (Appeal-II), Commercial Tax, Dehradun, was upheld. The revisions were allowed, and the transactions were not treated as taxable under the Uttarakhand Value Added Tax Act, 2005.

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