2025 (4) TMI 439 - HC - VAT / Sales Tax

Company loses appeal after retaining trial telecommunication equipment beyond specified period constitutes taxable sale

Punjab and Haryana HC dismissed the appeal in a case involving transfer of telecommunication equipment on trial basis. The appellant-company supplied ... Nature of transaction - sale or not - transfer of telecommunication equipment by the appellant-company to M/s Spice Communications Pvt. Ltd. on a trial basis for 24 months - HELD THAT:- The requirement as per Article 2 is that the trial period is for 24 months and Spice Com may decide to purchase each of the respective equipments by accepting each such equipments, failing which Spice Com shall return each of such Equipments on “as is where is” basis at the end of the respective trial period of 24 months from the date of each supply - Further Article 8 specifically states that the Spice Mobile shall despatch the equipments within 15 days after receipt of security deposit from Spice Com as specified in Article 6.1 (Payment for Equipment Price) of the agreement. A perusal of the agreement between the appellant-Company and Spice Communications Pvt. Ltd. shows that the goods were transferred/supplied on trial use basis for a period of 24 months. It is specifically mentioned in the agreement that if the Spice Communications does not decide to purchase each of the respective equipments by accepting each, it shall return each of such equipment. Further, if the Spice Communications Pvt. Ltd. does not intend to purchase the equipments at the end of 2 year trial period, it shall return each of such equipment. Undisputedly, in the present case, the goods are not returned till date. In the present case, the goods were supplied by the appellant-company to Spice Communications Pvt. Ltd. on trial basis for a period of 24 months with an option to decide to purchase the goods (equipments) at the end of two years trial period - Further that the Spicecom shall return each of such Equipments on “as is where is basis” at the end of the respective trial period of 24 months from the date of each supply. Since the admitted fact of the appellant-company is that the equipments are not returned till today, therefore, as per agreement between the appellant-company and M/s Spice Communications Pvt. Ltd, after 24 months from the date of agreement, till date, the equipments were consumed by M/s Spice Communications Pvt. Ltd. and never returned, which as per agreement would amount to sale. Conclusion - bare perusal of the agreement as well as definition of sale shows that since the delivery of goods in the present case is on trial basis and deferred payment as per Article 6 (Terms of Payment), therefore, the learned Tribunal has rightly held that delivery of the goods by the Appellant-Company to M/s Spice Communications Pvt. Ltd. constitute a sale. Appeal dismissed. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment is whether the transfer of telecommunication equipment by the appellant-company to M/s Spice Communications Pvt. Ltd. on a trial basis for 24 months constitutes a 'sale' under the Punjab Value Added Tax Act, 2005. This involves examining whether the transaction falls under the definition of 'sale' as per Section 2(zf) of the Act, which includes the transfer of the right to use goods for valuable consideration.ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents: The court examined the definition of 'sale' under Section 2(zf) of the Punjab Value Added Tax Act, 2005, which includes any transfer of property in goods for cash, deferred payment, or other valuable consideration, and specifically includes the transfer of the right to use goods. The court also referenced the constitutional provisions under Article 366(29A)(d) regarding the transfer of the right to use goods as a deemed sale.Court's interpretation and reasoning: The court found that the appellant-company had transferred goods to M/s Spice Communications Pvt. Ltd. ostensibly on a trial basis but with significant indicators of a sale. The agreements between the parties indicated a deferred payment structure, and the goods were not returned after the trial period, suggesting a transfer of the right to use the goods, which fits the definition of a sale under the Act.Key evidence and findings: The court considered the agreements between the appellant and M/s Spice Communications Pvt. Ltd., which outlined a 24-month trial period with an option for purchase. The agreements specified payment terms, including a security deposit and installment payments, which the court interpreted as indicative of a sale. The delivery challans also indicated the value of the goods, supporting the conclusion that a sale occurred.Application of law to facts: The court applied the definition of 'sale' under the Act to the facts, concluding that the transfer of equipment constituted a sale due to the deferred payment structure and the lack of return of goods after the trial period. The court emphasized that the transfer of the right to use goods for valuable consideration is sufficient to constitute a sale under the Act.Treatment of competing arguments: The appellant argued that the transfer was not a sale because there was no consideration during the trial period, and the transaction should only be taxed if the goods were purchased after the trial. The respondent countered that the trial transfer constituted a sale under the Act. The court sided with the respondent, finding that the deferred payment terms and lack of return of goods indicated a sale.Conclusions: The court concluded that the transfer of goods on a trial basis with deferred payment terms constituted a sale under the Punjab Value Added Tax Act, 2005. The appellant's failure to return the goods or demonstrate that they were not consumed further supported this conclusion.SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The delivery of these goods by the appellant Company to M/s Spice Communications Ltd. thus necessarily constitutes a sale.'Core principles established: The court established that the transfer of the right to use goods, even on a trial basis with deferred payment terms, can constitute a sale under the Punjab Value Added Tax Act, 2005. The lack of return of goods after the trial period and the presence of payment terms indicative of a sale further support this conclusion.Final determinations on each issue: The court upheld the Tribunal's decision, affirming that the transaction constituted a sale and dismissing the appeals. The court found no merit in the appellant's arguments and concluded that the appellant had attempted to evade tax by not reporting the transaction as a sale in their VAT returns.