TMI Blog2015 (2) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to use accrues in favour of the lessee when he pays rental regularly and in terms of the agreement. In this context, reference was also made to clause 29A inserted to Article 366 which treats certain transactions as sale by deeming effect. Thus, the said decisions support and affirm our reasoning. The term 'sale' as defined in Section 2(1)(zc) clause (vi) would include transfer of right to use goods. Section 2(1)(zm) defines 'turnover' to be aggregate of the 'sale price' which as per clause (zd)(iii) to Section 2(1) means valuable consideration or hire purchase amount received or receivable for such transfer irrespective of whether or not the rights to use goods is for specified period. Rule 4 of the DVAT Rules, 2004, in clause (b) stipulates that in case of transfer of right to use goods, not being hire purchase agreement or instalment sale agreement, is the proportion or sale price, i.e. lease rental due and payable during the relevant tax period. - Decided against the assessee. The date or time of payment may be different and subsequent to the taxable event, i.e., the date on which transfer of right to use goods is made. In Bombay Tyre International Limited (1983 (10) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructure Services Limited ('appellant', for short). 2. STA No.49/2014 arises out from the order-in-original passed by the Commissioner, Value Added Tax under Section 84 of the Act dated 29th March, 2006, which has been upheld by the Tribunal in the impugned order. STA No. 47/2014 is directed against 18 orders-in-original passed under Section 32 of the Act for monthly tax periods from April, 2005 to September, 2006. The said order again has been upheld by the Tribunal in the impugned decision. STA No. 50/2014 is directed against 18 orders-in-original for monthly tax periods April, 2005 to September, 2006 under Section 33 of the Act imposing penalty under Section 86(10) of the Act @ 100% of the tax deficiency. In the impugned order, the Tribunal has mitigated the said penalty to 20% from 100% as imposed in the order-in-original. 3. We frame the following substantial question of law in STA Nos.47/2014 and 49/2014: Whether in view of Sections 105 and 106 read with Section 3 of the Delhi Value Added Tax Act, 2004, lease rentals paid on or after 1st April, 2005 can be taxed under the aforesaid Act even when the lease agreement was executed between the parties on or before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , was enacted. The said enactment was notified and came into operation with effect from 15th September, 2004 and remained in force till 31st March, 2005. Act of 2002 was repealed by the Act, i.e., Delhi Value Added Tax Act, 2004, which was enforced with effect from 1st April, 2005. From 15th September, 2004 till 31st March, 2005, leasing transactions under the Act of 2002 were taxed @ 4%. However, after enforcement of the Act, i.e., Delhi Value Added Tax Act, 2004, the rate of tax applicable to leasing transaction was the rate prevalent on individual items, namely, motor vehicles @ 12.5%, machinery @ 12.5%, furniture @ 12.5%, computers @ 4%, etc. It would be appropriate to notice that the Act of 2002, i.e., Delhi Sales Tax Right on Right to Use Goods Act, 2002 was an independent enactment and unlike some of the other States, the Delhi Sales Tax Act, 1975 was not amended to bring within the ambit of taxation transfer of right to use goods. However, the Act, i.e. the Delhi Value Added Tax Act, 2004, repealed the Act of 2002, the Delhi Sales Tax Act, 1975, the Delhi Sales on Works Contract Act, 1999 and the Delhi Tax on Entry of Motor Vehicles into Local Areas Act, 1994. Therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 005; (b) sale in the form of the transfer of a right to use goods, to the extent that the right to use goods is exercised after 1st April, 2005. (2) Tax credits arising under section 9 of this Act shall be allowed only for - (a) a purchase, including a purchase under an instalment sale and hire purchase of goods, made on and after 1st April, 2005; and (b) a purchase occurring in the form of the acquisition of a right to use goods, to the extent that the right to use goods is exercised after 1st April 2005. Explanation.- This provision does not prevent the person claiming the special tax credit allowed under section 14 of this Act. (3) Where an amount is paid or received prior to 1st April, 2005 in respect of a sale or purchase occurring after 1st April, 2005, and the person calculates his turnover or turnover of purchases based on amounts paid and received, the amount shall be treated as forming part of the person's turnover or turnover of purchases in the tax period in which the sale occurs. (4) Where a dealer registered under the repealed Delhi Sales Tax on Works Contract Act, 1999 (Delhi Act 9 of 1999) (hereinafter referred to in this sub-section as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to have been done or taken in the exercise of the powers conferred by or under this Act, as if this Act were in force on the date on which such thing was done or action was taken, and all arrears of tax and other amounts due at the commencement of this Act may be recovered as if they had accrued under this Act. (4) Notwithstanding anything contained in this Act, for the purpose of the levy, assessment, deemed assessment, reassessment, appeal, revision, review, rectification, reference, registration, collection, refund or input or credit of input tax of allowing benefit of exemption or deferment of tax, imposition of any penalty or of interest or forfeiture of any sum, which relates to any period ending before 1st day of April, 2005 or for any other purpose whatsoever connected with or incidental to any of the purposes aforesaid, and whether or not the tax, penalty, interest or sum forfeited, if any, in relation to such proceedings, is paid before, on or after 1st day of April, 2005, the repealed Act and all rules, regulations, orders, notifications, forms and notices issued thereunder and in force immediately before 1st day of April, 2005 shall continue to have effect as if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of transfer of right to use goods. The second part relates to the extent to which the right to use goods is exercised after 1st April, 2005 The first part relates to the taxable event or the subject matter of tax and is general and relates to sale in form of transfer of right to use goods, which may be before or after 1st April, 2005. Thus, what would be included and subjected to tax under Section 3 of the Act under clause (b) to Section 105, would be the extent to which the right to use goods is exercised after 1st April, 2005. 12. The aforesaid interpretation becomes clear and finds resonance in sub-section (2), which deals with tax credit under Section 9 of the Act. Under clause (a) to sub-section (2) to Section 105 of the Act, tax credit is to be allowed on purchases, including purchase on instalment or hire-purchase made on or after 1st April, 2005, which is in consonance with clause (a) to sub-section (1) to Section 105 of the Act. Clause (b) to sub-section (2) to Section 105 entitles the hirer to take tax credit in respect of purchase occurring in form of acquisition of a right to use goods and to the extent that the right to use goods is exercised. If the said right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay Tyre International Limited (supra). In the said decision, the Supreme Court drew an apparent distinction between subject matter of tax or the taxable event, which in the case of excise law is production or manufacture of goods, and the stage of collection. It was observed that the stage of collection need not be integrated with the completion of manufacturing process. In other words, the date of collection, need not synchronise with the taxable event which in the present case is the transfer of right to use goods. In other words, the date or time of payment may be different and subsequent to the taxable event, i.e., the date on which transfer of right to use goods is made. In Bombay Tyre International Limited (supra), the Supreme Court held that levy of tax in our country has a status of constitutional concept, but the point of collection, i.e., time of collection would depend upon the statute. The statute could, therefore, declare the point at which the tax is to be collected, which need not synchronise with the taxable event and can be different in point of time. The said judgment also elucidates the difference between the taxable event/subject matter of tax and the standard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure had the necessary power and authority to tax transfer of right to use goods under clause 29A(d) of Article 366 of the Constitution, observations were made and the ratio was expounded. It was clearly held that in spite of enactment of clause 29A(d) to Article 366, the limitation on the power of the State Legislature to levy sales tax or deemed sales under other Articles continues and is valid. Sub-clauses (a) to (f) of clause 29A to Article 366 were not actually 'sales' strictly within the meaning of term 'sale', but are deemed as 'sales' by legal fiction, but the situs of said sales for the purpose of taxation by a particular State must not violate Articles 286 and 269 of the Constitution. For the purpose of deciding whether a State Legislature has power to tax transfer of right to use goods, the following observations were made:- 25. Article 286 is in Part XII of the Constitution which deals with Finance, Property, Contracts and Suits . It is one of the several articles which are grouped under the heading Miscellaneous Financial Provisions in Chapter I of that Part. It is to be noted that it has not found a place in Part XI, Chapter I whereof dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s placed on the taxing power of the States are that no law of a State shall impose or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place, (a) outside the State or (b) in the course of import or export or (c) except insofar as Parliament otherwise provides, in the course of inter-State trade or commerce and lastly (d) that no law made by the Legislature of a State imposing or authorising the imposition of a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent. It should be noted that these are four separate and independent restrictions placed upon the legislative competency of the States to make a law with respect to matters enumerated in Entry 54 of List II. In order to make the ban effective and to leave no loophole the Constitution-makers have considered the different aspects of sales or purchases of goods and placed checks on the legislative power of the States at different angles. Thus in clause (1)(a) of Article 286 the question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady mentioned, considered themselves free to make a law imposing tax on sales or purchases of goods provided they had some territorial nexus with such sales or purchases e.g. that one or other of the ingredients or events which go to make up a sale or purchase was found to exist or had happened within their respective territories. Whether they were right or wrong in so acting is a question which has not been finally decided by the courts but the fact is that they did so. This resulted in multiple taxation which manifestly prejudiced the interests of the ultimate consumers and also hampered the free flow of inter-State trade or commerce. So the Constitution-makers had to cure that mischief. The first thing that they did was to take away the States' taxing power with respect to sales or purchases which took place outside their respective territories. This they did by clause (1)(a). If the matter had been left there, the solution would have been imperfect, for then the question as to which sale or purchase takes place outside a State would yet have remained open. So the Constitution-makers had to explain what an outside sale was and, this they did by the Explanation set forth in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded as having taken place outside a State. By saying that a particular sale or purchase is to be deemed to take place in a particular State the Explanation only indicates that such sale or purchase has taken place outside all other States. The Explanation is neither an exception nor a proviso but only explains what is an outside sale referred to in sub-clause (a). This if does by creating a fiction. That fiction is only for the purposes of sub-clause (a) and cannot be extended to any other purpose. It should be limited to its avowed purpose. To say that this Explanation confers legislative power on what for the sake of brevity has been called the delivery State is to use it for a collateral purpose which is not permissible. Further, it is utterly illogical and untenable to say that Article 286 which was introduced in the Constitution to place restrictions on the legislative powers of the States, by a side wind, as it were, gave enlarged legislative powers to the State of delivery by an explanation sandwiched between two restrictions. This construction runs counter to the entire scheme of the article and the Explanation and one may see no justification for imputing such indirect an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the earlier judgment in the case of 20th Century Finance Corpn. Ltd. (supra) and it was explained that the object and purpose of clause 29A to Article 366 is to bring specific transactions, where one or more essential ingredients of sale as defined in the Sales of Goods Act are absent, within the ambit of purchase and sales for purpose of levy of sales tax. Yet, there are certain limitations on levy of tax by the State Governments under Entry 54 of List II of the VII Schedule of the Constitution, which have not been overridden. Decision in 20th Century Finance Corporation Ltd. (supra) cannot be interpreted as an authority for the proposition that delivery of possession of goods is not a necessary concomitant for complete transaction of sale under sub-clause (d) to Article 366(29A) and in order to decide whether particular State is entitled to levy tax, the court has to determine when and where the taxable event for the purpose of sale takes place. A.R. Lakshmanan, J. in his concurrent judgment has affirmatively stated that decision in 20th Century Finance Corporation Ltd. (supra) related only to situs for the purpose of the State which could impose the tax and not subject matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er' to be aggregate of the 'sale price' which as per clause (zd)(iii) to Section 2(1) means valuable consideration or hire purchase amount received or receivable for such transfer irrespective of whether or not the rights to use goods is for specified period. Rule 4 of the DVAT Rules, 2004, in clause (b) stipulates that in case of transfer of right to use goods, not being hire purchase agreement or instalment sale agreement, is the proportion or sale price, i.e. lease rental due and payable during the relevant tax period. 21. We do not find any merit in STA Nos.47 and 49/2014. Accordingly, the substantial question of law framed in the said appeals is answered in against the appellant and in favour of the respondent Revenue. 22. However, the position in STA No. 50/2014 would be different. The said appeal relates to imposition of penalty under Section 86(10) of the Act. The finding given by the Tribunal reducing the penalty to 20% reads as under:- 11. Regarding penalty there is substance in the submissions by the Ld. Counsel for the appellant that on account of different interpretation of law as was also sought of by the appellant by filing determination applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t sale by way of instalments and not transfer by way of right to use. Additional Commissioner accepted the objections filed by the assessee on the said aspect after acknowledging, incongruous assertions and ambiguities in the contention raised by the Revenue, which were also inconsistent. It was held that transactions were not hire purchase contracts and were not purchase of chattels by way of instalments. However, an order of remit was passed with the direction to the assessment authorities to re-examine the matter after scrutiny of documents. At the same time, it was observed that on the issue of applicability of rate of tax on the rental received as per the agreement, assessing authority was right in taxing them @ 12.5 and not at @4%. 26. In view of the aforesaid position, the substantial question of law framed above in STA No.50/2014 is answered in favour of the appellant and against the respondent Revenue holding that the Tribunal was not right in directing levy of penalty @ 20% under Section 86(10) of the Act, after recording the finding that the appellant assessee had a reasonable cause. No finding has been recorded that the assessed had furnished returns which were false ..... X X X X Extracts X X X X X X X X Extracts X X X X
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