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Hari Durga Travels Versus Commissioner of Trade & Taxes, Delhi

2015 (5) TMI 461 - DELHI HIGH COURT

Right of use - VAT liability - hiring of Deluxe buses by state transport corporation - transfer of the effective control and possession - Whether the agreement between the appellant and Delhi Transport Corporation giving on hire two Deluxe buses for being plied as per requirement of the latter on the routes and as per schedule specified its transfer of right to use of goods so as to be liable to VAT under Section 2(zc)(vi) of DVAT Act - Held that:- While the bus-related responsibilities under th .....

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ubricant, tubes, spare parts, etc.

The owner is obliged by the contractual terms to take prior permission before the vehicles are sent for repairs with obligation to indicate in advance the period of non-availability of the vehicles on such account. The owner is not entitled to “withdraw the bus from operation without prior written consent” of DTC nor can it use these vehicles “for any other purpose at any time”, nor “transfer or otherwise alienate (except with prior written permissio .....

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05 - SUPREME COURT OF INDIA) spells out that where even access or physical control of machinery or such like goods are made over, such a transaction by itself would not be transfer of the right to use if effective control is maintained by the owner. In the present case, the owner bears responsibility for any mishappening or accident. It commits to be the bus owner at all times; the registration and licenses are in its favour and most importantly, the DTC has limited use for these buses, i.e. to .....

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ed in transfer of the effective control and possession of the two vehicles (goods for purposes at hand) unto DTC. On the contrary, the various terms of the contract, summarized above, make it vividly clear that the possession has always remained with the owner. Undoubtedly, it is the obligation of the registered owner to make the vehicles available, with their respective drivers, for being deployed on routes, and as per schedule, specified by DTC. - The transaction has been wrongly treated as “s .....

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014 passed by Appellate Tribunal, Value Added Tax, Delhi (hereinafter referred to as the Tribunal ) in appeal Nos. 625-626/ATVAT/08-09. By the impugned order, the Tribunal upheld the findings and conclusions recorded by the Objection Hearing Authority (OHA) in its order dated 14.11.2008 rejecting the contentions of the appellant (hereafter referred to as the Assessee ) and upholding the order passed by the Value Added Tax Officer (VATO) holding the assessee liable for default assessment of tax u .....

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goods so as to be liable to VAT under Section 2(zc)(vi) of DVAT Act. 3. It is essential to take note at this stage of background facts. 4. The appellant is a partnership firm approved by the Government of India as a tourist operator engaged in the business of providing vehicles on rental basis. It stands registered (TIN No. 07550344859) for purposes of Value Added Tax (VAT) with the concerned authorities in Delhi. It had entered into agreements with Delhi Transport Corporation (DTC) in January, .....

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eipt under Section 32 of DVAT Act treating the transaction as deemed sale on account of transfer of right to use the goods thereby raising a demand of ₹ 12,96,749/- with 12.5% interest, in addition to the penalty of ₹ 1,00,000/- imposed for the reason that it had failed to get itself registered under the provisions of DVAT Act w.e.f. 01.04.2005. As noted above, the challenge to the said order issued by the VATO before OHA, and the Tribunal, however, failed. 6. The controversy at hand .....

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ation (not including a grant or subvention payment made by one government agency or department, whether of the central government or of any state government, to another) and includes- XXX (vi) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; XXX and the words sell , buy and purchase wherever appearing with all their grammatical variations and cognate expressions, shall be construed according .....

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purchase of goods other than newspapers, subject to the provisions of entry 92A of List I. The entry 92A of the Union List (List-I), as excluded from the domain of the State legislation, pertains to taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. 8. Article 366(29A) reads as under:- (29A) tax on the sale or purchase of goods includes- (a) a tax on the transfer, otherwise than in pursuance of a .....

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tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of an .....

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nt, prior to the forty-sixth Amendment, composite contracts such as works-contract, hire-purchase contracts and catering contracts were not assessable as contracts for sale of goods. In an earlier decision [reported as State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. AIR 1958 SC 560], the State Government had sought to treat a contract, under which a contractor had agreed to set up a building, as contract for sale under the provisions of Madras General Sales Tax Act, 1939. The Supreme .....

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evenue in light of entry 48 of List-II in 7th Schedule of the Government of India Act, 1935 which would correspond to the afore-quoted entry no. 54 of the State List in the 7th Schedule to the Constitution of India. 12. The court concluded as under:- 46. To sum up, the expression ‗sale of goods in Entry 48 is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In a building contract which is, as i .....

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titutional Amendment, thus, introduced an expansive meaning to the expression sale of goods including within its ambit certain transactions which thus far would be beyond its purview mainly on account of the element of actual transfer of title of goods being absent. By legal fiction, transactions in the nature of those covered by clause (a) to (f) of Article 366(29A) are to be treated as deemed sale for purposes of levy of sales tax (since substituted by VAT), as observed in Bharat Sanchar Nigam .....

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It was argued by the assessee that the contract may give rise to service tax liability but the imposition of VAT is illegal. 16. Service tax is a levy within the legislative competence of the Union. It was introduced, for the first time, by Chapter V of the Finance Act, 1994 and has continued to be enforced in terms of such legislation, though amended several times. By virtue of Section 68, read with Rule 6(1) of the Service Tax Rules, 1994 framed thereunder, every person providing taxable servi .....

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before the Supreme Court in the case of Bharat Sanchar Nigam Ltd. (supra), albeit in the context of telephone services provided by the assessee in that case. The Revenue had sought to subject the transaction involving telephone service to sales tax on the reasoning that it was covered by Article 366(29A)(d). The court held that a telephone service is nothing but a service though the nature of the transaction providing such service was a composite one with the elements both of service and sale w .....

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, must be deliverable and delivered at some stage. It is assumed, at the time of execution of any agreement to transfer the right to use, that the goods are available and deliverable. If the goods, or what is claimed to be goods by the respondents, are not deliverable at all by the service providers to the subscribers, the question of the right to use those goods, would not arise. (emphasis supplied) 19. In a separate, but concurring, judgment authored by Hon ble Dr. Justice AR. Lakshmanan, it w .....

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g which the transferee has such legal right, it has to be the exclusion to the transferor-this is the necessary concomitant of the plain language of the statute viz. a transfer of the right to use and not merely a licence to use the goods; (e) having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others. (emphasis supplied) 20. The case reported as Commissioner, VAT, Trade and Taxes Department v. Inte .....

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e under the afore-quoted provision. The Tribunal, in appeal, had upheld the contention of the assessee holding that the transaction involved provision of services only and not transfer of the right to use the goods. 21. Noting at length the terms and conditions of the contract whereunder the cabs had been provided, the court in the case of International Travel House Ltd.(supra) rejected the contentions (to the contrary) of the Revenue holding the transactions in question not in the nature of sal .....

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It is the Driver of the vehicle who keeps in his custody and control the permissions and licences with respect to the Maruti Omni Cabs or the said permissions and licences remained in possession of the respondent. These are never transferred to M/s. NDPL. It, therefore, cannot be said that there is a sale of goods by transfer of right to use goods inasmuch a necessary ingredient of the sale being the transfer of right to use the goods is absent, namely, ingredient as stated in para 97(c) of the .....

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ed, further, the States cannot treat the contract as only a contract of sale of goods and tax the whole value of the transaction as a sale of goods. Since the parties have not intended the contract to be mutilated/severable inasmuch as no different values are specified in the subject contract towards goods value separately and the value of services separately, it is not permissible by the DVAT Act to impose sales tax on the whole transaction value because that would amount to the State to entren .....

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ng taken a bus on hire under a contract from its owner. The contention of the Revenue therein that the case involved transfer of right to use goods and, thus, a deemed sale attracting levy of sales tax under the local law was upheld. Taking into consideration the terms and conditions of the contract whereunder the bus had been given on hire, the Court found that, for all practical purposes, the effective or general control of the vehicle rested with the State Transport Corporation wherein the re .....

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No. DL1PB 7420 and DL1PB 7421) together with the driver for being run on long inter-State routes of DTC. The seating capacity and other specifications including the model of the vehicles (2004), body, colour of the exterior, etc. were spelt out in the contract in detail. It was stipulated that the drivers, employees (whole time) of the assessee (owner), must hold HTV licence with PSB badge having minimum five years experience and terms and conditions of his engagement must confirm to the preval .....

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orthy, in accordance with the provisions of Motor Vehicles Act and Rules framed thereunder and, for such purposes, carry out the requisite maintenance and repairs at its own costs, such that the vehicle always carries a proper fitness certificate and pollution under control certificate. The owner ensures that the bus is duly insured, under comprehensive insurance policy; keeps DTC indemnified against all claims arising out of accidental damage or loss caused during the operations to third party .....

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t also stipulated that the owner shall be obliged to keep the bus in neat, clean and presentable condition and for purposes of upkeep, make the necessary arrangements with service centres/dealers/repair shops, etc. on the routes where they were deployed as per schedule decided upon by the DTC. In terms of the contract, it is the owner who would arrange fuel (on reimbursable basis), lubricant, tubes, spare parts, etc. 28. The consideration for the registered owner of the vehicle under the contrac .....

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the vehicles are sent for repairs with obligation to indicate in advance the period of non-availability of the vehicles on such account. The owner is not entitled to withdraw the bus from operation without prior written consent of DTC nor can it use these vehicles for any other purpose at any time , nor transfer or otherwise alienate (except with prior written permission of DTC) vehicles during the period of agreement. It is under a general obligation to abide by the orders of DTC or an officer .....

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accordance with the directions of the conductors on bus who was person of the lessee. The ownerships of the buses no doubt always remained with the appellant but the right over the buses is transferred to the DTC during the period of agreement with consideration/hire charges which amount to sale as per definition of sale u/s 2(zc) of the DVAT Act … 14 ...It is crystal clear that not only control and supervision of the buses during the hire period which is specified in the agreement remai .....

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the appellant as certainly it was not a case of service but it was a case of transfer of right to use the goods/buses by the lessee exclusively without any interference by the appellant during the period of agreement... (emphasis supplied) 31. The Tribunal upheld the order imposing penalty recording the reasons as under:- 16. The Act i.e. DVAT Act, 2004 came into existence w.e.f, 01.4.2005 and the appellant could not get himself registered though liable to be registered as on 01.04.2005 under th .....

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stitutionality and virus has been upheld by Their Lordships in case of Sales Tax Bar Association (Regd.) Vs Govt. of NCT of Delhi & Ors. decided on 07.12.2012 in WP (C) No. 4236/2012 by Hon ble Delhi High Court wherein Their Lordships held that no hearing is required in accordance with, the principle of natural justice as notice u/s 32 &33 of the DVAT Act afford opportunity of being heard post of such notices. In the present case, nothing contrary has been placed or proved by the appella .....

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lusive use of the bus on DTC routes; exclusive right to collect advertisement revenue by the DTC; the entire revenue being collected by DTC employees, i.e. its conductor; maintenance or repairs not at the choice of the owner but after approval of the DTC; restriction upon right to terminate the contract under pain of penalty. The discussion in Bharat Sanchar Nigam Limited (supra) both in the majority judgment (which no doubt stated that actual delivery of the goods is not necessary for effecting .....

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use of goods. The decision in State of A.P. and Anr. v. Rastriya Ispat Nigam Limited 2002 (3) SCC 214 which was in the context of machinery given on hire to the transferee, for a particular purpose, affords a close parallel to the facts of the present case. The Court underlined - after noticing that the machinery was given for producing particular goods and concluded, ...the transaction did not involve transfer of right to use the machinery in favour of contractors... The effective control of t .....

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pair is subject to its prior approval, are ipso facto not decisive either by themselves or cumulatively in concluding that there was a transfer of the right to use the vehicles. Both the majority and concurring opinion in Bharat Sanchar Nigam Limited (supra) emphasize that the goods should be ultimately delivered , for the transaction to constitute a sale within the extended meaning, defined by Article 366(29A) of the Constitution of India. Rashtriya Ispat Nigam Limited (supra) spells out that w .....

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the owner) at the scheduled routes in terms of the contract. In these circumstances, this Court is of the opinion that the Tribunal could not have distinguished the decision of the Division Bench of this Court in International Travel House (supra). 34. In our considered opinion, the Tribunal has fallen into error by declining to apply the ratio of International Travel House Ltd.(supra) and by concluding that the contract in question has resulted in transfer of the effective control and possessi .....

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