2009 (2) TMI 747 - HC - VAT and Sales Tax

Realization and/or deduction of tax at source, under the Assam Value Added Tax Act, 2003, from the bills of the petitioner for the works, which the petitioner has carried out on the basis of the verbal agreement entered into with the respondents herein Held that - In view of the fact that the terms of the contract really determine whether, in a given case, there is or there is no transfer of the right to use any goods, it is necessary to take note of the relevant clauses of the agreement, which govern the transaction, which is sought to be made exigible to sales tax. However, it has, after perusal of the materials, on record, been found that no material has been made available, on record, to prove the terms of the agreement, which the parties had entered into. So long as the terms and conditions of the agreement are not made known to the court, it is not possible to interfere with the matter. At the same time, the respondents have also not placed, on record, anything to indicate that the transactions, in questions, amounted to lease. Considering, therefore, the matter in its entirety and in the interest of justice, this writ petition is disposed of making it clear to the respondents that the respondents shall not make any deduction at source, from the bills of the petitioner, of any amount(s), by way of sales tax or value added tax, until and unless the petitioner is informed as to how the transactions, in connection with giving of the petitioner s vehicle(s), on hire, to the respondent-Corporation, amounted to transfer of the right to use the vehicles from the end of the petitioner to the respondent-Corporation.

Issues Involved:
1. Deduction of tax at source under the Assam Value Added Tax Act, 2003.
2. Determination of whether the transactions in question amounted to a lease.
3. Interpretation of the 46th Amendment to the Constitution of India and its implications on the definition of "sale."
4. Legal precedents regarding the transfer of the right to use goods and its tax implications.

Detailed Analysis:

1. Deduction of Tax at Source under the Assam Value Added Tax Act, 2003:
The petitioner, a company, filed a writ petition under Article 226 of the Constitution of India, seeking directions to prevent the respondents from deducting tax at source under the Assam Value Added Tax Act, 2003, from the bills related to works performed based on a verbal agreement. The petitioner argued that the vehicles were given on hire and not on lease, and thus, should not be subject to the tax deductions being threatened by the respondent-corporation.

2. Determination of Whether the Transactions Amounted to a Lease:
The court examined whether the transactions in question could be treated as a lease, which would attract tax under the Assam Value Added Tax Act, 2003. The court noted that the definition of "sale" under the Act includes "any transfer of the use of any goods under an operating lease." The term "lease" is defined as any agreement where the right to use any goods is transferred without transferring ownership. The court emphasized that the transfer of the right to use goods, and not merely the hiring of goods, is a condition precedent for the imposition of sales tax.

3. Interpretation of the 46th Amendment to the Constitution of India:
The court discussed the implications of the 46th Amendment, which expanded the definition of "tax on the sale or purchase of goods" to include transactions such as the transfer of the right to use any goods. The amendment aimed to create a concept of deemed sale, treating certain transactions as sales even if they did not involve the traditional transfer of property in goods. The court noted that the amendment allowed states to impose sales tax on transactions that were previously not considered sales, such as the transfer of the right to use goods.

4. Legal Precedents Regarding the Transfer of the Right to Use Goods:
The court referred to several legal precedents to clarify the concept of the transfer of the right to use goods:
- In 20th Century Finance Corpn. Ltd. v. State of Maharashtra, the Supreme Court held that the levy of tax is on the transfer of the right to use goods, not on the use of goods itself. The taxable event occurs when the contract for transfer is executed.
- In Bharat Sanchar Nigam Ltd. v. Union of India, the court held that delivery of goods is necessary to complete the transfer of the right to use goods, but the goods must be available and deliverable at some stage.
- In Rashtriya Ispat Nigam Ltd., it was held that mere transfer of possession does not amount to a transfer of the right to use goods if the effective control remains with the owner.
- In Aggarwal Brothers v. State of Haryana, the court found that the transfer of possession for use constituted a deemed sale.

The court concluded that the question of whether there is a transfer of the right to use goods is a factual determination based on the terms of the contract governing the transaction. In this case, the terms of the agreement were not provided, making it impossible to determine if the transactions amounted to a lease.

Conclusion:
The writ petition was disposed of with directions to the respondents not to deduct any amount by way of sales tax or value added tax from the petitioner's bills until the petitioner is informed about how the transactions amounted to a transfer of the right to use the vehicles. No order as to costs was made.

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