2010 (2) TMI 1057 - HC - VAT and Sales Tax

Whether the petitioner would be liable to pay tax under the Act 2002 in respect of the amount towards the instalments received after September 15, 2004 though the agreements were entered prior to September 15, 2004? Held that - When the amendment makes certain transaction as sale by deeming provision, this concept can be pressed into service for the purpose of taxation as well, viz., at what point of time sale is to be inferred for the purpose of taxation. It is this fiction, which has created section 3(b) as well. According to us, this is the only harmonious construction, which can be given to the two provisions so that both the provisions are given due importance. Arguments of the learned counsel for the petitioner are predicated on the traditional concept of sale , which was the position prior to the constitutional amendment. We may reiterate that the scope of this writ petition is to challenge the vires of section 3(b) of the Act, 2002. This challenge is made only on the ground that it is ultra vires the provision of section 2(n) which, pointed out above, is not permissible. W.P. dismissed.

Issues Involved:
1. Applicability of sales tax on lease transactions under the Delhi Sales Tax on Right to Use Goods Act, 2002.
2. Validity of Section 3(b) of the Act 2002 in relation to Section 2(n) of the same Act.
3. Interpretation of "sale" and "turnover of sales" under the Act 2002.
4. Legislative competence and constitutional validity of taxing lease transactions.

Issue-wise Detailed Analysis:

1. Applicability of Sales Tax on Lease Transactions:
The petitioner is engaged in leasing machinery and vehicles and contended that such transactions were not originally subject to sales tax under the Delhi Sales Tax Act. However, with the amendment of Article 366 of the Constitution and the insertion of clause (29A), the scope of sales tax was expanded to include the transfer of the right to use goods. This led to the enactment of the Delhi Sales Tax on Right to Use Goods Act, 2002, which imposed sales tax on lease transactions effective from September 15, 2004. The petitioner challenged the applicability of this tax on lease agreements entered before this date but with instalments received afterward.

2. Validity of Section 3(b) of the Act 2002 in Relation to Section 2(n):
The petitioner argued that Section 3(b) of the Act 2002, which imposes tax on instalments received after the appointed date, is ultra vires Section 2(n) defining "sale". Section 3(b) states that tax is leviable on the turnover of sales for the transfer of the right to use goods, even if the agreement was made before the appointed date but continued afterward. The court held that one provision of an enactment cannot be ultra vires another provision of the same enactment. The court emphasized that the doctrine of ultra vires applies to acts done beyond conferred power, not to internal inconsistencies within the same statute.

3. Interpretation of "Sale" and "Turnover of Sales":
Section 2(n) defines "sale" as any transfer of the right to use goods for any purpose for cash, deferred payment, or other valuable consideration. Section 2(s) defines "turnover of sales" as the aggregate of sale price amounts received or receivable during a year. The court interpreted these provisions harmoniously with Section 3(b), which taxes lease rentals as they are received. The court concluded that the right to use goods accrues each month upon payment of lease rentals, aligning with the statutory language and legislative intent.

4. Legislative Competence and Constitutional Validity:
The petitioner did not challenge the legislative competence to enact Section 3(b). The court noted that the 46th Amendment to the Constitution and Article 366(29A) expanded the scope of taxation to include deemed sales, such as lease transactions. The court referred to the Supreme Court's judgment in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, which clarified that the taxable event for the transfer of the right to use goods occurs when the contract is executed. The court held that Section 3(b) is constitutionally valid, as it aligns with the expanded definition of "sale" under Article 366(29A).

Conclusion:
The court dismissed the petition, holding that Section 3(b) of the Delhi Sales Tax on Right to Use Goods Act, 2002, is not ultra vires Section 2(n) and is constitutionally valid. The court emphasized the need for harmonious construction of statutory provisions and upheld the legislative intent to tax lease rentals as they are received. The petitioner's arguments, based on the traditional concept of "sale," were found to be inconsistent with the amended constitutional and statutory framework. The court concluded that the petition lacked merit and dismissed it, with each party bearing its own costs.

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