2010 (4) TMI 1003 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the petitioner is a "dealer" under the West Bengal Value Added Tax Act, 2003.
2. Whether the petitioners are liable to pay sales tax on the sales of motor vehicles hypothecated to them as securities for loan realization.
3. Whether the sales of hypothecated vehicles can be considered sales by the bank and non-banking finance companies.

Issue-wise Detailed Analysis:

1. Whether the petitioner is a "dealer" under the West Bengal Value Added Tax Act, 2003:

The Tribunal examined whether ICICI Bank and non-banking finance companies qualify as "dealers" under the VAT Act. The definition of "dealer" in section 2(11) of the VAT Act includes any person who carries on the business of selling or purchasing goods in West Bengal. The Tribunal noted that the definition has two parts: the main part and the inclusive part, which broadens the scope to include various entities.

The Tribunal referred to the Supreme Court's decision in Federal Bank Ltd. v. State of Kerala, which held that the sale of pledged goods by a bank is part of its banking business and falls within the definition of "dealer" under the Kerala General Sales Tax Act. The Tribunal concluded that ICICI Bank, being a banking company, is a dealer under the VAT Act as it is engaged in the business of selling goods as part of its banking operations.

For non-banking finance companies, the Tribunal noted that these companies provide loans for purchasing vehicles and obtain irrevocable powers of attorney from borrowers to sell hypothecated vehicles in case of default. The Tribunal found that these companies act as agents of the borrowers and come within the scope of section 2(11)(d) of the VAT Act, making them dealers.

2. Whether the petitioners are liable to pay sales tax on the sales of motor vehicles hypothecated to them as securities for loan realization:

The Tribunal examined whether the sales of hypothecated vehicles are subject to sales tax under the VAT Act. The Tribunal referred to the Supreme Court's decision in Federal Bank Ltd., which held that the sale of pledged goods by a bank is a taxable sale under the Kerala General Sales Tax Act.

The Tribunal noted that the VAT Act's definition of "sale" includes any transfer of property in goods for valuable consideration. The Tribunal found that the sales of hypothecated vehicles by ICICI Bank and non-banking finance companies fall within this definition, making them liable to pay sales tax on such sales.

3. Whether the sales of hypothecated vehicles can be considered sales by the bank and non-banking finance companies:

The Tribunal analyzed whether the sales of hypothecated vehicles are sales by the bank and non-banking finance companies. The Tribunal referred to the Supreme Court's decision in Federal Bank Ltd., which held that the sale of pledged goods by a bank is a sale by the bank for the purpose of sales tax.

The Tribunal found that ICICI Bank, being a banking company, sells hypothecated vehicles as part of its banking business and in exercise of its statutory right under the Banking Regulation Act. Therefore, such sales are considered sales by the bank.

For non-banking finance companies, the Tribunal noted that these companies sell hypothecated vehicles under the authority derived from the hypothecation agreements and irrevocable powers of attorney executed by the borrowers. The Tribunal concluded that these companies act as agents of the borrowers and the sales are considered sales by the non-banking finance companies.

Conclusion:

The Tribunal held that ICICI Bank and non-banking finance companies are dealers under the VAT Act and are liable to pay sales tax on the sales of hypothecated vehicles. The Tribunal also set aside the threat of prosecution under section 93 of the VAT Act, noting that the legal questions raised by the petitioners were arguable and needed careful consideration. The respondents were allowed to initiate appropriate proceedings for assessment of taxable sales in accordance with the law.