2009 (9) TMI 906 - HC - VAT and Sales Tax

Non-payment of tax on the sale of old vehicles purchased under exchange mela - Held that - It is the conceded position that the petitioner treats the sale of the new vehicle under the exchange scheme as full and complete with no debit balance of price in the customer s account. Therefore purchase of old vehicle from the customer is complete when new vehicle is sold to him by recovering its value reduced by the cost of the old vehicle taken over from the customer. The purchase and sale of the old vehicle is either by or on behalf of the petitioner. Thus the Intelligence Officer rightly found that the petitioner evaded payment of tax on purchase and sale of old vehicle by not disclosing the sales turnover in the return filed and therefore the penalty was rightly levied under section 67(1) of the KVAT Act. The petitioner is directed to produce certificate from the assessing officer about payment of tax and interest on the sale of old vehicles as above for the above two years and if such certificate is produced the Intelligence Officer will after rechecking the correctness of the same reduce the penalty to 25 per cent of the tax liability and excess penalty if any paid should be refunded to the petitioner. However if the petitioner does not produce proof of payment of tax and interest as above then the penalty fixed by the Tribunal at equal amount of tax will stand confirmed.

Summary

Issues involved:
1. Whether the exchange mela involving taking of old vehicles and replacing them with new ones constitutes the purchase of old vehicles from customers.
2. Whether the petitioner or the broker purchased the old vehicles from customers.
3. Whether the penalty for evasion of tax under section 67(1) of the KVAT Act was rightly levied.
4. Whether the reduction of penalty claimed by the petitioner is justified.

Analysis:

1. The court first considered whether the exchange mela, where old vehicles are taken from customers and replaced with new ones, amounts to the purchase of old vehicles. It was established that the customer surrenders the old vehicle upon accepting the value fixed by the broker, and the customer then purchases a new vehicle by paying the difference between the value of the new vehicle and the fixed value of the old one. The court concluded that there is a clear sale of the old vehicle by the customer, and the purchase of the old vehicle from the customer is complete when the new vehicle is sold to the customer.

2. The court then deliberated on whether the petitioner or the broker purchased the old vehicles from customers. It was noted that the transaction of purchasing the old vehicle and selling the new vehicle is between the petitioner and the customer, with no direct involvement of the broker in the purchase process. The court emphasized that if the broker only receives a commission or share of profit on the resale of the old vehicle, then the broker acts as an agent of the petitioner. Consequently, the court upheld the finding that the petitioner evaded payment of tax on the purchase and sale of old vehicles.

3. Regarding the levy of penalty under section 67(1) of the KVAT Act for tax evasion, the court agreed with the Intelligence Officer's decision to impose the penalty due to the petitioner's failure to disclose the sales turnover in the return filed. The court affirmed that the penalty was rightfully levied for the evasion of tax on the purchase and sale of old vehicles.

4. Lastly, the court addressed the reduction of penalty claimed by the petitioner. The Tribunal had reduced the penalty to an amount equal to the tax, but the court suggested that a further reduction could be granted if the petitioner paid the tax on the sale of old vehicles along with interest. The court directed the petitioner to provide a certificate from the assessing officer confirming the payment of tax and interest. If the proof of payment is provided, the penalty would be reduced to 25% of the tax liability; otherwise, the penalty fixed by the Tribunal would stand confirmed.

In conclusion, the court disposed of the tax revisions based on the above analysis and directives provided regarding the reduction of penalty contingent upon the payment of tax and interest on the sale of old vehicles by the petitioner.