2011 (2) TMI 1311 - HC - VAT and Sales Tax

Whether there was a transfer of the right to use goods, needed a thorough verification on the evidence available with the petitioner. The matter was remanded to the assessing authority to examine, on the basis of the evidence placed by the petitioner, whether there was a transfer of the right to use goods. No final finding of fact has been recorded by the appellate authority. The observations made by him, when examined in the light of his directing the assessing authority to cause a thorough verification in this regard, would negate the petitioner s contention that the appellate authority had finally concluded that there was no transfer of the right to use goods attracting section 4(8) of the Act. As noted hereinabove in a composite contract, (unlike an indivisible contract), both service tax and VAT can be levied having regard to the respective parameters of service and sale . The service tax assessments are not the subject-matter of challenge in these proceedings. It is also not clear whether the petitioner has paid service tax on the audio-visual equipment rentals. We see no reason, therefore, to direct refund of the service tax paid by them. Suffice to hold that the order now passed by us shall not preclude the petitioner, if they are so entitled, from claiming refund of service tax paid by them in appropriate legal proceedings. The challenge to the impugned assessment order dated April 8, 2010, however, fails

Issues Involved:
1. Tax liability on rental charges of lease equipment.
2. Demand of interest on the disputed tax liability.
3. Levy of penalty on under-declared tax.

Issue-wise Detailed Analysis:

1. Tax Liability on Rental Charges of Lease Equipment
The petitioner, M/s. Viceroy Hotels Limited, operates a five-star hotel and is registered under the Andhra Pradesh Value Added Tax Act, 2005 (the Act). The first respondent assessed the petitioner for the periods 2006-07 and 2007-08, resulting in tax liabilities. The petitioner appealed, and the Appellate Deputy Commissioner partly allowed, remanded, and dismissed parts of the appeal. The appellate authority observed that the effective control and possession of the equipment rested with the suppliers, necessitating further verification. The assessing authority, however, held that providing equipment on a rental basis amounted to a transfer of the right to use goods, thereby attracting tax under section 4(8) of the Act.

The court examined the definitions and provisions under the Act and the Finance Act, 1994, noting that service tax and VAT are mutually exclusive. The petitioner contended that they provided services as a "mandap keeper" and had already paid service tax, arguing against the simultaneous levy of VAT. However, the court held that the transaction involved a transfer of the right to use goods, thus falling within the ambit of section 4(8) of the Act. The court dismissed the petitioner's challenge, concluding that effective control over the audio-visual equipment was transferred to the customer, making the transaction a deemed sale.

2. Demand of Interest on the Disputed Tax Liability
The petitioner challenged the order demanding interest on the disputed tax liability. The court noted that under section 22(2) of the Act, interest is payable if the tax is not paid within the prescribed time. The petitioner argued that they had already paid the tax before the assessment order was passed. The court agreed, stating that interest could only be levied if the tax was unpaid within 30 days from the receipt of the assessment order. Since the petitioner had paid the tax earlier, the court quashed the order demanding interest.

3. Levy of Penalty on Under-Declared Tax
The petitioner contested the penalty levied for under-declared tax. The assessing authority had imposed a 100% penalty under section 53(3) of the Act, which applies when under-declaration results from fraud or wilful neglect. The court found that the show-cause notice did not establish fraud or wilful neglect, nor did it provide the basis for such a conclusion. The court quashed the penalty order, emphasizing that jurisdictional facts necessary for imposing a penalty under section 53(3) were not present. However, the court allowed for the possibility of future action by the competent authority in accordance with the law.

Conclusion:
The court dismissed W.P. No. 17092 of 2010, upholding the tax liability on rental charges of lease equipment. It allowed W.P. No. 17110 of 2010, quashing the order demanding interest, and W.P. No. 17130 of 2010, quashing the penalty order. The court emphasized the necessity of proper evidence and adherence to legal provisions in assessing tax liabilities, interest, and penalties.

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