2013 (3) TMI 580 - HC - VAT and Sales Tax

Whether, in the facts and circumstances of the present case, the Haryana Tax Tribunal, Chandigarh, has correctly passed an order that the lease rental for the entire lease period is a sale price when the appellant delivered the goods, therefore, the lease amount received or receivable would be quantified as turnover? Held that - The turnover is aggregate of the goods sold or purchased by a dealer during a tax period in terms of rule 2(zg) of the Rules. Since the transfer of the right of use in the vehicle is the sale falling within the definition of section 2(zf), therefore, the rentals received or receivable during the tax period is the sale price received by the dealer, exigible to tax in a financial year. The right to use vehicle is dependent upon the monthly payment of rentals and therefore, the monthly rentals received or receivable by the dealer is a turnover and consequently the sale price. In view of the said fact, we find that the orders passed by the authorities under the Act are not sustainable. The lease rental received or receivable during the tax period only, as a right to use goods, is the turnover forming part of sale price. Appeal allowed.

Summary

Issues Involved:
1. Whether the lease rental for the entire lease period constitutes the sale price when the appellant delivers the goods.
2. Whether the lease amount received or receivable should be quantified as turnover.

Detailed Analysis:

Issue 1: Lease Rental as Sale Price

The primary issue revolves around whether the lease rental for the entire lease period should be considered as the sale price at the time of delivery of goods. The Haryana Tax Tribunal had previously held that the aggregate of the monthly rentals payable under the lease agreement for the term of the lease would form part of the turnover of sale for the month when the taxable event occurred, i.e., when the delivery of the vehicles was taken by the lessee from the supplier under the lease agreement.

The appellant argued that the provisions of the Haryana Value Added Tax Act, 2003, in line with Article 366(29A)(d) of the Constitution, stipulate that the tax is on the transfer of the right to use goods, not on the delivery of goods. The Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra [2000] 119 STC 182 (SC); [2000] 6 SCC 12 had held that the incidence of tax is on the transfer of the right to use goods, which is subject to the condition of payment of monthly rentals. Therefore, only the rentals received or receivable during the year should be included in the gross turnover.

Issue 2: Quantification of Lease Amount as Turnover

The appellant referred to the lease agreement clauses, highlighting that the lessee is required to pay lease rentals punctually and that the lessor retains ownership of the vehicles. The Haryana Value Added Tax Act, 2003 defines "sale" to include the transfer of the right to use any goods for any purpose. The transaction of lease is thus a deemed sale. However, the question is whether the gross turnover should include the lease rentals received or receivable during the year or the entire lease rentals for the period.

The Supreme Court's judgment in 20th Century Finance Corpn. Ltd. clarified that the taxable event is the transfer of the right to use goods, not the delivery of goods. The Haryana Value Added Tax Act aligns with this, defining "sale" to include the transfer of the right to use goods. The Act's explanations do not address the sale price in the context of lease rentals.

The Haryana Value Added Tax Rules, 2003 define the tax period and turnover. The tax period can be a month, quarter, or year, and the turnover is the aggregate value of goods sold or purchased during this period. Since the transfer of the right to use the vehicle is a sale, the rentals received or receivable during the tax period constitute the sale price.

Conclusion:

The court found that the orders passed by the authorities under the Act were not sustainable. The lease rental received or receivable during the tax period alone, as the right to use goods, should be considered the turnover forming part of the sale price. Consequently, the appeal was allowed, and the order dated September 10, 2012, passed by the Haryana Tax Tribunal, Chandigarh, was set aside. The question of law was answered in favor of the assessee and against the Revenue.