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2013 (1) TMI 580 - HC - VAT and Sales TaxEntitlement to claim input tax credit having regard to Section 9 of the DVAT 2004 - assessee/dealers are engaged in the business of leasing cars/motor vehicles - Held that - Once it is held that the leasing of a car results in transfer of its right to use, the provisions of Section 9(1) would apply, because the cars were purchased by him, for the purpose of making sales (within the extended definition, i.e as leasing or selling the right to use) - The concept of right to use would cover a wide spectrum of transactions; most certainly, a lease of the article, for a limited period, would be comprehended within the meaning of right to use . Therefore, the Court rejects the first submission of the revenue, and holds that Question No. 1 has to be answered in favour of the assessee, and against the revenue. Whether the Act makes a distinction between deemed sale - stipulated under Section 2(1)(zc) (i)-(vii) and sale as explained by the main body of the definition for the purposes of section 9(2), and Sl. No. 2 of List of Non-Creditable Goods as provided in Schedule VII - Held that - There can be no doubt that resale should be construed according to the definition of sale under the Act which includes the transfer of right to use goods. The fiction created in defining sale as including transactions which otherwise, in the ordinary sense, would not have been but for the deeming provision, must apply as respect the entire Act, its Schedules, and the Rules made under the Act. The fiction has been created with respect to the term sale , and would definitely extend correspondingly to the word resale as well. Thus this is a logical extension of the principle that where the draftsmen uses the same word or phrase in similar contexts, he must be presumed to intend it in each place to bear the same meaning . The reasoning of the Tribunal, and its reliance on the Hamdard case (2007 (4) TMI 607 - SUPREME COURT) is upheld. Thus, leasing activity carried on by the assessees does amount to resale. Applicability of value added tax on goods Unmodified form - Held that - Having considered the meaning of the term form , this Court is of the view that in the context of applicability of value added tax on goods, unmodified form would have to be mean that the goods remain in their original state. Mere change/modification by ordinary wear and tear would not amount to modification in form. Generally speaking, form would remain unmodified as long as the basic functionality, structure, and configuration remain unchanged. A complete reading of the relevant entries of the seventh schedule in this case would disclose that while facially, motor vehicles, per se are disentitled to input credit, significantly that entry (Sl. No.1) is subject to Entry No. 2. Entry 1 (i) (motor vehicles) is thus, subject to Entry 2, which, in its controlling part says Any entry in clause 1 other than item (ii), (xiii), (xiv) and (xv) shall not be treated as non-creditable goods if the item is purchased by a registered dealer for the purpose of resale in an unmodified form. . Therefore, the articles in which the assessee deals with fall within the provisions of Sr. No 2 and are thus creditable goods. As a result of this discussion, it is held that the view taken by the Tribunal in favour of the assessee is correct - against the revenue. Whether a leasing company shall avail the Input Credit available to them on proportionate basis? - Held that - This Court is of the opinion that while the Tribunal was correct in holding that the manner of grant of credit can be regulated by virtue of Section 12 (4), it fell into error in holding that Rule 4 regulated the grant of credit as it merely visualizes three situations in respect of the method of calculating the amount of turnover or turnover of purchases arising in the tax period in the case of a sale or purchase occurring. . Its reference, to sale by transfer of right to use, again is only in respect of the extent of sale for the concerned tax period. However, it does not support the conclusion that credit is admissible in respect of different periods, spreading over, as it were, the credit which a dealer can so enjoy for the duration of the agreement proportionately staggering payment of the amounts of input tax deductible towards credit. When a dealer, who is involved in leasing business, purchases cars, the point at which credit can be claimed is the tax period when he makes the purchase. The amount of tax on the purchase so made can be claimed as a credit, in the turnover which he is obliged to declare to the VAT authorities. That turnover would be the total lease rental received by him, for the corresponding tax period (when the purchase is made by him), as well as any other VATable transaction he may be engaged in. Thus, the question of spreading over his credit, proportionately or otherwise, is unfeasible and in any case not borne out by the VAT Act or the Rules - There is no warrant for such method - question answered in favour of the assessee.
Issues Involved:
1. Entitlement to claim input credit in terms of Section 9 of the Delhi Value Added Tax Act, 2004, considering Entry (i) of the Seventh Schedule. 2. Entitlement to claim input tax credit under Section 9 of the Delhi Value Added Tax Act, 2004. 3. Proportional availment of Input Credit by leasing companies. Issue-Wise Detailed Analysis: 1. Entitlement to Claim Input Credit in Terms of Section 9 Considering Entry (i) of the Seventh Schedule: The core issue was whether the leasing of cars/motor vehicles by the dealers constitutes "resale in an unmodified form," thus making them eligible for input tax credit (ITC). The Tribunal had ruled that leasing activity qualifies as "resale" under the extended definition of "sale" in Section 2(1)(zc) of the DVAT Act, which includes the transfer of the right to use goods. The High Court upheld this interpretation, stating that the fiction created in defining "sale" must extend to "resale" as well. The Court noted that the leasing of a car results in the transfer of its right to use, thus falling under the purview of Section 9(1) for ITC eligibility. Therefore, motor vehicles leased by the dealers are creditable goods under Sr. No. 2 of the Seventh Schedule, making them eligible for ITC. 2. Entitlement to Claim Input Tax Credit Under Section 9 of the Delhi Value Added Tax Act, 2004: The revenue argued that motor vehicles are non-creditable goods as per Section 9(2)(b) read with Serial No. 1 of the List of Non-Creditable Goods in the Seventh Schedule. However, the Court rejected this argument, emphasizing that the term "resale" should be construed according to the definition of "sale," which includes the transfer of the right to use goods. The Court held that the leasing activity does amount to resale in an unmodified form, thus making the motor vehicles eligible for ITC. The Court also addressed the revenue's contention that input credit is only available if goods undergo some physical change or transformation, stating that mere change by ordinary wear and tear does not amount to modification in form. Consequently, the Court ruled in favor of the assessee, affirming their entitlement to ITC. 3. Proportional Availment of Input Credit by Leasing Companies: The Tribunal had ruled that ITC should be availed proportionately in accordance with Section 9(1) and Section 12(4) read with Rule 4 of the DVAT Rules. The assessee challenged this, arguing that the concept of proportional availment was not envisaged under the Act or the Rules. The Court agreed with the assessee, stating that the proportionality principle outlined in Section 9(4) applies only to situations where goods are used partly for making sales and partly for other purposes. The Court clarified that the presence of Section 9(9), which specifically deals with capital goods, indicates that the legislature did not intend for a proportional rule to apply to other transactions. The Court concluded that the Tribunal's interpretation of proportional availment was not supported by the statute, and thus ruled in favor of the assessee on this issue. Conclusion: The High Court dismissed the revenue's appeals and allowed the assessee's appeal, affirming that: 1. The leasing of motor vehicles constitutes "resale in an unmodified form," making them eligible for ITC. 2. The dealers are entitled to claim ITC under Section 9 of the DVAT Act. 3. The concept of proportional availment of ITC, as mandated by the Tribunal, is not supported by the statute.
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