2015 (4) TMI 35 - HC - VAT and Sales Tax

Applicability of rate of tax on the sale of demo cars - Benefit of notification dated 25.10.2005 - When the authorities noticed that the claim is for demo cars and not used cars, the said claim was disallowed and tax was levied at 12.5% on the value of the cars sold - Held that - dealer is in the business of selling cars manufactured by Maruthi Udyog Limited. The dealer is also in the business of purchase and sale of used cars. In respect of the purchase and sale of used cards, the dealer s claim under the notification has been allowed. It is only in respect of the cars, which are purchased from the manufacturer, the said benefit is not extended. The reason is obvious. The purchase is not that of a used car. The purchase is that of a brand new car from the manufacturer. After purchase from the manufacturer, if the dealer instead of selling the same to a customer uses the said car for demonstration purpose and after some time sells the said car to a customer, it would not be a case of purchase of used car and sale of a used car. The benefit under the notification is meant only for purchase of used cars and sale of used cars. By mere use of the new car purchased from the manufacturer for the purpose of demonstration, the said car cannot be treated as a used car so as to attract the benefit under the notification. Therefore, the Tribunal has rightly held that the petitioner is not entitled for the benefit of the notification. We do not see any merit in these petitions. - Decided against assessee.

Summary

Issues:
Challenge to order on applicability of tax rate on sale of demo cars.

Analysis:
The case involves a revision petition challenging an order passed by the Karnataka Administrative Tribunal regarding the applicability of tax rate on the sale of demo cars. The petitioner, an authorized dealer of vehicles, purchased demo cars from a manufacturing company for demonstration purposes. The demo cars were later sold as used cars. The petitioner claimed a reduced tax rate applicable to the sale of used vehicles based on a notification. However, the authorities disallowed the claim, leading to appeals and a review petition.

The main contention raised by the petitioner was that demo cars should be considered as used cars, entitling them to the benefit of the notification. The Tribunal, in its initial order, allowed the benefit of a reduced tax rate on used cars. However, upon a review petition by the State, the Tribunal partially set aside its earlier order, ruling that demo cars did not qualify as used cars under the notification.

The Court analyzed the facts and legal provisions involved. It noted that demo cars were initially purchased by the petitioner and then sold after use, but the input tax paid on these cars was not considered. The Court highlighted the provision allowing the Tribunal to review orders based on new facts not presented earlier. It concluded that the Tribunal had validly exercised its power of review in this case.

Regarding the interpretation of the notification, the Court examined the language and purpose of the notification applicable to the sale of used cars. It emphasized that the benefit of the reduced tax rate was intended for dealers engaged in the purchase and sale of used cars, not for dealers purchasing new cars for demonstration purposes. The Court clarified that the notification did not apply to demo cars purchased directly from the manufacturer and sold after use for demonstration.

Ultimately, the Court dismissed the revision petitions, affirming the Tribunal's decision that the petitioner was not entitled to the benefit of the notification for the sale of demo cars. The judgment emphasized the distinction between new cars and used cars under the notification, highlighting the specific criteria for availing the reduced tax rate on used vehicles.