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2019 (9) TMI 1597 - HC - VAT and Sales TaxLevy of VAT - sale of the hypothecated Motor vehicles - liability on the sale of hypothecated Motor vehicles could be fastened on the Petitioner when the principal on whose behalf the sale was effected i.e. the borrower was not a dealer - Non-Banking Finance Company - Applicability of case of HDFC BANK LIMITED VERSUS THE STATE OF TAMILNADU 2015 (10) TMI 854 - MADRAS HIGH COURT . HELD THAT - In the case of HDFC Bank Ltd., the revision petition was filed before this Court questioning the correctness of the order of the Sales Tax Appellate Tribunal, which held that the Bank is liable to pay sales tax. The assessment under the TNVAT Act was revised by the Assessing Officer on the ground that the bank had not reported the sale of repossessed vehicle from defaulting customers in their return and not paid taxes thereon. As in the case on hand, the appeals filed before the first appellate authority as well as the Tribunal were dismissed. The question, which was framed for consideration by the Division Bench was whether the bank, which holds the hypothecation of vehicles in their favour would be a 'dealer' within the definition under Section 2(15) of the TNVAT Act, merely because, the bank seized and repossessed the hypothecated vehicle and brings it to sale. If Explanation III to Section 2(15) of the Act covers the sale of even unclaimed goods, the contention of the seller (bank) must be in a position to pass on title, may not stand - In the event, there is a resistance by the borrower, the situation is taken care by appropriate amendments to Motor Vehicles Act, which empowers the lender to approach the appropriate authority and execute the transfer of ownership without consent of the borrower. Therefore, the right exercisable by the assessee is under a contract. In INDIAN OIL CORPORATION VERSUS NEPC INDIA LTD ORS 2006 (7) TMI 575 - SUPREME COURT , it was pointed out that the deed of hypothecation created a charge over the hypothecated asset with right to take possession in the event of default. Thus, on a conjoint reading of the above decisions and the modus operandi of the assessee, which in our considered view, is no different from that of the modus operandi adopted in the case of HDFC. Therefore, we are necessarily conclude that the decision in HDFC, would squarely apply to the case of the assessee. A reading of clause 11(c)(ii) makes abundantly clear that the sale by the assessee of the hypothecated asset is without the consent of the borrower. The borrower has no right to question the value at which the asset was sold and sale will be done by the assessee without accountability to the borrower and the guarantor and the assessee will not be liable for loss or damage or diminution in value of asset/ security on account of exercise or non exercise of rights by the assessee and the borrower/guarantor will not be entitled to raise any claim against the assessee on the ground that a large sum of amount might have been received or dispute their liability for the remaining dues under this agreement - There are many such clauses in the agreement, which clearly elucidate that theory as propounded by the assessee that the sale is effected by them as an agent of the borrower has to necessarily fall. No ground is is made for interference of the order of the Tribunal - the Tax Cases (Revision) are dismissed and the substantial questions of law framed for consideration are decided against the assessee.
Issues Involved:
1. Whether the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act) permits the imposition of VAT on sales of hypothecated motor vehicles by the petitioner. 2. Whether the petitioner can be held liable for VAT on the sale of hypothecated motor vehicles when the borrower is not a dealer under the VAT Act. 3. Whether the Sales Tax Appellate Tribunal erred in applying the principles from the HDFC vs. State of Tamil Nadu judgment to the petitioner, a Non-Banking Finance Company (NBFC). Issue-wise Detailed Analysis: 1. Imposition of VAT on Sales of Hypothecated Motor Vehicles: The petitioner argued that the vehicles sold belonged to the borrowers who had hypothecated them as security for loans. Upon default, the vehicles were repossessed and sold, and the sale proceeds were credited to the borrowers' loan accounts. The petitioner contended that the liability to pay VAT, if any, should be on the borrower, who is not a dealer under the TNVAT Act. The Assessing Officer, however, stated that the petitioner, acting on behalf of the borrower and conducting the auction, should be deemed a dealer under Section 2(15) of the TNVAT Act and thus liable for VAT. 2. Liability of Petitioner When Borrower is Not a Dealer: The petitioner asserted that since the borrowers were not dealers, they could not incur VAT liability, and consequently, no liability could be cast upon the petitioner. The petitioner emphasized that they were not engaged in the business of buying and selling motor vehicles and had no right, title, or interest in the vehicles except the right to repossess and sell them in case of default. The Tribunal, however, upheld the view that the petitioner, by repossessing and selling the vehicles, acted as a dealer and was liable for VAT. 3. Application of HDFC vs. State of Tamil Nadu Judgment: The petitioner contended that the Tribunal incorrectly applied the HDFC judgment, which involved a bank, to their case as an NBFC. The Tribunal, however, noted that the nature of transactions in both cases was identical, involving repossession and sale of hypothecated vehicles upon default. The Tribunal held that the decision in HDFC Bank Ltd. was applicable, as the petitioner, like the bank in HDFC, was deemed a dealer under Section 2(15) of the TNVAT Act. Analysis of Separate Judgments: The judgment delivered by the High Court of Madras, in a common order, concluded that the petitioner, an NBFC, was liable for VAT on the sale of hypothecated motor vehicles. The court found that the petitioner fell within the definition of a dealer under Section 2(15) of the TNVAT Act and that the transactions constituted sales under Section 2(33) of the Act. The court dismissed the petitioner's arguments and upheld the Tribunal's decision, affirming the imposition of VAT and rejecting the petitioner's claim of acting merely as an agent of the borrower. Conclusion: The High Court of Madras dismissed the Tax Case Revision Petitions, holding that the petitioner, an NBFC, was liable for VAT on the sale of hypothecated motor vehicles. The court affirmed that the petitioner was deemed a dealer under the TNVAT Act and that the transactions in question were taxable sales. The court also upheld the Tribunal's application of the HDFC judgment to the petitioner's case, concluding that the petitioner's liability for VAT was justified.
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