2017 (12) TMI 1847 - HC - VAT and Sales Tax

Levy of VAT - lease charges paid by the Railway department to the petitioner - It is the contention of the counsel for the petitioner that since the agreement was executed in West Bengal and that no transaction whatsoever transpired within the jurisdiction of Chhattisgarh, the State of Chhattisgarh could not have levied tax - HELD THAT - VAT Act is an enactment by the State Legislature under entry 54 of list 2 schedule 7 of the Constitution of India. Undisputedly, in the instant case the petitioner company is receiving the lease charges from the Railway department against the wagons purchased by the petitioner and which have been handed over to the Railway department. Admittedly, the agreement was made prior to the present South East Central Railway came into existence and the agreement was with the erstwhile South East Railway. It is also not in dispute that the wagons were manufactured by two different companies one locating in the State of West Bengal and other locating in the State of Rajasthan and the wagons have also been delivered by the manufacturers at the place of manufacture i.e. in West Bengal and Rajasthan. Since the time of transfer of the wagons to the Railway department by the manufacturers, the Railway department has been paying charges to the petitioner company. In the instant case an agreement was entered into by the petitioner with the erstwhile and undivided South Eastern Railway and the contract was executed at Calcutta. The supplies of wagons were made at Calcutta, West Bengal and Bharatpur, Rajasthan. The further undisputed fact is that by virtue of the said sale or purchase, the benefits from the said is being reaped by the petitioner company in the State of Chhattisgarh and for the services so provided, the Railway department is paying lease charges to the petitioner again in the State of Chhattisgarh - there is a transfer of rights to use goods which in the instant case is in the form of wagons used for the transportation of materials belonging to the petitioner. The transfer of right to use the goods and that for the wagons so purchased at the behest of the petitioner s establishment are availing the benefits within the territories of the State of Chhattisgarh as has been discussed in the preceding paragraphs, this Court has no hesitation in reaching to the conclusion that the imposition of tax on the lease charges by the Assessing officer and the rejection of the revision by the Revisional authority vide its order dated 30.05.2015 is just and proper and does not warrant interference. Petition dismissed.

Summary

Issues Involved:
1. Jurisdiction of Chhattisgarh to levy VAT on lease charges.
2. Situs of sale and its implications on taxability.
3. Applicability of VAT Act provisions on inter-state transactions.
4. Interpretation of "transfer of right to use" under VAT Act.

Issue-wise Detailed Analysis:

1. Jurisdiction of Chhattisgarh to levy VAT on lease charges:
The petitioner contended that the State of Chhattisgarh could not levy VAT on the lease charges paid by the Railway department because the agreement was executed in West Bengal and no transaction transpired within Chhattisgarh. The assessing officer, however, argued that the benefits of the agreement were reaped in Chhattisgarh, justifying the tax levy. The court concluded that the imposition of VAT by the State of Chhattisgarh was proper, legal, and justified.

2. Situs of sale and its implications on taxability:
The petitioner argued that the situs of sale was outside Chhattisgarh as the wagons were transferred to the Railway department in West Bengal and Rajasthan. According to the petitioner, the taxable event is the transfer of the right to use goods, not the use of goods. The court, referencing Article 366(29A) of the Constitution, determined that the place of signing the contract is inconsequential if the benefits are reaped within Chhattisgarh. Thus, the lease charges were taxable under the Chhattisgarh VAT Act.

3. Applicability of VAT Act provisions on inter-state transactions:
The petitioner cited Section 38(1) & (2) of the VAT Act, which exempts inter-state sales from being taxed under the Chhattisgarh VAT Act. The court, however, found that the benefits from the agreement were being availed in Chhattisgarh, and the lease charges were paid within the state. Therefore, the transactions were deemed taxable under the VAT Act.

4. Interpretation of "transfer of right to use" under VAT Act:
The court examined Section 2(s)(vi) of the VAT Act, which includes the transfer of the right to use goods within the definition of "sale." The court noted that the petitioner was receiving lease charges from the Railway department for the wagons, which were used in Chhattisgarh. The explanation clause in the VAT Act clarified that the place of signing the contract is irrelevant if the benefits are availed within the state. The court concluded that the lease charges received by the petitioner were taxable under the Chhattisgarh VAT Act.

Conclusion:
The court dismissed both writ petitions, upholding the orders of the assessing officer and the revisional authority. The imposition of VAT on the lease charges by the State of Chhattisgarh was deemed just and proper, as the benefits of the agreement were availed within the state.