2018 (6) TMI 1830 - AT - VAT and Sales Tax

Valuation - registration Charges, insurance Charges, handling charges received and paid on behalf of the customer of a motor vehicle, form part of the sale price, of such motor vehicle or not - Incentive and discount, received from the automotive manufacturers form part of the sale price or needs to be treated as a sale price of the motor vehicle sold to the customer or whether it results in reduction of set off? - claiming set off, on purchased motor vehicle and used it as Demo Vehicles , irrespective of the fact that such vehicle continuing to be stock-in-trade or not being treated as capital asset in the books of accounts of the Applicant - Whether the prayer of prospective effect, considering the fact that the decision of the Hon. High Court of Judicature at Bombay in the case of Sehgal Auto riders Private Limited 2011 (7) TMI 55 - BOMBAY HIGH COURT was rendered on 11th July, 2011 and whereas the decision of the Hon'ble Supreme Court of India in the case of K.T.C. Automobiles 2016 (1) TMI 1046 - SUPREME COURT was rendered only on 29 th January, 2016? Registration charges and hand selling charges - HELD THAT - On going through the factual position, proforma invoice, and sale contract and seen that the property, particularly possession of a motor vehicle passes or can pass legally to the purchaser only after obtaining valid registration under the Motor Vehicles Act and the purchaser gets entitled to use the vehicle in public places. It is also seen that after complying the stipulated condition to make vehicle road worthy, only the property in goods passes legally to customer. Moreover, the registration charges are recovered for making the road worthy to comply the stipulated condition and statutory compulsion before ascertainment of goods or delivery of the Motor Vehicles and therefore would be included in the meaning of 'sale price' under Section 2(25) of the MVAT ACT, 2002 - all charges related, charged and paid by customer before the legally passing of property in goods would be considered in the sale price. Discount offered and reimbursed to the applicant from his vendor amount to sale price or otherwise - HELD THAT - The applicant had received the payment of the price for the discount offered to customers. The applicant has received above credit notes to reimburse the amount of discount offered to customer, therefore, the amount of Rs. 22,026 is liable to be included in the sale price would be liable to sales tax. Claim of ITC which is not paid into government treasury - HELD THAT - While passing the credit of Rs. 22,026, the automotive manufacturer company has reduced tax load of Rs. 2974/- on said amount. Thus they have reduced their tax liability to that extent and not paid tax into government treasury. Therefore, the claim of ITC in this respect is not found sustainable and thus required to be rejected. ITC on Demo car - Whether the Applicant is entitled to claim set off, on purchased motor vehicle and used it as Demo Vehicles , irrespective of the fact that such vehicle continuing to be stock-in-trade or not being treated as capital asset in the books of accounts of the Applicants? - HELD THAT - The ITC is allowable provided that the vehicle are not capitalized. The matter is related to finding of fact. The assessing officer/investigating officer should verify the books as to whether vehicle is capitalized or otherwise. Prospective Effect - HELD THAT - It is settled principle that the issue of prospective effect is to be considered on fact and circumstances of each case separately. There is no straight jacket formula to say that prospective effect is to be given in typical circumstances - The tax liability of the applicant on the receipt of handling charges or service charges related to reqistration only is protected from period 11th July, 2011 to 29th January, 2016 only. Application disposed off.

Summary

Issues Involved:
1. Whether registration charges, insurance charges, and handling charges form part of the "sale price" of a motor vehicle under Section 2(25) of the MVAT Act.
2. Whether incentives and discounts received from automotive manufacturers form part of the "sale price" and affect the set-off.
3. Whether the applicant is entitled to claim set-off on demo vehicles treated as "stock-in-trade" rather than "capital assets."
4. Whether the ruling should have a "prospective effect" considering previous court decisions.

Issue-wise Detailed Analysis:

I. Registration, Insurance, and Handling Charges as Part of "Sale Price":
The Tribunal examined whether these charges should be included in the "sale price" under Section 2(25) of the MVAT Act. The applicant argued that these charges are separate from the sale price. However, the Tribunal referred to the Supreme Court's decision in the KTC Automobiles case, which clarified that a motor vehicle remains unascertained until it is registered and delivered in a roadworthy condition. Therefore, all charges incurred to make the vehicle roadworthy before delivery should be included in the "sale price." The Tribunal concluded that registration, insurance, and handling charges are part of the "sale price."

II. Incentives and Discounts from Manufacturers:
The Tribunal considered whether incentives and discounts received from manufacturers should be treated as part of the "sale price" and whether they affect the set-off. The applicant contended that these amounts are separate from the sale transaction with the customer. However, the Tribunal noted that the applicant receives these amounts to offset discounts given to customers, effectively making them part of the sale price. The Tribunal cited the Supreme Court's decision in Mohd. Ekram Khan & Sons and the Bombay High Court's decisions in Chowgule Industries Pvt. Ltd. and Navnit Motors Pvt. Ltd., which held that such amounts should be included in the sale price and affect the set-off. Therefore, incentives and discounts are part of the "sale price" and reduce the set-off.

III. Set-off on Demo Vehicles:
The Tribunal examined whether the applicant is entitled to claim set-off on demo vehicles treated as "stock-in-trade." The applicant argued that demo vehicles are not capitalized and remain stock-in-trade, thus eligible for set-off. The Tribunal referred to Rule 54 of the MVAT Rules, which disallows set-off for vehicles treated as capital assets. Since the applicant treated demo vehicles as stock-in-trade and not capital assets, the Tribunal concluded that the applicant is entitled to claim set-off on demo vehicles, provided they are not capitalized.

IV. Prospective Effect of the Ruling:
The applicant requested that the ruling have a prospective effect due to previous conflicting court decisions. The Tribunal referred to Section 55(9) of the MVAT Act, which allows for prospective application of rulings under certain circumstances. The Tribunal noted that the Bombay High Court's decision in Sehgal Autoriders Pvt. Ltd. (2011) conflicted with the Supreme Court's decision in KTC Automobiles (2016). Given this conflict, the Tribunal exercised its discretion to grant prospective effect to the ruling, protecting the applicant's tax liability related to registration charges from July 11, 2011, to January 29, 2016.

Conclusion:
The Tribunal ruled that registration, insurance, and handling charges form part of the "sale price." Incentives and discounts from manufacturers are also part of the "sale price" and affect the set-off. The applicant is entitled to claim set-off on demo vehicles if they are not capitalized. The ruling on registration charges will have a prospective effect, protecting the applicant's liability from July 11, 2011, to January 29, 2016.