2016 (5) TMI 297 - HC - VAT and Sales Tax

Liability of VAT - advertisement display sites - Petitioner submitted that Sites are being used by itself for rendering services and there is no transfer of any right to use those sites as alleged by the Revenue but the revenue contended that the Sites for display of advertisements are goods and the petitioner has transferred the right to use those goods to various advertising agencies/advertisers, who use the Sites for display of their advertisement and/or advertisements of their clients. Held that - it would be necessary for the authorities to examine the transactions entered into by the petitioner from the stand point whether there has been any transfer of the right to use the Sites under the agreement entered into by the petitioner with the advertisers. On a plain reading of the Licence Agreement entered into between DIAL and the petitioner, it is difficult to accept that the petitioner acquired any right to transfer any right to use the Sites in question. It is also important to examine the petitioner s contention that the Sites were being used by the petitioner for rendering services and no right to use the Sites had in fact been transferred by the petitioner. Merely, because the advertisements of the advertisers were displayed on the Sites would not necessarily lead to the conclusion that they had acquired the right to use the Sites. In the present case, it is not disputed that the Sites in question are located in a restricted area and none of the advertisers have an unmitigated access to those Sites; the petitioner affirms that possession of the Sites is retained by DIAL. Therefore, it would be difficult to accept the view that the transactions entered into by the petitioner with the advertisers constituted transfer of the right to use the Sites in question. Also the order dated 7th February, 2014 (as rectified by the order dated 13th February, 2014) is modified and the Special Commissioner is directed to consider the objections filed by the petitioner in light of the observations made in this order without insisting on pre-deposit of any amount. With regard to the impugned notices under Section 59 of the DVAT Act dated 8th May 2013 and 21st October 2013 requiring the Petitioner to produce documents stated therein for the period of 2012-13, the court directs the assessment be completed keeping in view the observations made in this order. - Petition disposed of

Issues Involved:
1. Liability of the Petitioner to pay VAT on revenue earned from advertisement displays.
2. Validity of the default assessment notices and penalty imposed.
3. Requirement of pre-deposit for hearing objections.
4. Classification of advertisement hoardings, panels, display boards, kiosks as "goods".
5. Validity of notices under Section 59 of the DVAT Act.

Detailed Analysis:

1. Liability of the Petitioner to Pay VAT on Revenue Earned from Advertisement Displays:
The principal controversy is whether the Petitioner, a licensee of advertisement display sites, is liable to pay VAT on revenue from these displays. The Petitioner argues that it uses the Sites to render services without transferring any right to use them. However, the Revenue contends that the Sites are "goods" and that the Petitioner has transferred the right to use these goods to advertisers.

The court emphasized that the question of whether a transaction constitutes a deemed sale or a service is a factual determination. The dominant object of the transaction is crucial in determining its nature. The court referenced the Supreme Court's decision in Bharat Sanchar Nigam Ltd., which stated that the transfer of the right to use goods must include certain attributes, such as the availability of goods for delivery and the exclusion of the transferor's rights during the transfer period.

2. Validity of the Default Assessment Notices and Penalty Imposed:
The Petitioner challenged the default assessment notices imposing VAT, interest, and penalties for the financial years 2010-11 and 2011-12. The court noted that the objections filed by the Petitioner against these notices were still pending before the Objection Hearing Authority. Therefore, it was not appropriate to determine the assessability of the transactions at this stage.

3. Requirement of Pre-Deposit for Hearing Objections:
The Special Commissioner (VAT) had directed the Petitioner to deposit ?3,14,00,000 as a pre-condition for hearing objections. The court modified this order, directing the Special Commissioner to consider the objections without insisting on any pre-deposit, in light of the observations made in this judgment.

4. Classification of Advertisement Hoardings, Panels, Display Boards, Kiosks as "Goods":
The Commissioner (VAT) had ruled that advertisement hoardings, panels, display boards, kiosks, etc., are "goods" under Section 2(m) of the DVAT Act, and advertisers are liable to pay VAT on the revenue received from deemed sales. The court clarified that this decision must be applied based on the facts of each case. The ruling does not imply that VAT is automatically applicable in all cases where advertisements are displayed on such items.

The court referenced several cases, including Selvel Advertising Pvt. Ltd. and Upasana Finance Ltd., to illustrate that the question of whether a transaction involves a transfer of the right to use goods must be determined by examining the true nature and intention of the parties involved.

5. Validity of Notices under Section 59 of the DVAT Act:
The Petitioner also challenged the notices under Section 59 of the DVAT Act requiring the production of documents for the financial year 2012-13. The court directed that the assessment be completed in accordance with the observations made in this judgment.

Conclusion:
The court disposed of the petition by modifying the pre-deposit requirement and directing the Special Commissioner to consider the objections without any pre-deposit. The assessment for the financial year 2012-13 was to be completed in light of the court's observations. The parties were left to bear their own costs.

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