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2018 (7) TMI 972 - HC - VAT and Sales TaxJurisdiction - Power of AO to levy VAT - Levy of Sales Tax or Service tax? - transfer of right to use - lease rent on Plant and Machinery forming part of Composite lease of Brewery. Held that - In the given facts of present case wherein the Assessing Officer has levied VAT on transfer of plant and machinery being covered by sub-clause (d) of Clause (29-A) of Article 366 of the Constitution it is difficult to accept the submissions on behalf of the petitioner, that it was beyond his competence to levy VAT on transfer of plant and machinery. Being within the competence of the State and its functionaries in vivisecting the composite lease rent and levying VAT on the transfer of plant and machinery. The challenge as to the jurisdiction of State functionaries in levying VAT is negatived - Since we have held that it is within the competence of the State and its functionaries to levy VAT on the transfer of plant and machinery, the petitioner is set to avail the remedy of Appeal under Section 46 of VAT Act, 2002, against the assessment order. Petition disposed off.
Issues Involved:
1. Jurisdictional Competence of the State to Levy VAT on Lease Rent for Plant and Machinery. 2. Classification of Plant and Machinery as Goods or Immovable Property. 3. Composite Lease Agreement and its Tax Implications. 4. Procedural Validity of the Assessment Order. 5. Availability of Alternative Remedies. Issue-wise Detailed Analysis: 1. Jurisdictional Competence of the State to Levy VAT on Lease Rent for Plant and Machinery: The petitioner contended that the State lacked the competence to levy VAT on the lease rent for plant and machinery, arguing that the transaction fell under the purview of service tax, which is within the exclusive domain of the Central Government. The court examined the power of the State under Entry 54 of List II of Schedule VII of the Constitution and concluded that the State has the authority to impose VAT on the transfer of the right to use goods, including plant and machinery, as defined under Section 2(u)(vi) of the VAT Act, 2002. The court referenced Article 366(29-A) of the Constitution, which includes a tax on the transfer of the right to use any goods for any purpose, thereby affirming the State's jurisdiction. 2. Classification of Plant and Machinery as Goods or Immovable Property: The petitioner argued that plant and machinery, once embedded in the earth, transform into immovable property, thus exempt from VAT. However, the court held that the plant and machinery in question were considered "goods" under Section 2(m) of the VAT Act, 2002, and their transfer on lease constituted a "sale" under Section 2(u)(vi). The court cited the Supreme Court's judgment in BSNL Vs. Union of India, which clarified that the transfer of the right to use goods is taxable under VAT, irrespective of whether the goods are movable or immovable. 3. Composite Lease Agreement and its Tax Implications: The petitioner contended that the lease agreement was a composite and indivisible transaction, making it subject to service tax rather than VAT. The court analyzed the lease agreement, noting that it involved the transfer of the right to use the brewery, including plant and machinery, for a lump sum lease rent. The court concluded that the State has the competence to vivisect the composite lease and levy VAT on the plant and machinery component, as it falls under the definition of "goods." 4. Procedural Validity of the Assessment Order: The petitioner challenged the procedural validity of the assessment order, arguing that the notice under Section 19 of the VAT Act was inadequate and that the reassessment process was arbitrary. The court found that the petitioner had a remedy of appeal under Section 46 of the VAT Act, 2002, and since the petitioner had raised a jurisdictional issue, the court examined the matter. The court held that the assessment order was within the competence of the State authorities and did not suffer from any procedural infirmities. 5. Availability of Alternative Remedies: The court noted that the petitioner had an alternative remedy of appeal under Section 46 of the VAT Act, 2002. Given that the petitioner had raised a jurisdictional issue, the court chose to address it but ultimately directed the petitioner to avail the appellate remedy. The court allowed the petitioner to file an appeal within 30 days from the date of communication of the order, instructing the Appellate Authority to consider the appeal on its merits. Conclusion: The court upheld the State's competence to levy VAT on the lease rent for plant and machinery, classifying them as "goods" under the VAT Act, 2002. The court dismissed the petitioner's arguments regarding the composite nature of the lease agreement and procedural invalidities in the assessment order. The petitioner was directed to avail the appellate remedy under Section 46 of the VAT Act, 2002, with the assurance that the appeal would be considered on its merits. The petitions were disposed of without costs.
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