2022 (11) TMI 496 - HC - VAT and Sales Tax

Levy of VAT (Value Added Tax) - lease charges paid by the Railways Department to the Petitioner Company - Deemed sale or not - right to use goods or the use of goods - HELD THAT - From the authoritative decision of the Hon'ble Supreme Court in 20th Century Finance Corpn. Ltd. 2000 (5) TMI 980 - SUPREME COURT , it is evidently clear that the Hon'ble Supreme Court had in its mandate held that in respect of transfer of right to use any goods, the situs of the sale would be placed where the written agreement transferring the right to use any goods was executed and it is only that State where the written agreement was executed which is empowered to levy tax. The High Court of Orrisa in M/s Shrei International Finance Ltd. Vs. State of Orissa Ors. 2008 (3) TMI 638 - ORISSA HIGH COURT in somewhat identical set of facts has held that since the sale or purchase was in the course inter-state trade and commerce, the State of Orissa has no jurisdiction to levy tax on the lease rent received. The taxable event is the transfer of right to use goods and not the right to use goods or the use of goods. Therefore, the right to use goods or the use of goods is not the relevant factor to justify the levy of tax. Thus, the entire assessment made by the Assessing Officer and the acceptance of the same by the Revisional Authority is per se bad and illegal. This Court is of the firm view that the Order passed by this Court does not seem to be proper, legal and justified and a strong case for allowing the Review Petition accordingly has been made out - Review Petition is allowed.

Summary

Issues Involved:
1. Levy of VAT on lease charges paid by the Railways Department to the Petitioner Company.
2. Legality of the assessment and levy of tax under Section 2(s)(vi) of the Chhattisgarh Value Added Tax Act, 2005.
3. Jurisdiction of the State of Chhattisgarh to impose or levy tax on transactions occurring outside its territory.
4. Applicability of legal principles settled by the Supreme Court in "20th Century Finance Corpn. Ltd. & Anr. Vs. State of Maharashtra" and the coordinate Bench decision in "M/s Raymond Ltd. & Anr. Vs. The Additional Commissioner, Commercial Tax & Ors."

Issue-wise Detailed Analysis:

1. Levy of VAT on Lease Charges:
The primary issue was the levy of VAT on lease charges paid by the Railways Department to the Petitioner Company for the assessment year 2009-10. The Assessing Officer assessed an amount of Rs.29,20,347/- as lease rent under Section 2(s)(vi) of the VAT Act, deeming the transaction as a sale and levying tax at 18%, amounting to Rs.4,08,849/-. This assessment was affirmed by the Revisional Authority and subsequently challenged in W.P.(T) No.128/2015, which was dismissed, leading to the present Review Petition.

2. Legality of Assessment and Levy of Tax:
The Petitioner argued that the transfer of the right to use occurred outside Chhattisgarh, and thus, the State could not levy tax on the transaction. The Petitioner cited Section 2(s)(vi) of the VAT Act, emphasizing that the point of transfer of the right to use, rather than the location of use, should be considered. The Counsel for the Petitioner further referenced Section 38 of the VAT Act, which exempts certain sales from tax, arguing that the sale occurred outside Chhattisgarh and was thus non-taxable.

3. Jurisdiction of State of Chhattisgarh:
The Petitioner contended that the State of Chhattisgarh lacked jurisdiction to impose tax on transactions executed outside its territory. The lease agreement in question was signed in Kolkata, and the Petitioner's registered office was in Mumbai. The Petitioner cited the Supreme Court's decision in "20th Century Finance Corpn. Ltd." which held that the situs of the sale is where the written agreement transferring the right to use goods is executed. Therefore, only the State where the agreement was executed could levy tax.

4. Applicability of Legal Principles:
The Petitioner argued that the decision of the Court in dismissing W.P.(T) No.128/2015 was contrary to the legal principles established by the Supreme Court in "20th Century Finance Corpn. Ltd." and the coordinate Bench's decision in "M/s Raymond Ltd.". The Supreme Court had clarified that the taxable event is the transfer of the right to use goods, not the location or use of the goods. The High Court of Orissa and the Division Bench of Madhya Pradesh High Court had also quashed similar assessments based on the same principles.

Conclusion:
Upon reviewing the contentions and legal precedents, the Court found that the previous Order dismissing W.P.(T) No.128/2015 was not proper, legal, or justified. The Review Petition was allowed, and the Order dated 5.12.2017 was recalled. The original writ petition, W.P.(T) No.128/2015, was ordered to be listed for rehearing.

Final Order:
The Review Petition is allowed. The Order/Judgment dated 5.12.2017 in W.P.(T) No.128/2015 is recalled. The writ petition is to be reheard in the week commencing 7th November 2022.