2014 (3) TMI 440 - HC - VAT and Sales Tax

Disallowance of input credit under DVAT transfer of right to use - VAT authority was of the opinion that such input credit was not permissible as the cars have not been resold and only effective control and possession had been transferred to the customers and, therefore, it does not constitute resale in unmodified form. - Waiver of pre-deposit - Held that - In Carzonrent case 2013 (1) TMI 580 - DELHI HIGH COURT , identical issues and all related questions were dealt with and the submissions of the Revenue was rejected decisively. The Tribunal s impugned order relies upon Section 9 (9). To this Court s mind, the understanding of the Tribunal as to its applicability appears to have been based upon a misreading of judgment passed in Carzonrent The omission to enact a similar provision in respect of different categories of sale transactions on the one hand, and the enactment of Section 2 (zd) (iii) which specifically deals with sale price in respect of transfer of the right to use, coupled with Section 2 (zm) ( turnover ) - turnover is aggregate of sale price, point to legislative deliberation that the theory of proportionality sought to be propounded by the revenue - accepted by the Tribunal, has no statutory basis - Once the legislature entitles the assessee to a certain benefit of input credit, and puts in place a mechanism for working it out, which expressly provides one kind of proportional input credit, to a class of transactions - it is not permissible for the Court to read into the statute another such proportional rule, without statutory sanction Ex facie, the view of the Tribunal with regard to the disallowance of input tax credit appears to be incorrect. - the order rejecting the application for waiver of pre-deposit is set aside - Matter remitted back to Tribunal Decided in favour of assessee.

Summary

Issues:
1. Disallowance of input credit claimed by the appellant/assessee.
2. Justification of the Tribunal in holding the disallowance valid.
3. Rejection of the application for pre-deposit by the VAT Tribunal.
4. Applicability of Section 9 (9) of the DVAT Act regarding input tax credit.

Issue 1: Disallowance of Input Credit:
The appellant, a VAT dealer engaged in leasing motor vehicles, claimed input credit for purchases but was disallowed by the VAT authority under Section 9 (2) (b) of the DVAT Act. The dispute arose as the cars purchased were not resold but transferred to customers, leading to the disallowance. The OHA and VAT Tribunal upheld the disallowance, requiring a significant pre-deposit amount. The appellant cited a Division Bench judgment in a similar case, emphasizing the entitlement to input credit under Section 9 (3), (4), (6), and (10) of the DVAT Act. The Court noted that the Tribunal's reliance on Section 9 (9) for disallowance was based on a misinterpretation of the precedent, leading to the setting aside of the order and allowing the appeal for further consideration on merits.

Issue 2: Tribunal's Justification for Disallowance:
The Tribunal justified the disallowance of input tax credit based on Section 9 (9) of the DVAT Act, which governs the proportionate grant of input credit for capital goods. However, the Court found the Tribunal's interpretation flawed, as the legislative intent did not support applying such a provision to transactions like the one in question. The Court clarified that the Tribunal's understanding of the applicability of Section 9 (9) was incorrect, leading to the rejection of the application for pre-deposit being set aside.

Issue 3: Rejection of Pre-Deposit Application:
Before the appeal could be heard on merits, the VAT Tribunal directed a substantial pre-deposit amount, including tax, interest, and penalty. The Court, upon reviewing the case and the misinterpretation of the precedent by the Tribunal, set aside the order rejecting the application for waiver of pre-deposit. The Court instructed the appeal to be heard on its merits promptly, preferably within six months, allowing both parties to present their arguments fully.

Issue 4: Applicability of Section 9 (9) of the DVAT Act:
The central question revolved around the applicability of Section 9 (9) concerning the proportionate grant of input credit for capital goods. The Court, after analyzing the legislative framework and the Division Bench judgment, concluded that the Tribunal's reliance on this provision was misplaced. The Court clarified that the statutory basis did not support extending such proportionality to transactions beyond capital goods, thereby overturning the Tribunal's decision and allowing the appeal to proceed for further consideration.

This comprehensive summary outlines the key issues addressed in the judgment, including the disallowance of input credit, the Tribunal's justification, rejection of the pre-deposit application, and the interpretation of Section 9 (9) of the DVAT Act.