2014 (12) TMI 1024 - HC - VAT and Sales Tax

Resale of the used motor vehicle - Claim of Exemption on sale of motor cars or other capital assets u/s 6(3) of the Delhi Value Added Tax Act, 2004 (DVAT) - motor cars to be treated as plant or not - Held that - Section 9(9) of the DVAT Act is not applicable and appellant dealers were/are not entitled to input tax credit on motor vehicles. Once this is clear, we can appreciate the legislative mandate in granting exemption in respect of sale price paid in respect of capital goods provided the conditions mentioned section 6(3) of the DVAT Act are satisfied. - In the cases of the appellants, if these conditions are satisfied then the sale price received by the appellant dealers on sale of used motor vehicles would not be included in the turnover for it would be exempt from tax under Section 6(3) of the DVAT Act. Therefore, in view of the accepted and admitted facts, section 6(3) of DVAT Act would be applicable and the benefit cannot be denied. Scope of the plant under DVAT - Held that - the word plant has not been defined in the DVAT Act and in ordinary sense it includes whatever apparatus is used by a business man for carrying on his business but not his stock-in-trade which he buys or makes for sale - the word plant or machinery is not restricted only to mechanical processes or apparatus the same has been decided by the Supreme Court in the case of Scientific Engineering House Pvt. Ltd. vs. CIT 1985 (11) TMI 1 - SUPREME Court wherein it has been held that Plant will include any article or object fixed or movable, live or dead, used by a businessman for carrying on his business and it is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. However, in order to qualify as plant, the article must have some degree of durability exemption allowed - Decided in favour of appellant dealers.

Issues Involved:
1. Whether the sale of motor cars or other capital assets is exempt under Section 6(3) of the Delhi Value Added Tax Act, 2004.
2. Whether the levy of penalty and interest by the Appellate Tribunal, Value Added Tax, Delhi is justified.

Issue-wise Detailed Analysis:

1. Exemption of Sale of Motor Cars or Capital Assets under Section 6(3) of DVAT Act, 2004
The appellants, registered dealers under the DVAT Act, 2004, purchased motor vehicles and paid VAT but did not claim input tax credit. The primary dispute was whether the sale of these used motor vehicles should be included in the taxable turnover. The appellants argued that the sale price should not be included, while the Revenue contended it should be part of the business turnover.

The Appellate Tribunal held that the sale price should be included in the taxable turnover based on the broad definition of "business" in Section 2(d) of the DVAT Act. The Tribunal distinguished the case from Panacea Biotech Ltd., where the sale of used motor vehicles was not considered part of the turnover under the DST Act due to a more restricted definition of "business."

The Court examined the relevant definitions in Section 2 of the DVAT Act, including "business," "capital goods," "non-creditable goods," "sale," "sale price," and "turnover." It noted that "business" includes any transaction of sale or purchase of capital assets, which are deemed to be business transactions. "Capital goods" are defined as plant, machinery, and equipment used in trade or manufacturing, while "turnover" includes the aggregate sale price received or receivable.

Section 9 of the DVAT Act allows tax credit for purchases used in making taxable sales. However, no tax credit is allowed for non-creditable goods listed in the Seventh Schedule, which includes motor vehicles. Thus, the appellants could not claim input tax credit for motor vehicles as they were non-creditable goods.

Section 6(3) of the DVAT Act provides an exemption for the sale of capital goods used exclusively for purposes other than making non-taxed sales, provided no tax credit was claimed. The Court interpreted this section to mean that if the conditions are met, the sale price of such capital goods should not be included in the taxable turnover. The conditions are:
1. Sale of capital goods.
2. The capital goods should have been used by the dealer from the time of purchase.
3. The capital goods should be used for making taxable sales or both taxable and non-taxable sales, but not exclusively for non-taxable sales.
4. No tax credit should have been claimed for such capital goods.

The Court concluded that the appellants met these conditions, and therefore, the sale price of the used motor vehicles should not be included in the taxable turnover.

2. Levy of Penalty and Interest
Given the Court's findings on the first issue, the second issue regarding the levy of penalty and interest became moot. Since the sale price of the used motor vehicles should not be included in the taxable turnover, the basis for any penalty or interest imposed by the Appellate Tribunal was invalid.

Conclusion
The Court answered the first substantial question of law in favor of the appellants, holding that the sale of used motor vehicles should not be included in the taxable turnover under Section 6(3) of the DVAT Act, 2004. Consequently, the second question regarding the levy of penalty and interest did not need to be addressed. The appeals were disposed of with no orders as to costs.

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