2015 (4) TMI 210 - HC - VAT and Sales Tax

Deletion of the levy of tax under the provisions of the Karnataka Value Added Tax Act, 2003 - Whether the Tribunal was justified in giving a finding that the lease rentals received after 1.4.2005 in respect of transfer of right to use KST suffered cars leased out prior to 1.4.2005 is not exigible to tax under the KVAT Act - Held that - The assessee under a lease agreement leased to its customers KST suffered cars after purchasing them from local registered dealers. The tenure of the Master Lease Agreement were continuous and unbreakable for 5 years though lease rentals were payable by the customers on a monthly basis. Therefore, the assessee had a vested right of giving the cars on hire and receiving the rentals which was not exigible to tax. From 1.4.2005 KVAT Act has come into force. Section 3 is the charging Section. It provides that, the tax shall be levied on every sale of goods in the State by a registered dealer or a dealer liable to be registered, in accordance with the provisions of this Act. Therefore, the incidence of tax under Section 3 of the KVAT Act is the sale of goods. After the coming into force of the new Act, the assessee has not leased any car to his customers. Lease was prior to 1.4.2005. It is for a period of 5 years. Under the terms of the agreement, the customer has to pay lease rents for every month for a period of 5 years. Therefore, though the assessee continued to receive rentals every month after 1.4.2005, it is in pursuance of a sale which took place prior to 1.4.2005. As no sale has taken place after 1.4.2005, the liability to pay tax under Section 3 does not arise. - finding recorded by the Tribunal is just and proper and is in accordance with law. Therefore, the question of law is answered in favour of the assessee and against the revenue. Hence, we do not see any merit in these revisions - Decided against Revenue.

Summary

Issues:
1. Interpretation of tax liability under Karnataka Value Added Tax Act, 2003 for deferred sale consideration received after 1.4.2005 in relation to transfer of right to use KST suffered goods leased out prior to 1.4.2005.

Analysis:
The judgment involves the State appealing against an order deleting the levy of tax under the Karnataka Value Added Tax Act, 2003 on deferred sale consideration received after 1.4.2005 for the transfer of right to use KST suffered goods leased out prior to 1.4.2005. The assessee, a company, transitioned from the Karnataka Sales Tax Act, 1957 to the KVAT Act on 1.4.2005. The issue revolved around whether lease rentals received after 1.4.2005 for cars leased prior to that date are liable to tax under the KVAT Act.

The Karnataka Appellate Tribunal held that the liability to tax arises under Section 5-C of the KST Act, which exempts KST suffered goods from tax. The Tribunal emphasized that the deferred payments for deemed sales prior to 1.4.2005, even if realized after that date, are not subject to tax under the KVAT Act. The Tribunal reasoned that the KVAT Act, enacted from 1.4.2005, does not impair vested rights accrued under the KST Act.

The State contended that monthly lease payments constitute part of turnover liable to tax under the KVAT Act. However, the counsel for the assessee argued that as the sale occurred before 1.4.2005, subsequent lease rentals are not part of the sale consideration post-KVAT Act enforcement. The Tribunal's decision was upheld, emphasizing that the KVAT Act does not authorize taxing deferred receipts of sales pre-1.4.2005.

The judgment cited a Delhi High Court case to highlight the importance of legislative intent in preserving vested rights. It concluded that since the KVAT Act lacked provisions to tax deferred receipts post-KST Act, the Tribunal's decision aligns with legal principles. The judgment dismissed the State's revisions, affirming that the assessee is not liable for tax under the KVAT Act for lease rentals post-1.4.2005 related to pre-1.4.2005 leased cars.

In conclusion, the judgment clarifies the tax liability under the KVAT Act concerning deferred sale consideration for goods leased out before the Act's enforcement. It underscores the protection of vested rights accrued under previous tax legislation and highlights the importance of legislative intent in determining tax liabilities post-transition to a new tax regime.