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2015 (5) TMI 461 - HC - VAT and Sales TaxRight of use - VAT liability - hiring of Deluxe buses by state transport corporation - transfer of the effective control and possession - Whether the agreement between the appellant and Delhi Transport Corporation giving on hire two Deluxe buses for being plied as per requirement of the latter on the routes and as per schedule specified its transfer of right to use of goods so as to be liable to VAT under Section 2(zc)(vi) of DVAT Act - Held that - While the bus-related responsibilities under the contract are to be borne by the owner (the assessee), it is the duty of DTC to provide a conductor - The contract also stipulated that the owner shall be obliged to keep the bus in neat, clean and presentable condition and for purposes of upkeep, make the necessary arrangements with service centres/dealers/repair shops, etc. on the routes where they were deployed as per schedule decided upon by the DTC. In terms of the contract, it is the owner who would arrange fuel (on reimbursable basis), lubricant, tubes, spare parts, etc. The owner is obliged by the contractual terms to take prior permission before the vehicles are sent for repairs with obligation to indicate in advance the period of non-availability of the vehicles on such account. The owner is not entitled to withdraw the bus from operation without prior written consent of DTC nor can it use these vehicles for any other purpose at any time , nor transfer or otherwise alienate (except with prior written permission of DTC) vehicles during the period of agreement. It is under a general obligation to abide by the orders of DTC or an officer authorized by it. Both the majority and concurring opinion in Bharat Sanchar Nigam Limited (2006 (3) TMI 1 - Supreme court) emphasize that the goods should be ultimately delivered , for the transaction to constitute a sale within the extended meaning, defined by Article 366(29A) of the Constitution of India. Rashtriya Ispat Nigam Limited (2002 (3) TMI 705 - SUPREME COURT OF INDIA) spells out that where even access or physical control of machinery or such like goods are made over, such a transaction by itself would not be transfer of the right to use if effective control is maintained by the owner. In the present case, the owner bears responsibility for any mishappening or accident. It commits to be the bus owner at all times; the registration and licenses are in its favour and most importantly, the DTC has limited use for these buses, i.e. to ply them (of course through driver provided by the owner) at the scheduled routes in terms of the contract. In these circumstances, this Court is of the opinion that the Tribunal could not have distinguished the decision of the Division Bench of this Court in International Travel House (2009 (9) TMI 879 - DELHI HIGH COURT). Tribunal has fallen into error by declining to apply the ratio of International Travel House Ltd.(supra) and by concluding that the contract in question has resulted in transfer of the effective control and possession of the two vehicles (goods for purposes at hand) unto DTC. On the contrary, the various terms of the contract, summarized above, make it vividly clear that the possession has always remained with the owner. Undoubtedly, it is the obligation of the registered owner to make the vehicles available, with their respective drivers, for being deployed on routes, and as per schedule, specified by DTC. - The transaction has been wrongly treated as sale of goods by the authorities below - Decided in favour of assessee.
Issues Involved:
1. Whether the agreement between the appellant and Delhi Transport Corporation (DTC) constituted a transfer of the right to use goods, thus liable to VAT under Section 2(zc)(vi) of the DVAT Act. 2. The imposition of VAT and penalty by the Value Added Tax Officer (VATO) and its affirmation by the Objection Hearing Authority (OHA) and the Tribunal. 3. The applicability of Article 366(29A)(d) of the Constitution concerning the definition of "sale." Issue-wise Detailed Analysis: 1. Transfer of the Right to Use Goods: The primary issue was whether the agreement between the appellant and DTC for hiring two Deluxe buses constituted a transfer of the right to use goods, thereby attracting VAT under Section 2(zc)(vi) of the DVAT Act. The court examined the definition of "sale" under Section 2(1)(zc) of the DVAT Act, which includes "transfer of the right to use any goods for any purpose for cash, deferred payment, or other valuable consideration." The court also referenced Article 366(29A)(d) of the Constitution, which similarly defines "tax on the sale or purchase of goods" to include a tax on the transfer of the right to use goods. 2. Imposition of VAT and Penalty: The VATO had imposed VAT on the hire charges received by the appellant from DTC, treating the transaction as a deemed sale due to the transfer of the right to use the buses. Additionally, a penalty was imposed for the appellant's failure to register under the DVAT Act from 01.04.2005. The OHA and the Tribunal upheld this decision, concluding that the buses were under the control and supervision of DTC, thus constituting a transfer of the right to use the goods. 3. Applicability of Article 366(29A)(d): The court analyzed the legal history and interpretation of Article 366(29A)(d), referencing the Supreme Court's judgment in Bharat Sanchar Nigam Ltd. v. Union of India. The Supreme Court had clarified that for a transaction to constitute a transfer of the right to use goods, the goods must be available and deliverable, and the transferee must have legal rights to use the goods to the exclusion of the transferor. Detailed Analysis: Transfer of the Right to Use Goods: The court examined the agreement between the appellant and DTC, noting that the buses were provided with drivers and were to be used exclusively on routes specified by DTC. The buses' maintenance, insurance, and other responsibilities remained with the appellant, while DTC provided conductors and collected all revenue from passengers. Despite these stipulations, the court found that the possession and control of the buses remained with the appellant, as the buses were not delivered to DTC in a manner that transferred the right to use them exclusively. Imposition of VAT and Penalty: The Tribunal had justified the imposition of VAT and penalty by stating that the buses were under DTC's control and supervision, thus constituting a transfer of the right to use the goods. However, the court disagreed, emphasizing that the buses were not delivered to DTC, and the appellant retained control and possession, including responsibilities for maintenance and insurance. Therefore, the transaction did not qualify as a transfer of the right to use goods under Article 366(29A)(d). Applicability of Article 366(29A)(d): The court referenced the Supreme Court's interpretation in Bharat Sanchar Nigam Ltd., which required that the goods must be available and deliverable, and the transferee must have exclusive legal rights to use the goods. The court found that the appellant retained significant control and responsibilities over the buses, and DTC did not have exclusive rights to use them. Consequently, the transaction did not meet the criteria for a deemed sale under Article 366(29A)(d). Conclusion: The court concluded that the transaction between the appellant and DTC did not constitute a transfer of the right to use goods, and therefore, was not liable to VAT under Section 2(zc)(vi) of the DVAT Act. The imposition of VAT and penalty by the VATO, upheld by the OHA and the Tribunal, was set aside. The substantial question of law was answered in the negative against the Revenue, and the appeal was allowed accordingly.
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