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TMI Blog2013 (1) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... dealer will avail input tax credit proportionately in accordance with Section 9(1) and Section 12(4) of the Delhi Value Added Tax Act, 2004 (in short, "the DVAT Act") read with Rule 4 of the Delhi Value Added Tax Rules, 2005 (hereafter, "the Rules"). Cross Objection No.13377/2012 (in STA No.7/2011) has also been filed by the assessee seeking the same relief. 2. This Court had framed questions "a"-"b" in the revenue‟s appeals, and question "c" in the assessee‟s appeal: a. "Are the respondents/dealers entitled to claim input credit in terms of Section 9, regard being had to Entry (i) of Seventh Schedule to the Delhi Value Added Tax, 2004. b. In any event, are the respondents/dealers at all entitled to claim input tax credit, having regard to Section 9 of the Delhi Value Added Tax, 2004." c. Whether the Appellate Tribuanal - VAT grossly erred in law in holding that a leasing company shall avail the Input Credit available to them on proportionate basis?" 3. The facts are that assessee/dealers (hereafter "dealers") are engaged in the business of leasing cars/motor vehicles for which purpose they entered into contracts. Under the lease agreements, they are transfer the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for input tax credit. 6. It was submitted that the object of providing input credit, under the DVAT is to provide relief where the underlying transaction of sale by the dealer comprehends some form of transformation, of the goods. In other words, if goods are not sold in modified form, there is no question of input credit. Reliance was placed on Section 105(2) of the Act to contend that under the Act, ITC is not available on goods used for the purpose of transfer, but is only available for purchases acquired in the form of a right. It was contended that this provision does not allow benefit of ITC in respect of goods transferred under right to use basis, rather it restricts the same. 7. Counsel for the dealers defended the impugned orders. It was argued that the Tribunal was correct in holding that cars/motor vehicles being dealt with by the dealers in the present appeals were entitled to claim credit, and were not non-creditable goods, as they fall within the exception, i.e. Sr. No. 2 of the List. It was contended that the word "resale" appearing in Serial No 2,- which embodies the exception to the rule specified in Serial No. 1- has to be construed according to the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns through the scheme of the Act. In this regard, he pointed out section 9(4), and Rule 6 made pursuant thereto -which prescribes that where purchased goods are partly used for the purposes of making sales under Section 9(1), and partly for other purposes, then tax credit is to be availed proportionately. Re Question Nos 1 and 2: Are the cars in which the assessee-dealers deal non-creditable? 11. Before proceeding with the analysis of the rival contentions, it is relevant to note the Tribunal‟s reasoning on this issue from its impugned order dated 14.12.2010, which was followed in the later impugned orders. Its observations and findings are extracted as under: "23. A careful perusal of the definition of word "sale" as given in section 2(1)(zc) shows that this definition uses the word "and includes". Settled law is that when a definition clause uses the word "includes", it extends the definition of that word to that extent. When the word "include" is used in words or phrases, it has to be construed as comprehending not only such things as they signify according to their nature and impact but also those things which the interpretation clause declares they shall include. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an essential condition of the definition. Therefore, for the purposes of leasing under the Act, these goods are "trading goods" so far as the lessor is concerned; and might be termed as "capital goods" in the hands of the lessee in case he uses these goods in the process of trade or manufacture or works contract. We are fortified in our conclusion from the intention of the legislature expressed through sec. 105 of the Act... 27. A careful perusal of section 105(2) (b) clearly shows that input tax credit has been allowed also the lessee, who acquires transfer of right to use goods, which is nothing but a deemed purchase. Thus it is clear that this Act does not distinguish between a „purchaser‟ and a deemed „purchaser‟. When it is so, then to distinguish between a „sale‟ and a „deemed sale‟ would amount to taking a view not warranted by the Act. Further to allow the input tax credit to the lessee by virtue of section 105(2)(b), who is merely holding lawful possession without any title; and to restrict to the leasing company who is normal purchaser of the goods, will lead to unintended consequences. 32. In our considered view what app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anner provided, under its provisions. Each dealer (Ref. Section 3(2)) has to pay tax "at the rates specified in Section 4" and in respect of "every sale of goods effected by him" as a registered dealer on any date from which he was required to be registered. Section 9 entitles tax credit to a registered dealer under the Act in respect of turn-over of purchases granted during the tax period when the purchase earned in the course of his activities as a dealer of the goods are to be used by him directly or indirectly "for making sales liable to tax under Section 3" or "for making sales or which are not liable to tax under Section 7." Section 9(1) enables dealers to claim input tax credit. During the assessment years, in respect of which appeals have been presented, section 9(1) read as follows: "9. Tax credit.- (1) Subject to sub-section (2) of this section and such conditions, restrictions and limitations as may be prescribed, a dealer who is registered or is required to be registered under this Act shall be entitled to a tax credit in respect of the turnover of purchases occurring during the tax period where the purchase arises in the course of his activities as a dealer and the go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd (xv) shall not be treated as non-creditable goods if the item is purchased by a registered dealer for the purpose of resale in an unmodified form or use as raw material for processing or manufacturing of goods, in Delhi, for sale by him in the ordinary course of his business." (emphasis supplied) 13. The goods in which the assessees-dealers deal are motor vehicles falling within Sr. No. 1 of the above-noted list. The question that therefore, arises is whether the leasing activity of motor vehicles as carried out by the assessee-dealers constitutes "resale in an unmodified form". The term "sale" is defined in section 2(1)(zc) as: "sale" with its grammatical variations and cognate expression means any transfer of property in goods by one person to another for cash or for deferred payment or for other valuable consideration (not including a grant or subvention payment made by one government agency or department, whether of the central government or of any state government, to another) and includes- *** *** *** (vi) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;" 14. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue. 16. The question next to be considered is whether the Act makes a distinction for the purposes of section 9(2), and Sl. No. 2 of List of Non-Creditable Goods as provided in Schedule VII, between "deemed sale"- stipulated under Section 2(1)(zc) (i)-(vii) and sale as explained by the main body of the definition. This Court is of the opinion that there can be no doubt that "resale" should be construed according to the definition of "sale" under the Act which includes the transfer of right to use goods. The fiction created in defining „sale‟ as including transactions which otherwise, in the ordinary sense, would not have been but for the deeming provision, must apply as respect the entire Act, its Schedules, and the Rules made under the Act. The fiction has been created with respect to the term „sale‟, and in our opinion, would definitely extend correspondingly to the word „resale‟ as well. This, in our opinion, is a logical extension of the principle that "where the draftsmen uses the same word or phrase in similar contexts, he must be presumed to intend it in each place to bear the same meaning" (Ref. Central Bank of India v. Ravindra, AIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bdquo;form‟, this Court is of the view that in the context of applicability of value added tax on goods, „unmodified form‟ would have to be mean that the goods remain in their original state. Mere change/modification by ordinary wear and tear would not amount to modification in form. Generally speaking, in our opinion, form would remain unmodified as long as the basic functionality, structure, and configuration remain unchanged. The revenue‟s position here is that input credit can be availed only if the goods undergo some physical change or transformation, and the concept of modification eliminates a transaction which amounts to "right to use". In other words, any sale or deemed resale of a product, which dos not undergo some manufacture or process change, cannot claim input tax credit. A complete reading of the relevant entries of the seventh schedule in this case would disclose that while facially, motor vehicles, per se are disentitled to input credit, significantly that entry (Sl. No.1) is subject to Entry No. 2. Entry 1 (i) (motor vehicles) is thus, subject to Entry 2, which, in its controlling part says "...Any entry in clause 1 other than item (ii), ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are certain sales, which are liable to tax but have been granted exemption from tax and these goods are listed in the First Schedule to the Act. There are certain sales which are not liable to tax at all under the Act and these are the sales mentioned in Section 7. There is a difference between sales that are not liable to tax and sales which are liable to tax, but which have been given exemption from the levy of the tax subject to the conditions and exceptions set out in the First Schedule. A dealer is entitled to tax credit under Section 9(1) in respect of the purchases made by him during the tax period, which are used by him, directly or indirectly for the purpose of making sales which are liable to tax under Section 3 of the Act and also to effect sales which are not liable to tax under Section 7. Section 3, which is the charging section, imposes tax on every dealer in respect of every sale of goods effected by him. Some of the goods which are listed in the First Schedule to the Act are granted exemption from the levy of sales tax under Section 6(1). The sales which are referred to in Section 7 are not liable to tax at all. Such sales are outside the purview of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he seller by way of deposit (whether refundable or not) which has been received or is receivable whether by way of separate agreement or not, in connection with, or incidental to or ancillary to the sale of goods; (vii) in relation to works contract means the amount of valuable consideration paid or payable to a dealer for the execution of the works contract; less - (a) any sum allowed as discount which goes to reduce the sale price according to the practice, normally, prevailing in trade; (b) the cost of freight or delivery or the cost of installation in cases where such cost is separately charged; and the words "purchase price" with all their grammatical variations and cognate expressions, shall be construed accordingly; [***] [PROVIDED that an amount equal to the increase in the price of petrol (including the duties and leviews charged thereon by the Central Government) taking effect from the 3rd June, 2012 shall not form part of the sale price of petrol sold on or after the date of the commencement of the Delhi Value Added Tax (Third Amendment) Act, 2012 till such date as the Government may, by notification in the official Gazette, direct or if the price of petrol falls be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax credit or the amount of any adjustment or reduction of a tax credit in certain instances. Explanation.- A person may object in the manner referred to in section 74 of this Act to a decision of the Commissioner to reject a method of calculating a tax credit. (6) [Notwithstanding anything contained to the contrary in sub-section (1), where - ] (a) a dealer has purchased goods (other than capital goods) for which a tax credit arises under sub-section (1) of this section; (b) the goods or goods manufactured out of such goods are to be exported from Delhi by way of transfer to a - (i) non-resident consignment agent; or (ii) non-resident branch of the dealer; and (c) the transfer will not be by way of a sale made in Delhi; the amount of the tax credit shall be reduced by the prescribed percentage. (7) For the removal of doubt, no tax credit shall be allowed for - (a) the purchase of goods from an unregistered dealer; (b) the purchase of goods which are used exclusively for the manufacture, processing or packing of goods specified in the First Schedule. [(c) any purchase of consumables or of capital goods where the dealer is exclusively engaged in doing job work or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any capital goods in respect of which tax credit is allowed under clause (a) of this sub-section is transferred to any other person otherwise than by way of sale at the fair market value before the expiry of a period of five years from the date of purchase, the tax credit claimed in respect of such purchase shall be [reversed] in the tax period during which such transfer takes place.] 24. From the provisions reproduced above, it can be seen that: (a) input tax means the proportion of the price paid by the buyer for the goods which represents tax for which the selling dealer is liable under the Act (according to Section 2 (r); (b) sale price (Section 2 (zd) means in relation to transfer of the right to use any goods for any purpose (whether or not for a specified period) the valuable consideration or hiring charges received or receivable; (c) The amount of the tax credit to which a dealer is entitled in respect of the purchase of goods is "the amount of input tax arising in the tax period" (Section 9 (3)); (d) Where a dealer has purchased goods and the goods are to be used partly for the purpose of making the sales referred to in sub-section (1) of this section and par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ables the Government to frame rules prescribing the time at which a dealer shall treat the (a) turnover; (b) turnover of purchases; and (c) adjustment of tax or adjustment to a tax credit; as arising for a class of transactions. 27. Next to be considered is the impact of Rule 4, which states as follows: "4. When turnover arises in a tax period For the purposes of sub-section (4) of section 12, the amount of turnover or turnover of purchases arising in the tax period in the case of a sale or purchase occurring - (a) by means of an instalment sale or hire purchase of goods made in the tax period, is the total amount of the sale price that will be due and payable under the agreement, including the amount of any option fee paid or that may be payable; (b) by the transfer of a right to use goods, not being a hire purchase agreement or instalment sale agreement, is the proportion of the sale price that is due and payable during the relevant tax period; (c) by means of transfer of property in goods (whether as goods or in some other form) under a works contract executed or under execution in the tax period, is the consideration received or receivable by the dealer for such tra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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