Commissioner, VAT, Department of Trade and Taxes, Delhi has issued a circular CIRCULAR No 25 OF 2012-13 dated 14-12-2012 clarifying the taxability of set top boxes under Delhi VAT Act, 2004. It has been mentioned that set top boxes are being supplied by cable operators on lease basis against refundable securities.

The circular suggest that such leasing is a deemed sale of goods as transfer of right to use goods.

In this regard it should be noted that following ingredients must be satisfied before a transaction can be termed as deemed sale as transfer of right to use goods as was held in BSNL vs UOI (2006) 145 STC 91(SC). :

a. There must be goods available for delivery;

b. There must be consensus ad idem as to the identity of goods;

c. The transfree should have a legal right to use the goods-consequently all legal consequences of such use including any permissions or licenses required therefor should be available to the transfree;

d. For the period during which the transfree has such legal right, it has to be for the exclusion to the transferor this is the necessary concomitant of the plain language of the statue – viz. a “transfer of the right to use” and not merely a licence to use the goods;

e. Having transferred the right to use goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others.

Whether the above ingredients are present in any transaction or not, is a question of fact and has to be decided by referring to the terms of the contract. Such a question cannot be answered in abstract as has been done in the circular by the Commissioner. Decision of such question should be left to the assessing officer.

In SE Hydel Circle v. Addl. Excise and Taxation Commissioner (2008) 18 VST 246 (HP HC DB) it was held that in supply of electricity meter by board to consumer on payment of hire charges, there is no transfer of right to use goods involved as consumer has no right to change meter or remove or replace meter. He cannot even break the seal. However exactly contrary view was taken in A P State Electricity Board (Now A P Transco) v. State of Andhra Pradesh(2011) 43 VST 359 (AP HC DB).

Thus whether a transaction is a deemed sale as transfer of right to use goods or not, should be decided in the light of facts and aspects and terms of contract of each case and not in abstract as is done in the circular.


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(Author – Amit Bajaj Advocate, Bajaj & Bajaj Advocates, 128, Sangam complex, Milap chowk, Jalandhar City (Punjab), Email: [email protected], M +919815243335)

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September 2021