We are sharing with you an important judgment of the Hon’ble High Court of Delhi, in the case of Hari Durga Travels Vs. Commissioner of Trade & Taxes, Delhi [2015 58 taxmann.com 149 (Delhi)] on the following issue:
Whether the Agreement of giving on hire two Deluxe buses for being run on the routes as per requirement of the person to whom they are hired, constitutes ‘transfer of right to use of goods’ so as to be liable to VAT under Section 2(1)(zc)(vi) of Delhi Value Added Tax Act, 2004?
Hari Durga Travels (“the Appellant”) was engaged in business of providing buses on rental basis. The Appellant entered into an Agreement with Delhi Transport Corporation (“DTC”) in January, 2005 for providing two Volvo buses on rental basis as per the terms and conditions mutually settled.
In terms of the Agreement, the Appellant was obligated 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. Further, the Agreement stipulated that the Appellant shall be obliged to keep DTC indemnified against all claims arising out of accidental damage or loss caused during the operation to third party or to the vehicles and also remains responsible for payment of fines, penalties for violation of traffic rules etc. Furthermore, the Appellant was 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.
The Appellant received certain amount from DTC on account of hire charges for running its buses under said Agreement. The Assessing Authority treated above transaction as Deemed Sale on account of transfer of right to use goods and imposed VAT on receipt amount under the provisions of the Delhi Value Added Tax Act, 2004 (“the DVAT Act”) and raised a demand of Rs. 12,96,749/- with imposition of interest and penalty.
Later on, both the Objection Hearing Authority and the Ld. Tribunal upheld the Order passed by the Assessing Authority and held that the Agreement in question had resulted in transfer of the effective control and possession of the two buses to DTC and is covered under ‘transfer of right to use goods’ under Article 366(29A)(d) of the Constitution of India.
Being aggrieved, the Appellant filed an appeal before the Hon’ble High Court of Delhi.
The Hon’ble High Court of Delhi relying upon the following case laws:
Thus, the Hon’ble High Court held that the transaction could not be treated as “Deemed sale of goods” under Section 2(1)(zc)(vi) of DVAT Act.