CA Sumit Grover
Recently, Hon’ble Delhi High Court in the matter of Anand Decors & Ors. v. CTT, New Delhi, has pronounced that the cars, even though fall within capital goods, but sale of used cars is not subject to VAT under Delhi VAT Act, by virtue of section 6(3) of ibid.
Brief facts of the case:
The appellants were manufacturing certain commodities & were registered dealers under DVAT Act. They purchased motor vehicles(though non-dealing in the trading of motor vehicles) but didn’t avail ITC thereon under DVAT. The revenue authorities considered the subsequent sale of said vehicles(post use thereof) as chargeable to VAT. The Tribunal also upheld the view of department. Thereafter, the appellant moved to High Court. And following observations were made by the Court:
1) Capital goods & capital assets are distinguishable;
2) Motor Vehicles would be a capital good, since the expression used is “directly or indirectly used in manufacturing……” & its purchase thereof would form part of business, but ITC thereon is not available by virtue of section 9(2).
3) Four conditions have be met out for excluding sale of car from the ambit of taxability under DVAT(i.e. exemption u/s 6(3) of ibid):
- There should be a sale of capital goods;
- The said capital goods should have been used by the dealer from the time of purchase till sale;
- The purpose for which the capital goods were used should be for making sale of taxable goods or taxable goods and non-taxable goods. The capital goods should not be exclusively used for making sale of non-taxable goods.
- The dealer should not have taken tax credit in respect of such capital goods under Section 9.
4) In the instant case, all these conditions have been duly fulfilled by the appellant, accordingly, the benefit of exemption from VAT can’t be denied.
This verdict has emerged as a breather to the industry. Undue litigation from departmental side would be halted till the time any overruling verdict by the Apex Court is pronounced.Such types of litigation prone areas should also be taken up by the Ministry of Finance at the time of framing GST laws.