STATE OF KARNATAKA Vs. LEASE PLAN INDIA LIMITED

JUDGEMENT

(1.) The State has preferred these revisions against the order passed by the Karnataka Appellate Tribunal (Lease Plan India Limited, Bangalore v. State of Karnataka,2011 70 KarLJ 1 deleting the levy of tax under the provisions of the Karnataka Value Added Tax Act, 2003 in respect of turnover relating to the deferred sale consideration received after 1-4-2005 in respect of the transfer of right to use KST suffered goods leased out prior to 1-4-2005. The assessee is a company incorporated under the Companies Act, 1956. It was a dealer under the Karnataka Sales Tax Act, 1957 (hereinafter for short referred to as 'the KST Act') upto 31-3-2005. From 1-4-2005 the assessee is a registered dealer under the provisions of the Karnataka Value Added Tax Act, 2003 (hereinafter for short referred to as 'the KVAT Act'). The assessee is engaged in the lease of cars to corporate bodies and to other customers in the State of Karnataka. All the cars which were leased out by the assessee till 31-3-2005 were purchased by it from dealers registered under the KST Act. The cars given on lease after 1-4-2005 were purchased from dealers registered under the KVAT Act. All such cars had suffered local tax in the State of Karnataka either under the KST Act or under the KVAT Act. Master lease agreements in standard formats were entered into by the assessee with the concerned customers for the tenure of five years. Soon after the execution of such agreements the cars were also delivered by the assessee to the concerned customers who possessed them uninterruptedly till the expiry of the lease period. Leasing of cars constitute deemed sales involving the transfer of right to use goods under the definition of 'Sale' in the KST Act and the KVAT Act. The charging provision under the KST Act prescribing levy of tax on transfer of right to use goods is Section 5-C. Keeping in view the scheme of single point taxation under the KST Act, the proviso to the said section which deals with the deemed sales involving the transfer of right to use goods which have suffered single point tax at the time of their purchase from local registered dealers were not exigible to tax under the proviso to Section 5-C of the KST Act. Under the KVAT Act, the charging Section 3 prescribes the levy of tax on the deemed sale involving transfer of right to use goods. The Prescribed Authority held that, when the customers made payments of lease rentals on a monthly basis during April 2005 and during the subsequent months, there were deemed renewals of the lease agreements and each such renewal constituted a deemed sale involving the transfer of right to use goods. On such basis, the assessee was made liable to pay tax under the KVAT Act on such lease rentals received from April 2005 and onwards up till September 2008 which relate to the KST suffered cars given on lease prior to 1-4-2005.

(2.) Aggrieved by the said order, the assessee preferred an appeal to the Joint Commissioner of Commercial Taxes (Appeals-1) who upheld the order of the Prescribed Authority and dismissed the appeals.

(3.) Aggrieved by the said order, the assessee preferred a second appeal to the Karnataka Appellate Tribunal. The Karnataka Appellate Tribunal after referring to the provisions of the KST Act as well as the KVAT Act held that, the taxing event under the KST Act is the sale of the relevant goods. In the case of transfer of right to use goods, the deemed sale occurs when the relevant agreement of transfer of right to use goods is executed. At that point of time itself the entire consideration for the entire duration of the contract could have been mentioned by the assessee-company and its customer in specific and definite terms in the contract itself in clear terms in which event, that entire consideration would have become liable to tax if the concerned vehicle had not suffered local tax under Section 5 of the KST Act even though most of such consideration is deferred for a future period and staggered to be paid at the end of every month. The concept of renewal of lease agreement every month when hire charge/lease rental/deferred consideration for that month is paid has its roots in the concept of bailment of the third kind. Since the impugned levy of tax is not on bailment, such a concept of renewal is impermissible in the context of charge of tax on the transfer of right to use goods. The liability to tax is only under Section 5-C of the KST Act. Since such cars are KST suffered cars, in terms of the proviso to Section 5-C of the said Act, the rate of tax on such transfer of right to use goods is zero. That zero rated liability will not change merely because the deferred payments relating to that deemed sale are realized after 1-4-2005 when a different tax law is in force. There are no words in the KVAT Act to the effect that the vested rights of any assessee which accrued to him under the KST Act shall be impaired. The assessee herein had the vested right under the proviso to Section 5-C of the KST Act not to be fastened with any levy of tax under that section on the transfer of right to use goods which had already suffered single point sales tax under Section 5 of the said Act. This immunity of the assessee cannot be affected or impaired by the enactment of the KVAT Act, which is expressly enacted with prospective effect from 1-4-2005. There is no provision therein authorising the levy of tax under the KVAT Act on the deferred receipts of consideration of sale which occurred prior to 1-4-2005 when the said Act was not in force. Therefore, the Tribunal held that the assessee is not liable to pay tax under the KVAT Act 'on the rentals received prior to 1-4-2005 till the expiry of the lease period. Aggrieved by the said order, the State has preferred these revisions.