The Chhattisgarh High Court has held that the Value Added Tax (VAT) is applicable where a contract for transfer of right to use goods is executed, not where goods are delivered.
The bench of Justice Sanjay K. Agrawal and Justice Deepak Kumar Tiwari has observed that Section 38 (1)(i) of the Value Added Tax Act, 2005 also mandates that notwithstanding anything contained in the Act, a tax on the sale or purchase of goods shall not be imposed under this Act where such sale or purchase takes place outside the State of Chhattisgarh. Furthermore, Article 286 deals with restriction as to imposition of tax on the sale or purchase of goods. As per clause (1) (a), no law of a State shall impose, or authorize the imposition of, a tax on the supply of goods or of services or both, where such supply takes place outside the State.
The then South Eastern Railway had floated a scheme known as “Own Your Wagon Scheme” to which the writ petitioner i.e. M/s Ultratech Cement Limited expressed their interest in getting the wagons on lease. Accordingly, necessary proposal was approved.
In respect of the approval of the proposal made by the writ petitioner, two contracts under the said Scheme were entered into between the President of India through the Chief Marketing and Sales Manager, South Eastern Railways and the petitioner company earlier known as M/s Larsen & Turbo Limited.
The contracts were signed in Kolkata in the year 1996. As per the contracts, the wagons proposed to be purchased by the petitioner company were to be manufactured by two different companies approved by the Government of India, Ministry of Railways namely, M/s Texmaco Limited, Kolkata and M/s CIMMCO Birla Limited, Bharatpur (Rajasthan). As per the said contracts, the wagons manufactured on behalf of the petitioner company were to be directly handed over to the Railway authorities.
M/s CIMMCO Birla Limited handed over their manufactured wagons to the Station Superintendent, Bharatpur Railway Station (Rajasthan) (Western Railways). As regards the wagons manufactured at M/s Texmaco Limited, the same were to be handed over to the Station Master, Belgharia Railway Station (West Bengal) under the then South Eastern Railways.
After the wagons were manufactured and handed over to the Indian Railways at Bharatpur (Rajasthan) and Belgharia (West Bengal), the petitioner company started getting lease rent from the railways and the lessee i.e. the Government of India was to pay @ 16% per annum of the original procurement price on the wagons transferred to the Railways for the first 10 years and then 1% per annum on the original procurement price for the next 10 years. Thereafter on the same day i.e. 14th March, 1996, an agreement was executed between the South Eastern Railways and the petitioner company.
The period of lease was 20 years. The lessee was required to pay @ 16% per annum on the current cost (original procurement price) of the wagon leased to the Railways and for the secondary period of 10 years, the lessee was required to pay @ 1% per annum of the current cost (original procurement price) of the wagon.
As per the agreement, the South Eastern Railways continued to pay lease rent charges to the petitioner company. Subsequently after formation of the new State of Chhattisgarh on 1.11.2000, a new division was constituted in the name of ‘South Eastern Central Railways’ in the year 2002.
The lease rent was subjected to the provisions of Chhattisgarh Commercial Tax Act/Value Added Tax Act, 2005.
The petitioner company challenged the assessment year 2009-10 for which the lease rent at the rate of 18% which came to Rs.4,08,849/- which was assessed by the Assessing Officer in Revision, but the Revisional Authority has dismissed the Revision, which led to filing of the Writ Petition.
The issue raised was whether the Assessing Officer was justified in levying the VAT Act, 2005 on the lease rent received by the writ petitioner by virtue of Section 2(s) (vi) read with Section 22 of the Act, 2005 and further the Revisional Authority was justified in affirming the same?
The court held that the transfer of right to use the goods i.e. wagons for the purpose of Section 2(s)(vi) read with Section 22 of the Act, 2005 has taken place at Kolkata. Thus, the situs of such sale would be at Kolkata (West Bengal). Merely because in 2003, a new division namely, South Eastern Central Railway has been constituted with its headquarter at Bilaspur, the taxable event could not be at Bilaspur (i.e. the State of Chhattisgarh) as the transfer of right to use the goods did not take place in Chhattisgarh and the agreement has been entered into at Kolkata.
The court opined that as per clause (1) (a), no law of a State shall impose, or authorize the imposition of, a tax on the supply of goods or of services or both, where such supply takes place outside the State.
Case Details
Case Title: State Of Chhattisgarh Versus M/s Ultratech Cement
Case No.: WA No. 303 of 2023
Date: 23/04/2025
Counsel For Petitioner: Rahul Tamaskar, Govt. Advocate
Counsel For Respondent: Neelabh Dubey with Ms. Smiti Sharma
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