Commissioner, VAT, Department of Trade and Taxes, Delhi has issued a circular 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 present in a transaction before it 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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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 present in a transaction before it 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.
The full circular is as follows:
GOVERNMENT OF NATIONAL CAPITAL TERRITORY OF DELHI
DEPARTMENT OF TRADE AND TAXES (Policy Branch)
VYAPAR BHAWAN, I.P. ESTATE, NEW DELHI-110 002
No.F.7(496)/Policy/VAT/2012/976-982
Date:14-12-2012
CIRCULAR No 25 OF 2012-13
The Govt. of India has recently taken initiative of digitizing the Indian Television Industry in the next three years. As a result set top boxes were expected to be placed/installed by various cable operators in Delhi region by 31.10.2012, the deadline imposed by the Ministry of Information and Broadcasting, Govt. of India.
The set top boxes are being supplied to the cable users by the cable operators on lease basis against refundable securities. It is reported that these operators are not paying VAT on these transactions terming the same as entrustment, thereby denying the state of its legitimate right to impose VAT on these transactions.
As per section 2(1)(zc)(vi) read with section 2(1)(zd)(vi) of the DVAT Act, 2004, the transfer of right to use goods is a deemed sale and liable to be taxed u/s 3 of the DVAT Act, 2004.
In the instant case, the set top boxes are goods, the transfer of right to use of which to cable users is clearly a deemed sale under the DVAT Act, 2004, as it has all the above attributes and hence liable to be taxed as per the provisions of DVAT Act,2004.
Some of these operators are also providing set top boxes on outright sale basis which also needs to be taxed as per provision of DVAT Act,2004.
Accordingly all assessing authorities are required to initiate appropriate steps to identify such operators in their respective jurisdiction & proceed to determine their tax liabilities as per law. The use of Internet for obtaining details of such operators can be a useful lead. This exercise shall be coordinated by Zonal Incharge.
An action taken report be forwarded to Addl. Commissioner (Special Zone) by all Zonal Incharges (consolidated report, for all wards under their control) giving specific no. of dealers identified and action initiated for assessment of liability. The first report be sent in a week from issue of this circular and thereafter fortnightly reports be sent by 1st and 16th of every month.
(Prashant Goyal)
Commissioner, VAT
Copy to :-
1. All Special / Addl./ Joint Commissioners, Department of Trade and Taxes
2. All Zonal Incharges, Department of Trade & Taxes
3. Deputy Director (Policy), Department of Trade and Taxes.
4. Programmer (EDP), Department of Trade and Taxes- to upload the circular on the web site of the Department.
5. President/Secretary, Sales Tax Bar Association (Regd.), Vyapar Bhawan, I.P. Estate, New Delhi.
6. All VATOs / AVATOs, Department of Trade and Taxes – through internal mail system.
7. Guard File.
(T.C. Sharma)
Value Added Tax Officer (Policy)
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