Lease Charges Paid By The Railways Department Not Subjected To Levy Of VAT: Chhattisgarh High Court

The Chhattisgarh High Court has held that the lease charges paid by the Railways Department are not subject to the levy of value-added tax (VAT).

The single bench of Justice P. Sam Koshy has observed that the right to use goods or the use of goods is not the relevant factor to justify the levy of taxes.

The Indian Railways had floated a Scheme known as the "Own Your Wagon Scheme" to which the Petitioner Company expressed their interest in purchasing Wagons and for which a necessary proposal was put forth by them. The proposal was approved by the Railway Board. In respect of the approval of the proposal put forth by the petitioner company, two contracts under the "Own Your Wagon Scheme" were entered into between the President of India through the Chief Marketing and Sales Manager, South Eastern Railways, and the petitioner company.

As per the contract or agreement, the wagons manufactured for and on behalf of the petitioner company were directly handed over to the railway authorities from the place where they were manufactured. 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.

The Assessing Officer assessed the lease rent obtained for the transfer of the right to use under Section 2(s)(vi) of the VAT Act at an 18% rate.

The issue involved was the levy of value-added tax on the lease charges paid by the Railways Department to the petitioner company.

The levy of tax was under Section 2(s)(vi) of the VAT Act for the assessment year 2009–10. The assessment for the year 2009–10 was completed on December 22, 2014. In the course of the assessment, the assessing officer assessed the income as lease rent obtained by the assessee from the Railways Department. The receipt of lease rent by the petitioner company from the Railways Department was treated as a deemed sale, and tax was levied at the rate of 18% on the amount mentioned.

The petitioner submitted that the assessment of taxes by the state authorities is per se bad. The agreement was carried out in a location outside the state of Chhattisgarh. The wagons purchased by the petitioner company were also not delivered to or stationed within the territories of the state of Chhattisgarh. As per the agreement, the goods were transferred immediately after being manufactured to the railway authorities. The transfer was made at Bharatpur (Rajasthan) and Belgharia (West Bengal), both being outside the state of Chhattisgarh, and even thereafter, the wagons were not stationed within the territories of the state of Chhattisgarh. The amount received as lease charges cannot be accepted as taxable income under the VAT Act.

The department contended that the lease agreement was signed in 1996, on March 19, 1996, to be precise. The agreement was signed in Calcutta. The petitioner is a company with its registered office in Mumbai. Thus, relying upon the explanation provided in Section 2(s)(vi) of the VAT Act, the department contended that the sale or purchase shall be deemed, for the purposes of the VAT Act, to have taken place in the state of Chhattisgarh, irrespective of the place where the contract of sale or purchase might have been made.

The court ruled that the assessing authority's assessment orders and the revisional authority's rejection of the revision were both in violation of the law and deserved to be overturned.

Case Title: M/s Ultratech Cement Limited Versus State of Chhattisgarh

Citation: Writ Petition (T) No. 128 Of 2015

Date: 07.12.2022

Counsel For Petitioner: Advocate Smiti Sharma

Counsel For Respondent: Govt. Advocate Rahul Jha

Citation: 2022 LiveLaw (Chh) 80 

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