VAT Applicable On Sale Of Repossessed Vehicles: Delhi High Court

The Delhi High Court has held that the sale of repossessed vehicles is subject to the charge of value-added tax (VAT).

The bench of Justice Vibhu Bakhru and Justice Amit Mahajan has observed that notices have been issued to the petitioner demanding VAT on the sale of repossessed vehicles and not on the transaction of financing the vehicles at the initial purchase.

The petitioner/assessee, Indusind Bank, is a scheduled bank, and its challenge is premised on the ground that the expansive definition of the word 'dealer' militates against the object of the DVAT Act. The petitioner impugned the definition of the word 'dealer' as being ultra vires Article 265 of the Constitution of India.

The petitioner was aggrieved by the notices issued under Sections 32 and 33 of the DVAT Act seeking to recover tax, interest, and penalties. The notices were issued imposing liability for value-added tax (VAT) on the petitioner as a dealer in respect of the sale of repossessed vehicles.

The petitioner contended that it is not involved in adding any value to any vehicle repossessed by it. It is merely engaged in selling the same on behalf of the borrower for the purpose of recovering its dues. The levy of VAT on the sale of repossessed vehicles would amount to imposing a tax, which is not based on any value addition.

The court refused to accept that the definition of the word 'dealer' falls foul of the Constitution of India. Article 265 of the Constitution of India merely provides that no tax will be levied without the authority of law. The DVAT Act is an enacted law, and there is no dispute that the tax sought to be collected is in terms of said law. Thus, any challenge on the ground that the definition of dealer is ultra vires of the Constitution of India would have to be sustained on the basis of the same falling foul of any other provision of the Constitution of India.

The court dismissed the petition filed by the bank.

Counsel For Petitioner: Gunjan Kumar

Counsel For Respondent: Dhananjaya Mishra

Case Title: Indusind Bank Limited Versus Department Of Trade & Taxes, Government Of NCT Of Delhi

Citation: 2023 LiveLaw (Del) 1282

Case No.: W.P.(C) 3799/2019

Click Here To Read The Order