Mandovi Motors Private Limited vs State of Karnataka

N. Kumar, J.—The assessee has preferred these revision petitions challenging the order passed by the Karnataka Appellate Tribunal reviewing its earlier order and partially setting aside the order dated 26-10-2011 insofar as the issue of applicability of rate of tax on the sale of demo cars is concerned. The petitioner is an authorised dealer engaged in the business of sale of vehicles manufactured by M/s. Maruthi Udyog Limited. They also undertake services of the said cars. The petitioner is a registered dealer and is assessed to tax under the provisions of the Karnataka Value Added Tax Act, 2003 (for short hereinafter referred to as ''the KVAT Act''). The manufacturing company sells units of car to the petitioner for demonstration and test drive to get an idea of the units and also the physical appearance. These vehicles are called as demo vehicles. The demo vehicles are registered in the companies name and are the assets of the petitioner. The petitioner had paid consideration on the purchase of the demo cars and included the same in the fixed assets schedule of the company. When these vehicles get obsolete and there is a change of model the petitioners sell these cars as used cars for a price. In terms of the notification dated 25-10-2005 the reduced rate of tax is applicable on sale of used vehicles. The petitioner claimed benefit of the said notification when they sold these demo cars. When the authorities noticed that the claim is for demo cars and not used cars, the said claim was disallowed and tax was levied at 12.5% on the value of the cars sold. Aggrieved by the said order, the petitioner filed an appeal before the Joint Commissioner of Commercial Taxes (Appeals) who confirmed the said order. Aggrieved by the said order the assessee preferred second appeal to the Karnataka Appellate Tribunal. The KAT held the aforesaid notification is applicable to such used cars and therefore set aside the orders passed by the lower authorities and extended benefit of 4% tax on such used cars. Thereafter, the State preferred a review petition pointing out that the demo cars sold are not used cars in terms of the notification issued by them and therefore, the assessee is not entitled for the said benefit. Accepting the said contention, the Tribunal has allowed the review petition partially setting aside its earlier order and restoring the order passed by the lower authorities. Aggrieved by the said order, these revision petitions are filed by the assessee.

Learned Counsel for the assessee assailing the impugned order contended firstly a case for reviewing the order as contemplated under Section 63(8) of the Act is not made out and therefore, it is a case of irregular exercise of review power by the Tribunal. On that ground, the impugned order requires to be set aside. Secondly, it was contended used cars does not necessarily mean cars used by purchasers from the petitioner. These demo cars are purchased by the petitioner and used for giving demonstration to the intending purchaser and after a lapse of time they are re-painted and sold. They also fall within the definition of used cars and therefore, the Tribunal was not justified in not extending the benefit of the said notification and therefore, she submits viewed from any angle, the impugned order requires to be set aside.

We have gone through the order passed by the Assessing Authority, First Appellate Authority, the Tribunal and the impugned order.

The fact that these demo cars were purchased by the petitioner on payment of tax is not noticed. Similarly, when the said cars were sold, whether the said input tax paid by the petitioner was deducted out of the output tax payable was also not placed on record and not considered. It is in the review petition, it was brought to the notice of the Court that the notification does not apply to the demo cars as it was not purchased from an unregistered dealer and it was not purchased for re-sale immediately. Therefore, the Tribunal has exercised its power under Section 63(8) of the Act and reviewed the said order.

Section 63(8) of the Act provides that the Appellate Tribunal may on the application either of the appellant or of the respondent review any order passed by it under sub-section (5) of the Act on the basis of fact, which was not before it when it passed the order. When it passed the earlier order, the aforesaid facts were not placed before it by both the parties. The said fact was placed at the time of review. Appreciating the same, the Court has exercised its power of review, which is strictly in accordance with Section 68(3)(a) of the KVAT Act and therefore, we do not see any merit in the said contention.

Insofar as the merit is concerned, the notification, on which reliance is placed reads as under:

"NOTIFICATION No. FD 300 CSL 2005, dated 24-10-2005 Karnataka Gazette, Extraordinary, dated 24-10-2005

In exercise of the powers conferred by sub-section (3) of Section 4 of the Karnataka Value Added Tax Act, 2003 (Karnataka Act 32 of 2004), the Government of Karnataka hereby reduces with immediate effect, the tax payable by a dealer under sub-section (1) of Section 4 of the said Act on the sale of used car to four per cent of the difference between the taxable turnover in respect of such sale and the amount paid towards purchase of such car subject to the condition that.--

(i) no deduction of input tax is claimed by the dealer in respect of purchase of any goods used in the car sold; and

(ii) such car has been registered in the State prior to its sale under the provisions of the Motor Vehicles Act, 1988 (Central Act 59 of 1988)".

The said notification applies to sale of used cars. The concessional rate of tax is payable by a dealer under sub-section (1) of Section 4 of the said Act. In other words, the said dealer should be a dealer who is dealing with the sale of used car. In fact, a clarificatory notification has been issued as per Sl. No. 76, which is as follows:

"NOTIFICATION No. FD 115 CSL 2007 (7), Bangalore, dated 30-3-2007

In exercise of the powers conferred by sub-section (1) of Section 5 of the Karnataka Value Added Tax Act, 2003 (Karnataka Act 32 of 2004), read with Section 21 of the Mysore General Clauses Act, 1899 (Mysore Act III of 1899), the Government of Karnataka hereby amends with effect from the first day of April, 2007, the Notification No. FD 300 CSL 2005, dated 24th October, 2005, published in the Karnataka Gazette, Extraordinary, dated 24th October, 2005 (See Notification Sl. No. 37) as follows, namely.--

In the said Notification, for the words, brackets and figures "by a dealer under sub-section (1) of Section 4 of the said Act on the sale of used car", the words, brackets and figures "under sub-section (1) of Section 4 the said Act by a dealer engaged in the purchase and sale of used cars, on the sale of used cars''" shall be substituted".

The said notification clarifies the ambiguity i.e., a dealer engaged in the purchase and sale of used cars is entitled to the benefit of the notification. The notification dated 24-10-2005 applies to sale of used cars. The tax payable is 4% of the difference between the taxable turnover in respect of such sale and the amount paid towards purchase of such car. Therefore, it applies to a case where a dealer purchases a used car and then sells such car. Therefore, it has no application to a case where a dealer purchases a car from the manufacturer. However, by notification dated 30-3-2007, whatever ambiguity was there in the notification dated 24-10-2005 has been clarified. In the instant case, it is not in dispute that the dealer is in the business of selling cars manufactured by Maruthi Udyog Limited. The dealer is also in the business of purchase and sale of used cars. In respect of the purchase and sale of used cars, the dealer''s claim under the notification has been allowed. It is only in respect of the cars, which are purchased from the manufacturer, the said benefit is not extended. The reason is obvious. The purchase is not that of a used car. The purchase is that of a brand new car from the manufacturer. After purchase from the manufacturer, if the dealer instead of selling the same to a customer uses the said car for demonstration purpose and after some time sells the said car to a customer, it would not be a case of purchase of used car and sale of a used car. The benefit under the notification is meant only for purchase of used cars and sale of used cars. By mere use of the new car purchased from the manufacturer for the purpose of demonstration, the said car cannot be treated as a used car so as to attract the benefit under the notification. Therefore, the Tribunal has rightly held that the petitioner is not entitled for the benefit of the notification. We do not see any merit in these petitions. Accordingly, petitions are dismissed.