HC clarifies matter of charging VAT on sale of Repossessed Automobiles

Judges Vibhu Bakhru and Amit Mahajan of the Delhi High Court recently handed down a landmark decision upholding the application of value-added tax (VAT) to the sale of repossessed automobiles.

Brief Facts of the Case:

The scheduled bank Indusind Bank filed a petition in this case, contesting the demand for value-added tax (VAT) on the sale of repossessed cars. Notably, the Court made it clear that the tax applied only to the sale of these cars and not to the original financing arrangements.

Contentions of the Parties:

The Delhi Value Added Tax (DVAT) Act (henceforth referred to as the DVAT Act) broad definition of “dealer” was deemed by Indusind Bank to be incompatible with the goals of the legislation, which served as the basis for its challenge. The petitioner contended that Article 265 of the Indian Constitution went beyond the definition of a “dealer.” The petitioner’s main source of dissatisfaction was the notices they received under Sections 32 and 33 of the DVAT Act, which requested taxes, interest, and penalties.

The central claim of Indusind Bank’s case was that, rather than adding any value to the repossessed cars, it only served as an intermediary for the borrower’s sale in order to recoup unpaid debt. The petitioner considered the value-added tax (VAT) to be a tax measure that did not add any real value to the repossessed vehicles.

Observations by the Court:

The bank’s petition was dismissed by the court, which rejected the argument that the definition of “dealer” went against the Indian Constitution. The Court emphasized that no tax can be imposed without legal authority, as stipulated by Article 265 of the Constitution. The applicable law in this instance was the DVAT Act, and the court recognized the legitimacy of the tax collection in accordance with the passed legislation.

The Court emphasized that any constitutional challenge to the definition of “dealer” must show that a particular constitutional provision has been violated. It made clear that there had to be a specific constitutional provision broken in order for ultra vires status to be established; a general assertion was insufficient.

The Delhi High Court’s earlier ruling in M/s Citi Bank v. Commissioner of Sales Tax (ST. REF. 1/2003), which favored the imposition of VAT on the sale of such repossessed vehicles, resolved the dispute over taxing the sale of repossessed vehicles, according to the court. The Court pointed out that the petitioner’s challenge to the notices requesting VAT, interest, and penalties under the DVAT Act was directly addressed by this ruling.

The Decision of the Court:

The High Court dismissed the petition filed by the bank.

Indusind Bank Limited vs. Department Of Trade & Taxes, Government Of NCT Of Delhi

W.P.(C) 3799/2019 

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