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220 Goods & Services Tax Cases - Reports [Vol. 1 JUDGMENT C.N. Ramachandran Nair, J. - The revision petitioner, engaged in the sale of Yamaha two wheelers at Thrissur, is a registered dealer under the Kerala Value Added Tax Act, 2003 (for short ‘the KVAT Act’). During 2005- 06 and 2006-07, the petitioner conducted exchange melas wherein old two wheeler owners were provided with facility to exchange their old vehicles with new ones. The petitioner arranged a broker for purchase of old vehicles from the customers at the value fixed by the broker. If the value fixed by the broker is accepted by the customer, then he can purchase the new vehicle from the petitioner by remitting the balance sale price. The petitioner sold new vehicles at the original cost to the customer, but by collecting only the price of the new vehicle reduced by the value of the customer’s old vehicle fixed by the broker. The old vehicle is delivered by the customer then and there and the broker takes over possession of the same with the documents. According to the petitioner, the broker later sells the old vehicles delivered by the customers and remits the value earlier fixed to the petitioner with which the entire price of the new vehicles sold to the customers get paid. Even though old two wheelers were purchased from customers and resold later by the petitioner and the broker in tantum, neither the petitioner nor the broker conceded any purchase and sale of old vehicles. During the relevant years, tax on sale of old vehicle under section 6(1) of the KVAT Act was 4 per cent, which was later reduced to 0.5 per cent of the sale value by introducing 10th Proviso to section 6(1) of the KVAT Act. In view of the non-payment of tax on the sale of old vehicles purchased under Exchange Mela, the Intelligence Officer proposed to levy penalty for evasion of tax under section 67(1) of the KVAT Act. Even though the petitioner contended that he has not purchased and sold the old vehicles, the Intelligence Officer overruled the objections and levied penalty. The first appeals having failed, the petitioner approached the Tribunal with second appeals and the Tribunal, though confirmed the penalty, reduced the quantum to equal amount of tax as against double the amount levied and sustained in the first appeal. It is against these orders of the Tribunal, these connected revisions are filed. 2. We have heard counsel appearing for the petitioner and the Government Pleader appearing for the respondents. 3. The first question to be considered is whether the exchange mela involving taking of old vehicle from the customer and replacement of the same with a new one involves purchase of the old vehicle from the customer. It is the admitted position that on the customer bringing the old vehicle, its value is fixed by the broker and it is <strong>up</strong> to the customer to accept the value or reject the same. If the customer accepts the value offered by the broker, then he surrenders the old vehicle along with papers and purchases a new one from the petitioner by remitting the value of the new two wheeler, reduced by the value fixed for the old one by the broker arranged by the petitioner. Once this transaction or exchange is finalised, GOODS & SERVICES TAX CASES ❑ JANUARY 20 - FEBRUARY 4, 2010 ◆ 96 A B C D E F G
2010] Cheerans Auto Agencies v. State of Kerala (Ker.) 221 A B C D E F G then the petitioner has no right to claim the balance sale consideration of the new vehicle sold to the customer irrespective of whether the value of the old vehicle fixed by the broker is realised by sale of the old vehicle surrendered by the customer or not. In other words, there is clear sale of the old vehicle by the customer by delivering the possession of the same along with its registration certificate and transfer documents in terms of the Motor Vehicles Rules. The consideration paid to him is by way of adjustment of the purchase value of the old vehicle, towards the sale price of the new vehicle. It is the conceded position that the petitioner treats the sale of the new vehicle under the exchange scheme as full and complete with no debit balance of price in the customer’s account. Therefore, purchase of old vehicle from the customer is complete when new vehicle is sold to him by recovering its value reduced by the cost of the old vehicle taken over from the customer. 4. The next question to be considered is as to whether petitioner purchased old vehicle or whether it is the broker who has purchased the old vehicle. The terms of arrangement between the petitioner and the broker for purchase and sale of the old vehicle are not disclosed to the Department. In other words, it is not known as to who makes the profit or suffers the loss in the resale of the old vehicle purchased from the customer. However, we do not think, there is any need to go into the question because the transaction of purchase of old vehicle from the customer and the sale of new vehicle to him is between the petitioner and the customer. There is no privity of contract between the broker and the customer because the broker takes over possession of the old vehicle only after sale of new vehicle by the petitioner to customer by adjusting consideration of old vehicle, that is the value fixed by the broker, in the sale price of the new vehicle. In other words, consideration for the purchase of the old vehicle passes from the petitioner to the customer by way of credit given against sale price of the new vehicle. It is not known whether the broker takes the profit or suffers the loss on resale of the old vehicle above or below the value for which it was purchased. If the petitioner allows the broker to take profit or loss, then the position is that after purchase, the petitioner sells the old vehicle at the same value of its purchase to the broker on credit sale basis and broker later pays the value to the petitioner whether before or after sale. On the other hand, if the broker is only paid commission or share of profit on resale of old vehicle, then the broker only acts as an agent of the petitioner. In other words, the purchase and sale of the old vehicle is either by or on behalf of the petitioner. In our view, the Intelligence Officer, rightly found that the petitioner evaded payment of tax on purchase and sale of old vehicle by not disclosing the sales turnover in the return filed and therefore, the penalty was rightly levied under section 67(1) of the KVAT Act. 5. The next question to be considered is with regard to the reduction of penalty claimed by the petitioner. We find that the Tribunal has reduced the penalty to equal amount of tax as against the double amount sustained GOODS & SERVICES TAX CASES ❑ JANUARY 20 - FEBRUARY 4, 2010 ◆ 97
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