Manoranjan Virk, Member (A) -
(1.) THIS appeal is filed against the order of the Appellate Deputy Commissioner (CT) Kurnool, for the tax period 04/05 to 03/06, 04/06 to 03/07, 04/07 to 07/07 under the APVAT Act, 2005. The appellant is a public limited company engaged in the business of Finance & Services and Loans for the purchase of Vehicles and assets. The appellant submits that their business is purely financial services and at no stretch of time they are dealing in or handling goods. According to the appellant, they provide loans for financing two wheeler vehicles after signing of Hypothecation Agreement with the customers. If the customer fails to pay their installments then as per the terms of the agreement they facilitate the sale of the vehicle in order to realize the loan given by them to the customer. Hence, this act of theirs shall be regarded as nothing but recovery of the amount financed by them. They have further stated that the title to the goods i.e., the vehicles always remains with their customers. Even at the time of sale, it is the customer who sells the goods and the money is deposited as per the Hypothecation Agreement in the Bank by the buyer. After recovery of the amount due to them by way of loan and interest the remaining amount of money is returned to their customers. They have stated that definition of sale U/s. 2(28) of the APVAT Act, 2005 clearly states that sale does not include a mortgage, hypothecation or pledge or a charge on goods. Further, they would also not be covered by the definition of dealer U/s. 2(10) of the APVAT Act. It is the contention of the appellant that their intention in obtaining the loan agreement was only to secure the repayment of the loans advanced to the customer and at no point of time was this agreement entered with the intention of buying or selling any vehicle. The motor vehicle purchased by the customer remained registered in his name at all material times. The appellant's right to seize the vehicle as per the terms of the agreement was only to ensure compliance with the terms of the loan. Thus, this transaction was merely a financing transaction and there was no sale involved in the same. They have further stated that there is no transfer of property from their customer to themselves, and no delivery, or no ownership to the title rests with them. Under these circumstances, even when the vehicle is sold in order to realize the loan amount the question of sale in the hands of the appellant does not arise. The appellant has relied on the judgment of the Hon'ble Supreme Court in the case of M/s. Sundaram Finance Ltd. v. State of Kerala : (1966) 17 STC 489. They have also relied on : 21 STC 138, 142 STC 182, 139 STC 193 and stated that it is the intention of the agreement which should be taken into consideration. They have further stated that in the appellant's books of account the vehicle was never treated as an asset or capitalized as an asset, as the ownership never rested with them. They have stated that it may be particularly noted that only the customer is entitled to effect the sales of the vehicle because the ownership is entailed in favour of the customer only. Any repossession of the vehicle undertaken by the company is only as a means of recovering their loan and nothing else.
(2.) THE learned State Representative in his written arguments and at the time of hearing has produced before us various forms which are got filled by the company before advancing a loan to the customers. In these, it is clearly laid down that if the loan amount is not settled the Vehicle will be sold out and for any loss arising from the sale of the vehicle the balance will be collected from the customer. He has further pointed out that the company takes signatures well in advance on various forms, and even on a form to facilitate the transfer of ownership in the Certificate of Registration with the Transport Department. In view of this, he submitted that it was crystal clear that in case of default of payment by the borrower, the company is repossessing the vehicle and selling out the vehicle and adjusting the arrears to the company. Further, he stated that in seizure proceedings itself the company informs the defaulters that the sale amount will be adjusted towards the loan amount. The company is repossessing vehicles of defaulters and selling the same through their agents of residual management and the price is also being approved by the company. He has further stated that banks and financing institutions are to be treated as dealers as per clause 10 of Sec. 2 of APVAT Act, 2005 read with explanation (iv) under the same clause. The learned State Representative has further relied on the judgment of the apex court in the case of Federal Bank vs. State of Kerala reported at : 6 VST 736, in which, it has been held that when the charge or pledge is enforced that enforcement is by way of a sale of the pledged or hypothecated goods, and that sale is for consideration and therefore it falls within the ambit of Sec. 2(xxi). He has also relied on the judgment of the Hon'ble Supreme Court in the case of Government of Andhra Pradesh vs. Corporation Bank, reported at : 6 VST 755 (SC). He further submitted that reliance placed by the appellant on the various judgments cited by them are not correct as the facts are different in those judgments. In the end, he has supported the orders of the Appellate Deputy Commissioner and the assessing authority.
(3.) HAVING heard both sides, we have gone through the provisions of the APVAT Act, 2005. Under the APVAT Act, the term dealer is defined in Sec. 2(10) of the Act...., reads as follows:
"(10) 'Dealer' means any person who carries on the business of buying, selling, supplying or distributing goods or delivering goods on hire purchase or on any system of payment by installments, or carries on or executes any works contract involving supply or use of material directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration, and includes:
(a) a company, a Hindu undivided family or any society including a co -operative society, club, firm or association which carries on such business.
(b) a society including a co -operative society, club, firm or association which buys goods from, or sells, supplies or distributes goods to its members.
(c) a casual trader, as herein before defined;
(d) any person, who may, in the course of business of running a restaurant or an eating house or a hotel by whatever name called, sells or supplies by way of or as part of any service or in any other manner whatsoever, of goods, being food or any article for human consumption or any drink whether or not intoxicating.
(e) Any person, who may transfer the right to the use of any goods for any purpose whatsoever whether or not for a specified period in the course of business to any other person;
(f) A commission agent, a delcredere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal."
Further, we have also gone through the Explanation IV which has been relied upon by the Department. We find that the said explanation has only been partly quoted by the appellant. The said explanation reads as follows:
Explanation IV: Each of the following persons and bodies, whether or not in the course of business, who sells or disposes of any goods including unclaimed or confiscated or unserviceable goods or scrap, surplus, old, obsolete, or discarded material or waste products whether by auction or otherwise, directly or through an agent for cash, or for deferred payment or for any other valuable consideration shall be deemed to be a dealer to the extent of such disposals or sales, namely:
(i) Port Trust;
(ii) Municipal Corporations, Municipal Councils and other local authorities.
(iii) Railway authorities;
(iv) Shipping, transport and construction companies;
(v) Air transport companies and air -lines including National Airport Authority;
(vi) Transporters holding permits for transport vehicles granted under the Motor Vehicles Act, 1988 which are used or adopted to be used for hire;
(vii) Andhra Pradesh State Road Transport Corporation;
(viii) Customs Department of the Government of India administering the Customs Act, 1962;
(ix) Insurance and financial corporations or companies and Banks included in the Second Schedule to the Reserve Bank of India Act, 1934;
(x) Advertising agencies;
(xi) Any other Corporation, company, body or authority owned or set up by or subject to administrative control of the Central Government or any State government;
A reading of the above explanation shows that Explanation IV does not apply to the appellant. The said explanation only applies to the various Corporations, Companies, Bodies or Authorities listed from (i) to (xi) under the said explanation and the appellant does not fall in any one of these categories. Further, a reading of the definition of dealer also shows that the appellant does not fall in any of the categories (a) to (f). In our opinion, the appellant also cannot be regarded as an agent of any kind as the customer who is the owner of the goods at no point of time appoints the appellant to sell his goods on his behalf. It is, on the other hand, the appellant himself who facilitates the sale of goods in order to recover the money which the customer owes to him. Further, we have also seen that as argued by the appellant, Sec. 2(28) which defines sale clearly states that transfer of property in goods covered by a mortgage, hypothecation or pledge or a charge on goods is not included under the definition of sale. Explanation under the definition of sale states that a delivery of goods on hire purchase or any system of payment by installments shall notwithstanding the fact that the seller retains the title in the goods as a security for payment of price be deemed to be a sale. However, in the present case, the facts are that it is the customer who retains the title in the goods and admittedly the title in goods does not pass to the appellant at any stage during the transactions. Therefore, the sale is practically effected by the owner of the vehicle himself and not by the appellant although as a consequence of the hypothecation agreement, the appellant forces or compels the customer or owner of the goods to sell his goods in order to repay the loan taken from the appellant. In our opinion, such a sale cannot be said to have been effected by the appellant although it may be said to have been effected on the insistence of the appellant and for the benefit of the appellant.
We have also gone through the judgment of the Hon'ble Supreme Court in the case of Sundaram Finance Ltd. v. The State of Kerala & Another reported at : (1965) 17 STC 489. The facts of the said case are as follows:
"The appellant -company was carrying on the business of financing purchases of motor vehicles on the security of those vehicles. The scheme adopted by the appellant company was that the customer, who purchased the motor vehicle from the dealer directly, paying part of the price therefore, applied to the appellant for a loan of the balance of the price to be paid by the appellant directly to the dealer. The appellant paid the amount and as security for repayment thereof took a promissory note a sale letter" reciting that the customer had, on the date of his application for loan, sold the motor vehicle to the appellant a bill and a receipt for the amount describing it as the value of the vehicle sold to the appellant; an undertaking to keep the vehicle insured against comprehensive risks, an agreement called the hire -purchase agreement, under which the appellant as "owner" agreed to let out to the customer as "hirer", and the customer agreed to take on hire the motor vehicle for a specific term, and also a letter to the motor vehicle authority informing it that the vehicle was the subject matter of a hire -purchase agreement between the customer as owner and the appellant, and requesting it to make a note thereof in the registration certificate standing in the name of the customer. Under the agreement of hire -purchase the customer agreed to pay the stipulated rent, to take proper care of the vehicle, to keep it insured and not to assign, sell, pledge, charge or underlet it or part with possession thereof. The agreement was to stand determined and the appellant could seize the vehicle and take possession thereof, on the happening of certain specified contingencies such as failure of the customer to pay any instalment of hire in time, or his breaking or failing to perform or observe any conditions of the agreement. Upon determination of the agreement all installments previously paid were to be forfeited. Under Clause (6) of the agreement on the customer paying the entire amounts due the vehicle became the sole and absolute property of the customer. The question was whether when by operation of clause (6) of the agreement the rights of the appellant were extinguished there resulted a sale of the vehicle in favour of the customer which was taxable under the Travancore -Cochin General Sales Tax Act, 1125 M.E.:
The Hon'ble Supreme Court by majority judgment held, that the intention of the appellant in obtaining the hire -purchase and the allied agreements was to secure the return of loans advanced to the customer and no real sale of the vehicle was intended by the customer to the appellant. The motor vehicle purchased by the customer was and remained at all material times registered in his name. The so -called "sale letter" was merely a formal document which was not made effective by registering the vehicle in the name of the appellant. The appellant's right to seize the vehicle was merely a licence to ensure compliance with the terms of the hire -purchase agreement. The transaction was merely a financing transaction and there was no sale when the rights of the appellant under the agreement were extinguished by operation of clause (6)."
After reading the above judgment, we are convinced that in that in the present case, the facts are slightly more favourable to the appellant than they were in the Sundaram Finance case. That is so, because in the present case, the appellant never actually obtained the title to the goods from the customer to whom it has advanced money. The ratio of the above case, in our opinion is also applicable to the present case and the transaction between the appellant and the borrower even when it involves sale of the vehicle owned by the borrower which is facilitated or forced by the appellant in order to recover the money advanced to the borrower cannot be regarded as a sale made by the appellant. It can only be regarded as a financing transaction in which the appellant is merely trying to ensure the recovery of the money advanced by them. In view of the above discussion, we are of the opinion that the impugned order as well as the order of the assessing authority treating the sale of repossessed vehicles as sale at the hands of the appellant and levy of tax on the same needs to be set aside and is accordingly set aside.
In result, the appeal is allowed.
Dictated to Stenographer, transcribed by him and pronounced on this the 10th day of August, 2009.;