Jainendra Kumar Ranka, J. - (1.) These instant petitions by various assessees involving common question of "holding re-possessed vehicles" liable under the Rajasthan Value Added Tax Act, 2003, is just and proper has been questioned and since the facts of all the assessees being common, with the consent of learned counsel for the parties, are being decided by this common judgment.
(2.) After hearing learned counsel, questions of law does arise, accordingly the petitions are admitted on the following questions of law :- (i) Whether the Tax Board was correct in holding that the petitioner is into the business of sale and purchase of vehicles so as to fall within the definition of business under Section 2(6) of the Rajasthan VAT Act, 2003 and whether such re-possessed vehicles are taxable at a lower rate as sale of used cars? (ii) Whether the Tax Board was correct in holding that the petitioner is the owner/co-owner of re-possessed vehicles and that it has right to effect sales within the meaning of Section 2(35) of the Rajasthan VAT Act, 2003? (iii) That if the borrower fails to comply with the loan recall notice, the petitioner authorizes its receiver to take possession to the vehicle/asset. After the borrower surrenders the vehicle, an inventory list of the repossessed vehicle is prepared. Pre and post repossession intimation is also given to the police. The repossessed vehicle is kept at specified yards/stares and stored them till its disposal. (iv) Whether the learned Rajasthan Tax Board was correct in law in upholding the penalty levied inspite of the fact that all the transactions were recorded in the books of accounts and there was a bona fide question on the taxability.
(3.) Heard finally. The brief facts noticed are that while the petitioner HDFC Bank Ltd. is a private sector bank which was incorporated under the provisions of the Banking Regulation Act, 1949 and the Reserve Bank of India, the petitioner Indusind Bank Ltd. also fall in the same category of private bank, the petitioner M/s Magma Fincorp Ltd. is NBFC incorporated under the Companies Act, 1956. 3.1 The core activities of HDFC Bank Ltd. and Indusind Bank Ltd. are primarily business of borrowing, lending, opening of bank accounts and various other banking activities within the parameters laid down under the Banking Regulation Act, and the objects stated in the Memorandum of Association of the petitioners. The HDFC Bank Ltd., in addition to the above, is also engaged in the sale of gold bullion having specific license. All the assessees, however, are also involved in the business of providing finance to various persons who wish to purchase car (4 wheeler) and who do not have adequate means of their own to purchase such vehicle and, therefore, the assessees are advancing money on interest, at the time when the vehicle is intended to be purchased by the prospective buyer, and such vehicle is hypothecated with the assessees and a specific endorsement is made in the vehicle which is going to be registered in the name of car owner that the vehicle has been financed by the assessee/petitioner and is hypothecated to the assessee. 3.2 The common feature in all the petitions is that an agreement is executed by and between the Bank and the buyer availing loan. The assesee advances certain percentage of the value of car while the balance is to be paid by the prospective buyer and advances loan, and the buyer gives advance (post dated) cheques to the assessees according to the requirement/need of fund for say, 36 months, 48 months or for a fixed tenure, known as EMI, which, inter alia, includes principal as well as interest component. 3.3 A survey was undertaken by the respective Assessing Officers in all the cases on different dates and some discrepancies were noticed by the AO during the course of survey and investigation carried thereafter, and one of the features noticed by the AO was that the assessees had sold vehicles (car/4wheelers) after taking possession from those buyers who could not make the payments, got the vehicles transferred in the name of assessees and thereafter either sold directly to the prospective buyer or engaged a third party, being an auctioneer, who conducted sales on behalf of the petitioners and whenever amount was received after charging certain amount as commission/service charge, remitted the fund to the assessees. In all the cases the dispute revolves in the sale of so-called "repossessed vehicles" by the assessees. While the claim of assessees is that the assessees are not into business of sale and purchase of vehicles and the Banking Regulation Act or the Rules framed for NBFCs, debar the assessees in carrying or conducting any business other than specified in the license and once the assessees are debarred/precluded from carrying on any other specific business activity other than those specified in the license, the Revenue was not justified in holding the assessees to be carrying on business of sale & purchase of vehicles. 3.4 These facts being common, now it would be appropriate to take the facts of the leading case in STR 1/2016 - HDFC Bank Ltd. v. CTO, Jaipur. It relates to various assessment years, namely for the assessment years 2006-07 to 2011-12 under the Rajasthan VAT Act, 2003. 3.5 As pointed out earlier, a survey was conducted at the business premises of the respective assessees and the AO found that the assessee on those vehicles which were recovered/repossessed in case the person borrowing the loan was unable to pay the monthly installment (EMI) for sometime and after giving due notice failed to further deposit the amounts outstanding, as agreed upon in terms of the clauses in the agreement entered into by and between the assessee and the buyer, vehicles were taken into possession by the assessee. The AO after going into the hypothecation agreement and the terms and conditions incorporated therein, was of the, prima facie, view that huge amount has been received by the assessee of those vehicles which were re-possessed and sold by the assessee, however, though the assessee was a dealer carrying on business of sale & purchase, did not pay any VAT on such sale of re-possessed vehicles on the amount recovered/realised either directly by the assessee or amount received from the auctioneer and such amount realised was a sale within the provisions of the Rajasthan VAT Act and is certainly a business income, amount realised during the course of its business and thus is liable to payment of VAT. Accordingly, show cause notice was given as to why VAT may not be charged on such amount. 3.6 On behalf of the assessee it was contended that the assessee is a Bank simplicitor and merely advancing loan for purchase of vehicle and if a default is committed by the purchaser in making payment, the assessee has simply realised a value from subsequent buyer or through auction proceedings and the amount received is not in the nature of purchase or sale and thus is not assessable to VAT. It was also contended that Banking Regulation Act restricts sale, purchase or trade and there being specific prohibition, by no stretch of imagination such a transaction could be held to be business income of the assessee. It was also contended that the assessee is not owner and mere possession of a particular asset is not sufficient to hold the assessee to be held that it received sale consideration of the re-possessed vehicle. However, the AO was not satisfied with the explanation offered and after taking into consideration the salient features of the agreement, language of sec. 2(5), 2(6) of the Act, held that the amount received by the assessee on the sale of re-possessed vehicle is certainly a sale in the hands of assessee and is liable to VAT and accordingly charged VAT on the rates prescribed under the Act and so also charged interest u/s 55 and also held that the assessees have concealed and furnished inaccurate particulars knowing fully well that definition under the VAT Act has been enlarged and thus imposed penalty u/s 61 as well. 3.7 The matter was assailed before the Dy. Commissioner (Appeals) by respective assessees, before whom also the claim was raised as aforesaid by relying on certain authorities, however, the DC(A) also did not interfere in the order of AO and not only upheld tax but interest and penalty as well. 3.8 The matter was further assailed before the Tax Board and the Tax Board also upheld the finding reached by the lower authorities and also took into consideration the judgment rendered by the Apex court in the case of Federal Bank Ltd. & Others v. State of Kerala & Others, 2007 6 VST 36 and did not interfere in the order and upheld the levy of not only tax, interest but also penalty and dismissed the appeal. Applicability of Banking Regulation Act;