Introduction The issue about levy of VAT on transactions of ‘transfer of right to use goods’ (lease transaction), has become highly debatable. On one hand dealers are paying service tax, whereas the sales tax departments are levying VAT considering the same as transactions of ‘lease’, therefore, ‘deemed sale of goods’.
Particularly, the controversy relating to levy of tax on charges for advertisement hoardings, has become more complex due to conflicting judgments of various.
Hoarding – the concept
The hoardings are normally put up on strategic locations like on the roads, buildings, flyovers etc. Normally these properties belong to government authorities or may belong to private parties. Such authorities or parties, as the case may be, grant licenses for putting up hoardings by accepting proposals through tender etc. On getting such permission, the advertising agencies create necessary infrastructure on the given premises. Normally, hoardings are fixed on a metal frame, which are again fixed into the walls/land etc., and sometimes may require civil work also. The actual customer, desiring to put advertisement, will stick their printed material on paper/flex or other such material on such hoarding. The period of display is normally pre-agreed. Against such advertisements the advertising agency gets charges. Considering such activity as of rendering services either advertisement services or leasing of immovable property etc., service tax is paid.
Whether hoarding charges liable under VAT?
There are different judgments on the above issue.
Selvel Advertising Private Ltd. vs. Commercial Tax Officer (89 STC 1) (WBTT)
In this judgment, the West Bengal Taxation Tribunal, by majority, held that the receipts towards hoardings are liable to Sales Tax as lease sales. The structure/hoarding was held as movable property.
The State of Tamil Nadu vs. Tvl. Jayalakshmi Enterprises 2011-12 (17) TNCT-J P. 92.(Mad)
Held, structure is immovable property and hoardings are not liable to VAT /Sales Tax.
M/s.TIM Delhi Airport Advertising Pvt. Ltd. vs. Special Comm.-II, Dept. of Trade and Taxes (W.P.(C)1625/2014 & CM 3374/2014 dt.2.5.2016) (Delhi)
The hoardings were situated in Airports, a restricted area. High Court held that, there is no possibility of advertiser giving control of hoarding and hence not liable to VAT .
Recent Judgment
Recently Hon. Kerala High Court had an occasion to deal with above issue in case of Delta Communications vs. The State of Kerala (90 VST 438)(Ker). The facts, as noted by Hon. High Court, are as under:
“2. Brief facts relevant for the disposal of the revision are stated hereunder:
The revision petitioner is a partnership firm engaged in the business of outdoor marketing media at Kottayam. The advertisements are displayed in hoardings for the above purpose. The appellant acquires land on lease in various places in the State of Kerala, and structures are erected on the property taken on lease. Thereafter, hoardings are fixed on this structure and it is let out to various companies for advertising their products. The revision petitioner receives rental charges for letting out the hoardings. During the year 2007-2008, the revision petitioner received rental charges amounting to Rs.36,70,983/-. “
The prime argument of dealer was that it is immovable property, hence, cannot liable to VAT . There was also argument based on ground that there is no passing of effective control, to consider the transaction as lease transaction.
Hon. Kerala High Court referred to various judgments cited on both sides about meaning of nature of immovable property. Hon. High Court rejected the contention of dealer about immovable nature of hoarding in following words;
“14. It is clear that so far as the structures involved in this case are concerned, same are constructed using tempered steel/thick steel poles by attaching the same to a concrete structure embedded on earth and erected using nuts and bolts. The Assessing Authority had evaluated the factual circumstances and came to the finding that the structure erected is ‘goods’ as defined under the Act and therefore is exigible to tax. This finding was confirmed by the First Appellate Authority as well as the Tribunal after taking into account the principles laid down in various judgments of the Apex Court and other Courts and Tribunals. According to us, so far as the structure involved in this case is concerned, taking into account of the explanations of the learned counsel for the petitioner, it is fastened to earth and is detachable easily and therefore, is not an immovable property. Further the structure so erected is never a complicated installation unlike a heavy machinery fitted in a factory premises by assembling various components and then attached to earth, which becomes a complicated procedure, whereas a hoarding is fastened to a concrete structure on earth using nuts and bolts, the removal of which is a simple procedure which makes it a movable article under the Act. In this connection counsel for the petitioner has brought to our attention the judgment in ‘State of Tamilnadu vs. TVL Jayalakshmi Enterprises’ [T.C. (Review) No.430/2006 dated 7.7.2011] and contended that in the said case also the issue related to the leasing out of hoardings for the purpose of advertisement and that the Madras High Court has held that since the hoardings erected on the concrete foundation, not capable of removal without causing any damage to the structure, is part of the immovable property and ceased to be goods for the purpose of attracting levy of tax u/s. 3A of the Act. But, according to us, the Madras High Court has considered the said case on appreciation of the covenants contained in the agreement between the parties and thereupon found that the entire responsibilities were carried out by the assessee and that therefore there is no transfer of right to use goods.”
Regarding contention of effective control also Hon. High Court held in the negative observing as under:
“17. But, according to us, so far as leasing out of hoardings in this case are concerned, once it is let out by entering into an agreement or work order, the owner of the goods ceases to have any control over the same for the reason that the advertisements are affixed on the hoarding by putting up and displaying necessary materials in accordance with the directions of the lessee and he has the effective control of the hoardings throughout the contract period entered into by him with the revision petitioner. The revision petitioner is unable to interfere with the nature of the advertisement carried out by the lessee in the hoardings since as per Annexure-D work order, it is his absolute right to finalise the nature of advertisement that is put up on the hoardings. Therefore, according to us, the absolute control of the hoardings is transferred to the lessee by virtue of Annexure-D work order. Therefore, we are of the definite opinion that the control of the hoardings once it is passed for erecting advertising materials is left with the lessee absolutely for the period specified and therefore there is transfer of right to use as provided u/s. 6(1)(c) of the Act. Therefore the second question raised by the assessee is also answered in the negative and in favour of the Revenue.”
Ultimate argument of payment of Service Tax
Dealer in this case also tried to argue that it has paid service tax on very same receipts. It was canvassed that service tax and VAT are mutually exclusive and hence when service tax is levied and paid, no VAT should apply. This contention was also rejected by Hon. High Court observing as under:
“20. In the second cited decision also, a Division Bench of this Court was considering the question whether the Parliament is competent to authorise levy of service tax on banking and other financial services including equipments leasing and hire purchase. It was concluded that Article 366 (29A) empowers the authorities to impose levy of tax on deemed sale and purchase of goods and the same is not mutually exclusive with the liability for Service Tax. Therefore, according to us, the above two judgments are an authority for the proposition that the service tax and Value Added Tax are not mutually exclusive and if there is liability, both are to be paid by the concerned assessee. Viewed in that background, the contention raised by the revision petitioner that since it is paying service tax, is not liable to pay Value Added Tax can never be sustained.” Thus rejecting all contentions, Hon. High Court upheld taxation under VAT .
Conclusion
It can be seen that there are conflicting judgments on the given issue. It clearly appears that the matter is not decided by any common principle but based on facts/terms of agreements in each transaction and it’s appreciation by the concerned court. In such a situation Dealers will have hard time to visualise their liability. The tragedy is that such a dealer will be liable to pay both Service Tax and VAT on the same transaction. This will be a hard blow to financial viability of dealer. It is felt that not only fate of taxation of hoarding is hanging but the financial existence of dealer itself will be in jeopardy Let there be clarity by law makers on the issue at the earliest to save the plight of the dealers.
