VAT can be levied on Composite Rent: Madhya Pradesh HC [Read Judgment]

A division bench of the Madhya Pradesh High Court in Tripti Alcobrew Pvt. Ltd and Ors v. State of Madhya Pradesh, upheld the imposition of VAT on composite rent under the Value Added Tax Act, 2002.

In the instant case, the petitioner engaged in the manufacturing of Beer, entered into a lease deed which was a composite lease for the land, building plant, machinery and equipment where the Unit was situated for an annual lease rent. The sales tax authorities levied tax on lease rent on Plant and Machinery forming part of Composite lease of Brewery at the rate of 13% on the petitioners.

Before the Court, the petitioner challenged the levy and contended that renting of an immovable property is not goods, the Finance Act, 1994 has defined the transaction under the lease deed as “Service”, which led the petitioner to pay service tax under the Contract Act.

Based on the judicial decisions, the Court said that the word “property” may denote the nature of the interest in goods and when used in this sense means title or ownership in a thing. “The word may also be used to describe the thing itself. The two concepts are distinct, a distinction which must be kept in mind when considering the use of the word in connection with the sale of goods.”

“Assessing Officer has levied VAT on transfer of plant and machinery being covered by sub-clause (d) of Clause (29-A) of Article 366 of the Constitution it is difficult to accept the submissions on behalf of the petitioner, that it was beyond his competence to levy VAT on transfer of plant and machinery.”

On the basis of the above findings, it was held that “it being within the competence of the State and its functionaries in vivisecting the composite lease rent and levying VAT on the transfer of plant and machinery. The challenge as to the jurisdiction of State functionaries in levying VAT is negatived.”

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