No Transfer of Right to Use Hoardings in favour of third party while Displaying Advertisement, KVAT not Leviable: Kerala HC [Read Order]

J.Vijayakumar, the petitioner is engaged in erecting hoardings on properties and buildings owned by the third parties, on the basis of agreements and such hoardings are fixed either on a property or top of a building. After erecting the hoardings on the structure created for the said purpose, the advertisement of his consumers would be displayed on the said hoardings for a particular period, on the terms and conditions agreed between the parties.

The aforesaid transactions were subjected to assessment, under Section 25 of the KVAT Act, by the 1st respondent, and the assessment orders passed were taken in appeal in all these cases before the first appellate authority.

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The main contention raised by the petitioner is that, in view of the peculiar nature of the transactions involved in the display of hoardings, it cannot be held that a taxable event under the provisions of the KVAT has occurred. According to the petitioner, there was no transfer of right to use the hoardings, while displaying such advertisements, in favour of the third parties, as the petitioner is only displaying the content provided by his customers, whereas, the entire control and possession over the hoardings vested with the petitioner.

The appellate authority after referring to the various judgment accepted the said contention, set aside all the assessment orders and remanded the matter to the assessing authority, with a specific direction to verify the agreements entered between the petitioner with the advertiser, and the assessing officer was directed to decide after examining the said agreement, as to whether there occurred any transfer of right to use.

Based on the aforesaid order of remand, now assessment orders are issued. The said assessment orders wherein, the assessing authority, accepted the contentions of the petitioner, in respect of the cases where the petitioner could produce a copy of a contract executed on stamp papers, but rejected the same in respect of the transactions where the petitioner could not produce a formal contract, but relied on the E-mail communications between the parties. It was in these circumstances, these writ petitions were submitted challenging the assessment orders, to the extent the contentions of the petitioner were rejected.

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It was pointed out that, even while following the said judgment, the principles laid down therein were not implemented in respect of some of the transactions, without any justifiable reasons. According to the counsel for the petitioner, the denial of benefits of the judgment was merely because of the reason that the petitioner could not produce the contracts entered into between the parties.

It is true that those communications are through Emails, but in all the said communications, the terms and conditions based on which the consensus was arrived at between the parties, as to the manner in the display is to be effected on the hoardings, is specifically mentioned.

Justice Ziyad Rahman A.A observed that the obligations of the petitioner include erection and maintenance of the hoardings. As rightly pointed out by the counsel for the petitioner, the charges collected by the petitioner for displaying the advertisement included the charges for erection, printing and maintenance etc.

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A careful analysis of the terms and conditions of the work order would clearly indicate that the responsibility to maintain the hoarding was with respect to the petitioner and petitioner had collected separate charges for the same as well. It would clearly indicate that, as per the terms and conditions agreed between the petitioner and his customers, the display was provided by the petitioner on the hoardings erected at the expense of the petitioner, to which the content alone would be supplied by the customer.

Of course, in some of the cases, the flex board is supplied by the customers, but even in those cases, it is mentioned that the materials are installed by the petitioner on the structure erected and maintained by the petitioner and the further maintenance was also being done by the petitioner.

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As far as the transactions referred to above are concerned, it is not necessary that, in all cases, it should be carried out on the basis of written contracts in particular format in stamp papers executed between the parties. If there are other reliable documents, which would indicate the terms and conditions based on which the consensus has been arrived at between the parties for carrying out a particular work, that could be accepted, in case there are no other materials to conclude otherwise.

In the impugned orders, the assessing authority had rejected the contentions of the petitioner by merely assuming that there occurred transfer of right to use the hoardings, even without any documents to substantiate the same and by ignoring the documents which would lead to a conclusion that no transaction of that nature took place.

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