No VAT on Sale of Demo Cars: Delhi HC [Read Order]

In a significant ruling, a division bench of the Delhi High Court held that VAT is not leviable on the sale of demo cars.

A bench of Justices S Muralidhar and Chander Sekhar was hearing an appeal filed by M/s Triumph Motors against the order of the Appellate Tribunal confirming the view of the department that sale of Demo cars is subject to VAT under the provisions of Delhi Value Added Tax (DVAT) Act.

The Appellant-Assessee is engaged in trading of new cars and their spares. The department took a view that the assessee was bound to pay VAT for the sale of demo cars as the sale was covered under Section 6 (3) of the DVAT Act.

The Appellants contended that the demo car was in the nature of a plant, machinery and equipment which was directly used for the main business, i.e. selling cars under Section 2(1) (f) of the DVAT Act and therefore, no liability to pay tax arise. They also contended that they had not claimed any input tax credit on the demo cars at the time of their purchase.

The division bench noted that The Appellant deals in the business of selling new cars and it uses the cars purchased in its own name as demo cars for that purpose. “The fact that these cars are purchased by the Assessee in its own name clearly indicates that the Assessee intends to use these cars as „demo cars‟ and therefore, would be entitled to treat them as Assessee‟s capital goods. Such demo cars are used for the purchase of Assessee‟s business.”

Based on the decision in Anand Decors v. Commissioner of Trade and Taxes, New Delhi, the bench held that the appellant assesse satisfies the four conditions spelt out in section 6 (3) of the DVAT Act.