Delhi High Court Cancels Rs 176 Crore VAT Demand on Pawan Hans
Delhi High Court on Thursday quashed a Rs 176 crore VAT demand imposed on Pawan Hans, a state-owned helicopter service provider. The demand, covering the period from 2006 to 2010, was challenged by Pawan Hans after the tax authorities claimed that the supply of helicopters to the Andaman and Nicobar Islands Administration constituted a “transfer of a right to use” under the Delhi Value Added Tax (DVAT) Act and the Central Sales Tax Act (CST).
The central issue at hand was whether Pawan Hans had transferred the right to use its helicopters during its agreements with various state governments and public sector entities. The tax authorities argued that the agreements should be taxable under VAT, as they involved the transfer of rights to use the helicopters. However, Pawan Hans contended that while its helicopters were hired by these entities, they never lost control over the aircraft, which remained under the possession and operation of Pawan Hans itself. Senior counsel Tarun Gulati, representing Pawan Hans, emphasized that the helicopters were operated and maintained by Pawan Hans, and its pilots remained under the company’s employment. Furthermore, the necessary permits and licenses for operating the helicopters remained with the company, which ruled out the possibility of a transfer of the right to use.
The Delhi High Court sided with Pawan Hans, agreeing that there was no “transfer of a right to use” as outlined under Article 366(29A)(d) of the Constitution and other relevant tax laws. The Court also highlighted that the presence of a confidentiality clause in the agreements had no bearing on the issue of taxability. It ruled that the tax authorities had erred in their assessment and that Pawan Hans should not be liable for VAT on the helicopters’ use. This ruling provides relief to Pawan Hans, which had already paid the required service tax under the Finance Act, 1994, for the services rendered. The court’s decision reinforces the distinction between service tax and VAT, which are mutually exclusive taxes under Indian law, providing clarity on tax applicability in similar transactions in the future.
