VAT on Tinting Machines Placed with Dealers: Asian Paints (Nepal) Pvt. Ltd. before the Revenue Tribunal

Case snapshot

Background

Asian Paints (Nepal) Pvt. Ltd. was assessed VAT, penalty, additional charge and interest for FY 2067/68 by the Large Taxpayers Office, Lalitpur, through an order dated 2072/01/31. When the Inland Revenue Department did not decide the administrative review within the statutory 60 days, the taxpayer brought the matter to the Revenue Tribunal under Section 9(4) of the Revenue Tribunal Act 2031. The case was registered on 2072/06/24.

Issue and the Tribunal's finding

The dispute turned on the tax treatment of Color World tinting machines that the company had placed with its dealers under a deposit arrangement.

Issue Tribunal's finding

Whether tinting machines placed with dealers under a deposit arrangement, with the full value recovered and no condition of refund or return, are a supply on which VAT applies, or the company's own depreciable asset. The placement is a supply / sale under Sections 6(2) and 17(5ka) of the VAT Act 2052, and a financial lease under Section 32(7) of the Income Tax Act 2058. Because the arrangement transfers the economic substance of the asset, depreciation was not claimable and VAT was correctly charged. Upheld.

Why it mattered: the company treated the machines as its own assets and claimed depreciation. The Tribunal read the deposit arrangement by its substance: full value recovered and no refund or return means the risks and rewards passed to the dealer, which is the hallmark of a sale and of a financial lease rather than a mere placement of equipment.

Decision

The Tribunal upheld the decision of the Large Taxpayers Office. The decision was unanimous.

Appeal to the Supreme Court

Under Section 8 of the Revenue Tribunal Act 2031, an appeal against a Tribunal decision lies to the Supreme Court only where the Court grants leave, and only where a direct legal error appears that would wholly or partly reverse the decision, on one of the following questions of law.

Ground Question of law (Section 8) Made out here?

(a) A question of jurisdiction No

(b) Evidence wrongly ignored, or evidence wrongly relied upon No

(c) A violation of mandatory procedural law No

(d) A question of serious legal error No

As none of the Section 8 grounds was made out, the threshold of a direct legal error capable of reversing the decision was not met. Leave to appeal to the Supreme Court was not obtained, and the Tribunal's decision therefore stands as final.

Key takeaway

Where equipment is placed with a distributor or dealer and its full value is recovered without any obligation to refund or return, the arrangement is likely to be read as a supply for VAT and as a financial lease for income tax, regardless of how it is labelled internally. In that case the supplier cannot claim depreciation on the equipment, and VAT applies on the transfer. Businesses using deposit or placement models for tinting machines, coolers, dispensers and similar assets should review the commercial substance of those arrangements before deciding their tax treatment.

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