Kerala High Court Quashes VAT Assessment On Hoarding Ads | Says No Transfer Of Right To Use Without Written Contract Doesn’t Bar Relief If Terms Are Clear
Isabella Mariam
The High Court of Kerala Single Bench of Justice Ziyad Rahman A.A. quashed assessment orders issued under the Kerala Value Added Tax (KVAT) Act against an advertising agency engaged in hoarding-based advertisement displays. The court held that in transactions where there was no transfer of the right to use the hoardings, no taxable event had occurred under the provisions of the KVAT Act. Consequently, the impugned assessment orders were set aside to the extent they imposed tax liability based solely on the absence of formal written agreements.
The court further directed that the absence of agreements executed on stamp paper should not be treated as the sole basis to deny the application of the principles laid down in the binding precedent of Vismaya Advertising. The assessing authority had rejected the petitioner's claim in several cases merely due to the lack of stamped contracts, despite the presence of emails and work orders reflecting the terms of the transactions.
In view of this, the court found the rejection of the petitioner’s submissions to be unjustified and ordered the assessments to be quashed in such cases, while allowing reassessment where evidence of a transfer of the right to use hoardings exists.
The petitioner in the present writ petitions is engaged in the business of erecting hoardings for the display of advertisements on properties and buildings owned by third parties. The erection is done based on contractual agreements entered into with clients. These hoardings are used to display advertisement content for a specified period, governed by terms mutually agreed upon between the petitioner and their respective clients.
Assessment proceedings were initiated against the petitioner by the State Goods & Services Tax Department under the KVAT Act, resulting in assessment orders that treated such transactions as taxable events. The contention of the assessing authority was that the petitioner had transferred the right to use the hoardings to third parties, thereby attracting VAT liability under Section 25 of the KVAT Act.
The petitioner challenged these assessments through appeals before the first appellate authority. A key argument raised was that there was no transfer of possession or control of the hoardings to the clients. Instead, the petitioner merely displayed the clients’ advertisements on hoardings exclusively owned, erected, and maintained by the petitioner.
The first appellate authority accepted the petitioner’s arguments and relied on the judgment of the Kerala High Court in Vismaya Advertising v. Intelligence Officer [2021 (1) KLT 38]. The assessment orders were accordingly set aside, and the matter was remanded to the assessing authority with specific directions to verify the nature of the agreements executed between the petitioner and advertisers and determine whether any transfer of right to use occurred.
Following the remand, fresh assessment orders were issued. In these orders, the assessing officer applied the principles of Vismaya Advertising and accepted the petitioner’s contentions in cases where contracts were executed on stamp paper. However, in instances where formal contracts were not produced and the petitioner relied solely on email communications and work orders, the officer rejected the petitioner’s submissions and treated those transactions as taxable.
The petitioner challenged these fresh assessment orders through writ petitions, contending that the rejection of their claims merely due to the absence of contracts executed on stamp paper was unjustified. They relied on various communications, emails, and work orders to substantiate the nature of the transaction.
The respondents submitted a counter affidavit justifying the assessment orders, stating that the absence of signed agreements was a valid ground for drawing adverse conclusions.
The Court observed that the essential issue raised by the petitioner was squarely covered by the Division Bench decision in Vismaya Advertising. It was stated in the judgment: "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 court recorded that in the earlier remand proceedings, the assessing officer had partially accepted the petitioner’s contentions in transactions where contracts were produced on stamp paper. However, in other cases, similar treatment was denied solely due to the absence of formally executed contracts.
The Court observed: "It is true that those communications are through E-mails, 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."
It further noted: "The obligations of the petitioner include erection and maintenance of the hoardings. The charges collected by the petitioner for displaying the advertisement included the charges for erection, printing and maintenance etc."
The Court referred to the petitioner’s documents, Exts.P1 to P20, and held: "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."
In some cases, the advertisement materials (such as flex boards) were provided by the clients. However, even in such situations, the Court noted: "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."
The Court found that the transactions involved did not evidence a transfer of right to use the hoardings. It stated: "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."
The Court concluded that the assessing authority had rejected the petitioner’s contentions without adequate reasons and had failed to consider reliable evidence that established the nature of the transactions.
The Court quashed the assessment orders (Ext.P26) to the extent they went against the petitioner. It held: "No taxable event under the provisions of the KVAT Act had occurred in respect of the transactions referred to in the assessment order, as there was no transfer of right to use the hoardings."
The Court clarified:"This would not preclude the assessing officer to assess the petitioner in the case of transactions where, there are materials to show that the transfer of right to use of the hoardings had indeed occurred."
Accordingly, the writ petitions were disposed of, and the impugned assessment orders were quashed to the extent they were inconsistent with the principles laid down in the Vismaya Advertising judgment. The Court held that the petitioner is not liable for VAT in transactions where:
- The hoardings were erected, maintained, and controlled solely by the petitioner;
- The advertisement content was supplied by the client;
- The petitioner charged for services such as printing, mounting, and maintenance;
- There was no evidence of possession or control being transferred to the advertiser.
The Court allowed reassessment in cases where the respondents could establish, with supporting documentation, that the right to use had indeed been transferred.
Advocates Representing the Parties:
For the Petitioners: Smt. Meera V. Menon, Sri. R. Sreejith, Smt. K. Krishna
For the Respondents: Shri. Arun Ajay Sankar, Government Pleader
Case Title: J. Vijayakumar v. Assistant Commissioner, SGST Department
Neutral Citation: 2025: KER:56452
Case Numbers: WP(C) No. 2731/2023, WP(C) No. 4274/2023, WP(C) No. 3839/2023
Bench: Justice Ziyad Rahman A.A.
