DY. COMMNR. OF COMMERCIAL TAXES (VIGIL) Vs. M/S HINDUSTAN LEVER LTD.
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 656 of 2008, Judgment Date: Jun 30, 2016
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 656 OF 2008
Deputy Commissioner of ...Appellant(s)
Commercial Taxes (Vigilance)
Versus
M/s Hindustan Lever Limited ...Respondent(s)
J U D G M E N T
Dipak Misra, J.
In the present appeal, by special leave, the appellant has called in
question the legal acceptability of the order dated 25.01.2007 passed by
the Division Bench of the High Court of Karnataka at Bangalore in STRP No.
62 of 2004 whereby the Division Bench has dismissed the Special Revision
Petition preferred by the appellant-department and affirmed the order dated
27.12.2003 passed by the Special Bench constituting five members of the
Karnataka Appellate Tribunal, Bangalore (for short, “the tribunal”)
constituted under the Karnataka Sales Tax Act, 1957 (for short, “KST Act”).
2. Requisite facts to be exposited for adjudication of this appeal are
that Brooke Bond India Limited established its factory at Dharwad in the
State of Karnataka and the said factory was engaged in manufacture of
blended packet tea. With the passage of time, Brooke Bond India Limited was
amalgamated with the respondent-company with effect from 21.03.1997. There
is no dispute over the fact that the respondent-company registered under
the Companies Act is a dealer under the KST Act. The dealer was granted
sales tax exemption benefit for five years from the date of commencement of
production in accordance with exemption eligibility certificate issued by
the Government of Karnataka as per the package of incentive granted vide
Government Order dated 27.09.1990 and sales tax exemption notification
dated 19.06.1991 to which we shall advert to at a later stage.
3. When the matter stood thus, the Assistant Commissioner of Commercial
Taxes (Intelligence), Kolar visited the premises of the respondent-assessee
on 20th December, 1996. During the course of physical inspection the
authority noticed that there was contravention of the conditions laid down
under Explanation III(e) to the notification dated 19.06.1991. It was
noticed by the said authority that sale of tea packets by the respondent-
company from the Dharwad unit which had the benefit of exemption and the
units manufacturing tea outside Dharwad unit which did not have the benefit
of exemption were similarly priced. Two invoices – one from Dharwad unit
and one from non-Dharwad unit – were taken note of and found that the
ultimate sale price in both cases is Rs. 118 (the non-Dharwad tea had a
sales tax component of Rs. 12.27, whereas the Dharwad tea had no sales tax
component). Based on the said material as well as material evincible from
the price circulars of the respondent-company found in the office, the
intelligence officer arrived at the conclusion that the dealer had added
the tax component to the sale price of Dharwad tea though not under the
nomenclature of tax or cess. Hence, it was concluded that the respondent
company was not entitled to the benefit of exemption, for Explanation
III(e) to the notification dated 19.06.1991 had been violated.
4. As the facts would further unravel, on the basis of the aforesaid
finding of fact of the inspecting authority, a series of assessment orders
dated 15.06.1998, 31.01.1999, 22.02.2000 and 01.07.2000 were passed
wherein, inter alia, the claim of exemption on the turnovers of Dharwad
tea based on notifications dated 27.09.1990 and 19.06.1991 came to be
rejected. The assessment orders were assailed before the appellate
authority and vide orders dated 25.02.1999, 07.03.2001 and 23.03.2001 the
appellate authority upheld the view of the assessing authority by rejecting
the claim of exemption advanced by the assessee on the ground that there
was collection of tax by considering the tax component in determination of
sale price, though the same was not distinctly shown as tax and collected
as such. The orders passed by the appellate authority were challenged
before the tribunal which thought it appropriate to constitute a Special
Bench and, accordingly, five members of the tribunal took up the matter.
The tribunal after hearing learned counsel for the parties came to hold
that though the company had considered the local tax element in the price
fixed, but it cannot be stated that the company has collected the local
taxes as such from the consumers in view of the fact that in the invoice
against KST and CST, it is specifically left blank in respect of Dharwad
tea; and accordingly accepted the stand put forth by the assessee-
respondent. The said order was challenged before the High Court in
revision petition.
5. The High Court to appreciate the controversy framed the following
three questions of law:-
“(1) Whether the consideration of sales tax in fixing the price of the
goods and sale of such goods along with identical goods on which taxes are
collected along with the price has not resulted in an implied collection of
tax in respect of such sales tax exempted goods?
(2) Whether the assessee who produces identical products, one which is
exempt from sales tax and one which sales tax is payable, both being priced
on par and sold off the same shelf, could not lead to the presumption that
there is a deemed collection and inclusion of sales tax in the price fixed?
(3) Whether the legend ‘inclusive of taxes’ found on the packets of Dharwad
and non-Dharwad tea, the distinction as such being lost on the consumer,
whether it cannot be said that taxes are inclined and collected on the tax
exempted tea.”
6. The High Court, after hearing the learned counsel for the parties and
analysing the material on record, dissecting the relevant provisions of the
KST Act and the notification for exemption came to hold as under:-
“30. Learned Advocate General invites our attention with regard to the
price being the same with regard to Dharwad tea and non-Dharwad tea. Same
is reflected in the books of accounts. The Company is governed by the
Standards of Weights and Measures Act, 1976 and Rules. Rule 6 read with
Rule 2(r) of the Standards of Weights and Measures (Packaged Commodities)
Rules, 1977 requires that the sale price of the package commodity shall be
printed on the packages strictly in the following form:
“Maximum (or Max) Retail Price Rs.....
... incl. of all taxes.”
or
“MRP Rs. ... INCL. OF ALL TAXES”
31. Much of arguments were advanced before us that in the light of
inclusive rate of tax, there is nothing but collection in the case on hand.
The Tribunal in its order would say that so long as the buyer has not
agreed to pay tax, and so long as the bill would show that the company is
exempted from tax, there can be no inference of tax collection. Tribunal,
in our view, is right in noticing that mere mentioning of MRP does not by
itself a proof of any collection of tax in terms of sales tax laws. We are
in agreement with the finding of the Tribunal.
32. In fact, in Annexure-F there is a clear mention of exemption of tax
in terms of the note at the end of the invoice itself. Therefore, the
buyer is told in unmistakable terms that what is being paid as sale price
and not as sales tax.
33. The Tribunal, in our view, has considered not only the facts of the
case but also all the case laws as applicable, and thereafter has come to a
right conclusion in holding against the State. We are in agreement with the
findings of the Tribunal.”
On the basis of the aforesaid analysis, the High Court concurred with
the opinion expressed by the tribunal.
7. We have heard Mr. Basava Prabhu S. Patil, learned senior counsel
along with Mr. V.N. Raghupathy for the appellant and Mr. Harish N. Salve
and Mr. Arvind P. Datar, learned senior counsel for the respondent.
8. The present litigation has a history. Be it stated, this is the
third round of litigation. In the first round, the State of Karnataka had
availed the plea that the Government Order dated 27.07.1990, pursuant to
which the Exemption Notification dated 19.06.1991 was issued, was itself
not gazetted. The controversy travelled to this Court in Lipton India Ltd.
and another v. State of Karnataka and others[1]. In the said case, the
Court has held that:-
“7. The administration of the State of Karnataka represented by its Chief
Secretary, does not find the said officer guilty of gross negligence. The
Chief Secretary does not find it unpardonable that the statement was made
on oath on behalf of the State Government in a pending proceeding before
the High Court. We cannot agree. Whether the Chief Secretary thinks it
necessary to take action against the said officer or not is not our
concern. Our concern is that the State Government made a statement on oath
before the High Court that was incorrect and the judgment of the High Court
accepts and proceeds upon the basis of that statement. The High Court’s
judgment must, therefore, be set aside and the matter remanded to the High
Court to be heard and decided afresh.
8. We must caution the High Court at Karnataka, having regard to what we
have stated above, that it should be very vigilant in accepting as correct
a statement, even though it be made on oath, on behalf of the State
Government. It is unfortunate that we should have to say this of a State
Government, but the record before us leaves us no option.
9. The learned counsel for the State Government now submits that we should
not make this general observation in respect of affidavits filed on behalf
of the State Government. As we have already stated, we have done so because
the Chief Secretary of the State of Karnataka does not seem particularly
troubled by the fact that a statement was made on oath on behalf of the
State Government before the High Court which was not correct. He does not
even think that the said officer was grossly negligent in making the
statement that the said government order was not gazetted only on the basis
of going through the Gazettes for the succeeding three months. We must
assume that other officers of the State Government will be encouraged to
make statements before the courts on oath upon as little or no enquiry,
expecting from the Chief Secretary the same unconcern”.
9. After so holding, the Court has allowed the appeals and directed the
State Government to pay costs which was quantified in the sum of Rs.
50,000/-. In the second round of litigation, the State of Karnataka sought
to deny the exemption on the ground that grinding of tea does not amount to
manufacture and, therefore, as such the exemption was not available. The
matter travelled to this Court but eventually the appeals were dismissed by
orders dated 17.07.1998 and 07.09.1998 preferred by the State of Karnataka.
10. The present one is the third round. Mr. Patil, learned senior
counsel appearing for the State would urge that the tribunal as well as the
High Court is not justified in interfering with the finding of fact
recorded by the Assessing Authority and the first appellate authority that
the assessee had collected sales tax on the sale of tea manufacture at
Dharwad and hence, not entitled for the benefit of sales tax exemption
solely on the ground the company had considered local sales tax element in
the sale price fixed. It is also contended by him that the levy of tax on
the assessee cannot be found fault with inasmuch as inclusion of sales tax
in the sale price would disentitle the assessee from the benefit of
exemption stipulated in the Notification dated 19.06.1991 issued under
Section 8A of the KST Act. Lastly, it is canvassed by Mr. Patil that the
issue whether the legend “inclusive of taxes” found on both the packed tea
produced in the exempted unit, Dharwad, Karnataka and tea obtained from
outside the State and sold in the State (taxable tea), makes the end
consumer believe that in the end consumer price sales tax element has been
considered, has not been properly considered by the High Court. Learned
senior counsel would submit that the High Court has not properly
appreciated the authorities in the field and arrived at the erroneous
conclusion. Mr. Patil has placed reliance on State of Karnataka v. M/s C.
Venkatagiriah and Brothers[2] and T. Stanes & Co. Ltd. v. State of T.N.
and another[3].
11. Mr. Salve, learned senior counsel appearing for the assessee-
respondent would urge that the declaration made by the assessee about MRP
is a statutory declaration required as per Rule 2(r) of the Standards of
Weights and Measures (Packaged Commodities) Rules, 1977 framed under
erstwhile Standards of Weights and Measures Act, 1976 and the same does not
mean that the assessee had collected any amount by way of tax. The
aforesaid statutory declaration only means that the end consumer does not
have to pay amount beyond MRP. It is urged by him that the assessee had
taken the stand that it has uniform MRP throughout India irrespective of
whether sales tax is payable in certain States or not and despite the fact
that the rate of tax is also different in different States because the
assessee has felt that it is necessary to have uniform MRP for PAN India to
prevent flowing of goods from one State to another. It is his further
submission that revenue has erroneously based its conclusion on a
comparison of price between the two units of the same manufacturer either
in the same State or in two different States wherein one unit is covered by
exemption and the other is not. Incrementing the said argument learned
senior counsel would contend that though the two prices are uniform, the
revenue on an erroneous comparison has presumed that the assessee has
collected tax without appreciating the fact that the assessee has adopted a
singular business model to have a uniform price throughout India which does
not countenance any kind of comparison. Mr. Salve would contend that the
authorities cited by the revenue are absolutely inapplicable to the facts
of the case, for the controversy is totally different therein. According to
Mr. Salve, the controversy in the case has been put to rest in Delhi Cloth
and General Mills Co. Ltd. v. Commissioner of Sales Tax, Indore[4].
12. The heart of the matter is whether the respondent has violated clause
(e) of Explanation III to the Sales Tax Exemption notification dated 19th
June, 1991. The said clause is reproduced below:-
“Explanation III. The provisions of this Notification shall not apply:
xx xx xx xx
xx xx xx xx
xx xx xx xx
xx xx xx xx
To the turnovers on which any tax is collected by a new Industrial
Unit under the provisions of KST Act, 1957.”
The above quoted clause stipulates that the notification will not
apply on turnovers on which any tax is collected by the new industrial unit
under the provisions of the KST Act. It is the submission of the appellant
that inference should be drawn that the respondent company had collected
sales-tax on packaged tea sold by the new industrial unit, and thus, there
was violation of clause (e) of Explanation III to the Sales Tax Exemption
Notification. Reliance is primarily placed on the observations of this
Court in Amrit Banaspati Co. Ltd. and another v. State of Punjab and
another[5] and more particularly on paragraph 11, which reads as under:-
“11. Exemption from tax to encourage industrialisation should not be
confused with refund of tax. They are two different legal and distinct
concepts. An exemption is a concession allowed to a class or individual
from general burden for valid and justifiable reason. For instance tax
holiday or concession to new or expanding industries is well known to be
one of the methods to grant incentive to encourage industrialisation.
Avowed objective is to enable the industry to stand up and compete in the
market. Sales tax is an indirect tax which is ultimately passed on to the
consumer. If an industry is exempt from tax the ultimate beneficiary is the
consumer. The industry is allowed to overcome its teething period by
selling its products at comparatively cheaper rate as compared to others.
Therefore, both the manufacturer and consumer gain, one by concession of
non-levy and other by non-payment. Such provisions in an Act or
Notification or orders issued by Government are neither illegal nor against
public policy.”
13. Reference is also made to the decision of this Court in M/s C.
Venkatagiriah and Brothers (supra) wherein it has been observed:-
“4. For the said proposition, the Tribunal relied upon a decision of the
Mysore High Court in Spencer & Co. Ltd. v. State of Mysore[6]. The
proposition enunciated in the said decision is that the dealer can be held
to have collected the tax under the Act, if:
“[F]rom the facts and circumstances, it can be inferred that the seller
intended to pass on the tax and the buyer had agreed to pay the sales tax
in addition to the price and that in the accounts of the dealer he has
shown such amounts separately.”
(emphasis supplied)
Applying the said proposition, the Tribunal held that even though the bills
issued by the dealer in this case did say specifically that the price
charged was inclusive of tax it cannot be held that he has collected the
tax. We are of the opinion that the additional requirement envisaged in
Spencer & Co. Ltd (supra) is not correct in law. Whether a dealer has
discharged the burden that is laid upon him by the statute is a question of
fact, to be decided in each case with reference to the facts and material
in that case. It is not a matter of law nor can the mode of proof be
reduced to a proposition of law. Sub-section (2) or sub-section (1) of
Section 10 of the Amendment Act do not provide for such a requirement. In
such a situation, it cannot be said as a general proposition that unless
the tax collected is reflected in the account books of the dealer, it
cannot be said to have been collected. No such general proposition can be
evolved in a matter totally within the realm of appreciation of evidence.
It is up to the dealer to discharge the said burden by producing such
material as he can and it is for the appropriate authority to say whether
the dealer has succeeded in discharging the burden or not. In this view of
the matter, we cannot agree with the Tribunal’s view which has been upheld
by the High Court. The endorsement in the bill that the price charged is
inclusive of tax is prima facie proof against the dealer’s contention.
Unless he produces material to displace the presumption arising from the
said endorsement, he must be held to have collected the tax.”
14. It is the argument of the assessee that the aforesaid declaration
about MRP is a statutory declaration and that does not mean that the
assessee had collected any amount by way of tax. The further stand is that
the end consumer does not have to pay any amount beyond MRP and that is how
the business model of the assessee operates and hence, there is no
question of any comparison. In fact, the appellant department is of the
view that the respondent assessee ought to have determined lesser price for
the exempted unit as compared to other units. It is urged that the
absence of any price control the view of the department is neither a legal
requirement nor practically possible. Once this erroneous comparison is
obliterated, the entire case of department collapses.
15. First, we shall deal with the applicability of the principle stated
in Amrit Banaspati (supra). The issue raised in the case of Amrit Banaspati
(supra) was quite distinct and separate. The question raised was whether
the principle of promissory estoppel would apply, for the learned single
Judge of the High Court on facts had found that there was sufficient
material to direct the State to honour its commitment to refund the sales-
tax. The issue involved in the said case relates to refund of tax paid to
the State. In this context, this Court observed that refund of tax was
made in consequence of excess payment or when it was realized illegally or
contrary to law. The refund of tax due and realised in accordance with law
cannot be comprehended and no law can be made for refund of tax to a
manufacturer realized under the statute for the same would be invalid and
ultra vires. A promise or an agreement to refund tax which was due under
the law and realised in accordance with the law would be a fraud on the
Constitution and breach of faith of the people. It is in this context, the
aforesaid observations were made in paragraph 11 in the case of Amrit
Banaspati (supra).
16. In fact, a careful elucidation of the said reasoning would support
the stand of the respondent. The assessee, on the basis of exemption
notification had set up a new undertaking incurring expenditure. This was
done on the foundation that the new unit would be exempt from tax. The
exemption granted under the law by a legally valid notification was to
encourage investment in the backward districts and enabled the newly
established industry to overcome initial financial problems, recoup and
ensue reasonable return on the capital expenditure and associated risks.
Exemptions are allowed to industrial units to overcome the teething
problems. Observations in paragraph 11 in Amrit Banaspati (supra),
nowhere stipulate that the sale price as fixed must expressly exclude the
tax component. It is obvious when a manufacturer is granted an exemption,
the unit would fix the sale price taking the said exemption into account.
In this manner both the manufacturer and the consumer gain. As sales-tax
is an indirect tax, the purchaser has to pay the same and when the tax is
not levied, the purchaser does not pay the same.
17. The respondent having set up a new industry which was exempted,
should not have, in terms of clause (e) of the Explanation III of the
notification, collected any tax and to the extent the tax was collected the
turnover was not exempted. Sales-tax, as noticed above, is an indirect
tax, which is charged from the consumer or the purchaser. But the liability
to pay is that of the dealer. It may be charged by the dealer from the
purchaser. Sometimes this indirect tax is inbuilt and included in the
retail price. This may be mandated by law to protect consumer interest.
One frequently comes across products where the maximum sale price is
specified and stated on the packaging as in the present case. Rule 2 of
the Standards of Weights and Measures (Packaged Commodities) Rules, 1977,
framed under the erstwhile Standards of Weights and Measures Act, 1976,
stipulated that the maximum sale price should be inclusive of all taxes.
This was the statutory requirement binding on the respondent, who was
selling packaged product. The statement on the packaged product inclusive
of all taxes, means all taxes which were leviable, were already included in
the price mentioned. It should not be constructed as an admission that the
respondent had charged sales tax. The respondent could not have deviated
or ignored the statutory requirement by making a declaration contrary to
the statutory rules. The consequences of not obeying and violating the
statutory rules would have been severe.
18. Observations made in M/s C. Venkatagiriah and Brothers (supra) have
to be again understood in the context in which they were made. In the said
case the dealer was exigible to Central Sales-tax only if he had collected
the tax and not otherwise. In the said context, this Court referred to
amendment made under the Central Sales-tax Act, putting the burden of proof
on the dealer to show that he had not collected the tax. For this reason,
it was observed that when an endorsement was made in the Bill that price
charged was inclusive of tax, it was prima facie proof against the dealer’s
contention and in such circumstances where burden was on the dealer, he
should produce material to displace the presumption. The finding of the
tribunal that the Central Sales-tax had not been charged independently in
the Bills, it was observed, would not be a conclusive proof or good finding
in law. Importantly, this Court observed that the question whether the
dealer had discharged the burden placed upon him by the statute is the
question of fact and has to be decided in each case with respect to facts
and material of the case. Significantly, in the present case no such burden
has been placed on the assessee. Further the tribunal and the High Court
have recorded as a finding of the fact that the assessee respondent had not
collected the tax on sales made from the exempted unit. The assessee has
relied upon invoices issued by them to the purchaser which have the
following declaration:-
“Goods sold under this invoice are fully exempted from levy of KST/CST
under exemption certificate No. IDF/E3/50-St/92-93 dt. 1-12-1992 by the
Director of Industries and Commerce Department, Govt. of Karnataka,
Bangalore as applicable to our newly set up tea factory at Dharwad. We are
on rolls of Asst. Commissioner, ST Bangalore. Our principal place of
business is at No.2 4th Cross, MM Compound, Mysore Road, Bangalore.
OR
“Goods sold under this invoice are fully exempted from levy of KST/CST in
terms of Govt. of Karnataka’s order No. C/1/138/SPC/90 (GO dt. 27.9.1990
and Finance Department Notification No. FD/239/CSI/90 dt. 19.6.1991 and
Industries and Commerce Department Certificate No. IDF/FS/91-24/93-94 dt.
5.6.1993 applicable to our newly set up factory at Dharwad (Ka). Our
principal place of business is at Booke Fields, Marathahalli”.
19. It has been highlighted that 3,50,000 invoices relating to the said
product manufactured and sold from the Dhaward unit were placed on record.
Apart from this the assessee-respondent had also placed 1200 price
circulars issued, which showed that the assessee respondent had not
collected sales tax. The books of account corroborate the trade price
circular and invoices. The entire sale proceeds or consideration was shown
as receipt and the amount was not bifurcated into sale price and tax
collected.
20. An assessee is entitled to carry on and conduct business, fix the
maximum retail price of its products. In the present case in spite of the
multiple units both exempted and non-exempted, the respondent had adopted
and followed uniform market price throughout India. The respondent is
entitled and can fix a uniform price meant for whole of India. The uniform
market price does not differ in spite of differences in sales-tax payable
at the end point, i.e., at the point of sale. This is a matter of business
policy and cannot be taken exception to. The respondent has also explained
that uniform market retail price at all India level ensures that the goods
from one State do not flow to the other State, thereby distorting sales. It
avoids and prevents shortages of goods in lower tax area. Uniform pricing
cannot be a ground to hold that the respondent was charging sales tax on a
sale price of the goods manufactured in the exempt unit. Cost of
production in different units of the respondent assessee can vary. Cost of
production has various components and is computed with reference to revenue
expenditure, rate of return on the capital expenditure, etc. These are
complex commercial and business considerations which cannot be decided with
reference to a single factor, i.e., the uniform market retail price. A
market retail price stating that it is inclusive of all taxes could be the
starting point, but would not prove and establish that the sales-tax has
been collected.
21. Reliance placed on T. Stanes & Co. Ltd. (supra) is misconceived. The
question involved therein related to interpretation of Section 22 of the
Tamil Nadu General Sales-tax Act. The said Section stipulates that no
person, who was not a registered dealer would collect any more tax and no
registered dealer shall make any such collection, except in accordance with
the provisions of the Act and the rules. The proviso stipulated that the
sub-section would not apply to collection of an amount by a registered
dealer towards an amount of tax already suffered under the Act in respect
to the goods, the sale or purchase price of which was controlled by any law
in force. In this background, it was observed that the term ‘collected’
would include any collection in any manner and purported recoupment as
projected and pleaded would be nothing but collection. The contention of
the assessee that he was only recouping and was not collecting the tax was
rejected. Thus, the factual score is totally different.
22. In this context, it would be relevant to refer to the decision of the
Court in Delhi Cloth and General Mills Co. Ltd. (supra). This case relates
to Madhya Pradesh General Sales-tax Act, 1958. While interpreting the
words “turnover” and “sale price” in the context of the charging Section it
was observed that the liability to pay tax was on the dealer and the
purchaser had no liability to pay tax. If a dealer had to pass the tax
burden on to the purchaser, he could only do by adding the tax in question
to the price of the goods sold. If that be so, the taxes collected by the
dealer from the purchaser became a part of the sale price as fixed. Thus,
the amount recovered by the dealer was in reality a part of the entire sale
consideration. To appreciate the principle we may usefully reproduce
certain passages from the said authority:-
“6. Under Section 4 the liability to pay tax is that of the dealer. The
purchaser has no liability to pay tax. There is no provision in the Act
from which it can be gathered that the Act imposes any liability on the
purchaser to pay the tax imposed on the dealer. If the dealer passes on his
tax burden to his purchasers he can only do it by additing the tax in
question to the price of the goods sold. In that event the price fixed for
the goods including the tax payable becomes the valuable consideration
given by the purchasers for the goods purchased by him. It that be so, the
tax collected by the dealer from his purchasers becomes a part of the sale
price fixed, as defined in Section 2(o). In some of the Sales Tax Acts
power has been conferred on the dealers to pass on the incidence of tax to
the purchasers subject to certain conditions. Those provisions may call for
different consideration. In the Act there is no such provision except
Section 7-A which was introduced into the Act by Madhya Pradesh Act 23 of
1963. That provision would have relevance only in respect of the assessment
for the year 1963-1964.
Section 7-A says:
“No dealer shall collect any amount, by way of sales tax or purchase tax,
from a person who sells agricultural or horticultural produce grown by
himself or grown on any land in which he has an interest, whether as owner,
usufructuary mortgagee, tenant or otherwise, when such produce is sold in
the form in which it was produced, without being subjected to any physical,
chemical or other process for being made fit for consumption save mere
dehusking, cleaning, grading or sorting.”
7. In these appeals, it is not necessary to examine the relevance of that
provision. But that provision does any give only statutory power to collect
sales tax as such from any class of buyers. There is no other provision in
the Act which confers such a power on the dealers. Unless the price of an
article is controlled, it is always open to the buyer and the seller to
agree upon the price to be payable. While doing so it is open to the dealer
to include in the price the tax payable by him to the Government. If he
does so, he cannot be said to be collecting the tax payable by him from his
buyers. The levy and collection of tax is regulated by law and not by
contract. So long as there is no law empowering the dealer to collect tax
from his buyer or seller, there is no legal basis for saying that the
dealer is entitled to collect the tax payable by him from his buyer or
seller. Whatever collection that may be made by the dealer from his
customers the same can only be considered as valuable consideration for the
goods sold.
x x x x x
x x x x x
10. From all these observations, it is clear that when the seller passes on
his tax liability to the buyer, the amount recovered by the dealer is
really part of the entire consideration paid by the buyer and the
distinction between the two amounts, — tax and price — losses all
significance.”
The relevance of this decision is that it holds that in a given case
the tax component may form a part of the sale price and cannot be treated
as a separate component.
23. In the case at hand, when the respondent was not liable to pay tax
and had not passed on the tax liability, we do not think, sale
consideration received should be bifurcated and divided on the basis of any
assumption that the sale price received must have included the tax. This
fiction has no application in the present case. There is neither such
principle nor any precept in law. In any case the finding of fact is to
the contrary.
24. In view of the aforesaid premised reasons, the appeal, being sans
merit, stands dismissed with costs which is assessed at Rs. 1,00,000
(Rupees One Lac Only).
...........................J.
(Dipak Misra)
..........................J.
(N.V. Ramana)
New Delhi;
June 30, 2016
-----------------------
[1]
[2] (1996) 10 SCC 710
[3]
[4] 1994 Supp (2) SCC 572
[5]
[6] (2005) 9 SCC 308
[7]
[8] (1971) 2 SCC 559
[9]
[10] (1992) 2 SCC 411
[11]
[12] (1970) 26 STC 283 (Mys)
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