Full Judgment Text
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CASE NO.:
Appeal (civil) 6619 of 2001
PETITIONER:
Indian Oil Corporation Ltd.
RESPONDENT:
State of Assam & Others
DATE OF JUDGMENT: 27/11/2006
BENCH:
ASHOK BHAN,ALTAMAS KABIR & DALVEER BHANDARI
JUDGMENT:
J U D G M E N T
DALVEER BHANDARI, J.
This appeal is directed against the judgment dated
3.5.2001 passed by the High Court of Assam, Nagaland,
Meghalaya, Manipur, Tripura, Mizoram and Arunachal
Pradesh, in Writ Appeal No.36 of 1999. The appellant
Indian Oil Corporation Ltd. is a limited company
incorporated under the Companies Act, 1956 and a
registered dealer under the Assam General Sales Tax Act,
1993 (hereinafter referred to as "the Act"). The appellant
company has been engaged in the business of sale and
supply of petroleum products in the country including
the State of Assam.
The appellant company has been purchasing
various petroleum products from Bongaigaon Refinery &
Petrochemicals Ltd. (hereinafter referred to as the "the
BRPL") on payment of sales tax as per the provisions of
the Act. On the recommendation of the Oil Prices
Committee set up by the Government of India, Resolution
dated 16.12.1977 was adopted by the Government which
required a dealer to sell its products at the prices fixed by
the Central Government and the prices so fixed by the
Central Government included surcharge to be collected
from the buyers and deposited to the ’Oil Pool Account’.
The appellant company - a dealer, therefore, had no
alternative but to sell the products at the prices so fixed
inclusive of surcharge and transfer the surcharge to the
said ’Oil Pool Account’. The appellant company was
entitled to retain only the basic price, the sales tax paid
at the time of purchase of the products in Assam from
the BRPL and the profit margin specified by the Central
Government. According to the appellant, the amount of
surcharge collected and remitted to the ’Oil Pool Account’
did not form part of the turnover of the appellant and the
said amount of surcharge was immediately remitted to
the ’Oil Pool Account’ by way of pool account settlement.
According to the appellant, under Section 8 of the
Act, tax was levied in respect of the goods specified in
Schedule II at the first point of sale within the State.
Items 63 to 73 of Schedule II enumerate various
petroleum products. As per Explanation 1 to Section
8(1)(a) of the Act read with Rule 12 of the Assam General
Sales Tax Rules, 1993 (hereinafter referred to as "the
Rules"), if the resale price of a dealer exceeded 40% of the
purchase price, the resale was deemed to be first point
sale within the State. At this stage, in order to properly
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appreciate the issues involved in the case, we deem it
appropriate to set out Section 8(1)(a) of the Act, Rule 12
of the Rules and Section 2(34) of the Act as under:
"Section 8. Charge of Tax and Rates \026
(1) The tax leviable under section 7 for
any year shall be charged on the taxable
turnover during such year-
(a) in respect of goods specified in
Schedule II, at the first point of sale
within the State, at the rate or rates
specified in that Schedule;
Explanation I : Where a person sells a
substantial part of the goods
manufactured by him or imported by him
to another person for sale under the
brand name or such other person or for
resale as distribution or selling agent or
for resale after repacking or subjecting
the goods to any other process not
amounting to manufacture and the price
charged on resale exceeds the sale price
by more than such percentage as may be
prescribed in respect of such goods or
class of goods, the resale by such other
person shall, subject to rules if any,
framed in this behalf, be deemed to be at
the first point of sale within the State;
x x x "
The relevant portion of Rule 12 of the Rules reads
as under:
"Rule 12 (1). Where a person after
purchasing goods covered by Schedule II
under clause (a) of sub-section (1) of section 8
sells such goods in such manner as mentioned
in the Explanation to the aforesaid clause and
if the price charged on such re-sale exceeds
forty percentum of the original sale or
purchase price, in respect of such goods or
class of goods the resale of such goods by such
person shall be deemed as first point of sale
within the State and the rates of tax shall be
as specified in Schedule II for such items.
x x x "
Section 2(34)(d) of the Act defines the "sale price" as
under:
"2(34) "Sale Price" means\027
(d) in respect of a sale under any other sub-
clause of clause (33), the amount received
or receivable by a dealer as valuable
consideration for the sale of goods
including any sum charged, whether
stated separately or not for anything done
by the dealer in respect of the goods at
the time of or before delivery thereof or
undertaken to be done after the delivery
whether under the contract of sale or
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under a separate contract but excluding-
(i) the cost of outward freight, delivery
or installation or interest when such
cost of interest is separately
charged, subject to such conditions
and restrictions as may be
prescribed, and
(ii) any sum allowed as a cash discount
according to ordinary trade practice:
PROVIDED that in a case where there is
no bill of sale or the sale bill is, in the
opinion of the assessing authority, for an
amount substantially lower than the
market price of the goods, the valuable
consideration receivable by the dealer
shall be taken to be the market price
determined in the prescribed manner.
Explanation I. Any tax, cess or duty
which is liable to be paid in respect of
any goods before the buyer can obtain
delivery and possession of such goods
and all costs, expenses and charges
incurred before the goods are put in a
deliverable state shall, notwithstanding
any agreement, covenant or
understanding that such tax, cess, duty,
costs, expenses or other charges be born
or paid by the buyer or any other person,
be included in the sale price.
x x x "
The difference between the "purchase price" and the
"sale price" received/retained by the appellant was much
less than 40%; however, if the ’surcharge’ was included
in the "sale price" the difference became more than 40%.
According to the appellant, in the impugned
judgment, the High Court ought to have directed that the
appellant would be liable to pay the sales tax only on
differential amount, that is to say, the difference between
the amount paid by it to the BRPL and the amount
collected by it from the customers through its dealers.
The appellant company had prepared a chart and
submitted before the High Court, which showed the
purchase price and the sale price of various products
dealt by the appellant company and the amount of
surcharge to be collected by the appellant company on
behalf of the Central Government. The chart prepared,
submitted and relied upon by the appellant company is
set out as under:
Products
Purchase
Price Ex.
REF
Price
Sales
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Price
w.e.f.
1.3.94
Amount to
be
surrendered
to Pool A/c
Sale
Price up
on 1.3.94
Amount to
be
surrendered
to Pool A/c
ATF
3245.38
10886.71
7463.56
10886.71
7463.56
HSD
2552.66
6311.70
3620.20
5561.70
3123.99
MS
4263.76
15480.22
10990.56
14480.22
10155.54
FC
1967.33
5008.75
2901.24
5008.75
2901.24
SKO
2287.00
2212.54
Nil
2212.54
Nil
LPG
3420.00
5860.75
680.00
5156.55
680.00
The appellant company, for instance, had submitted
that on Aviation Turbine Fuel, the appellant paid
Rs.3245.38 per KL to the BRPL as sale price and
collected Rs.10,886.71 per KL from its customers.
However, out of Rs.10886.71, the appellant retained only
Rs.3423.15 per KL as valuable consideration for sale of
ATF and the remaining amount of Rs.7463.56 was
remitted to the ’Oil Pool Account’. The State had levied
Sales Tax on the entire amount of Rs.10,886.71 without
giving adjustment of Rs.3245.38 paid for the same goods
to the BRPL on which tax was already paid. According to
the appellant, the respondents were bound to give
adjustment of the amount of sales tax paid to the BRPL
at the time of purchase of petroleum products and can at
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the most levy sales tax on the differential amount of
Rs.7463.56. According to the appellant, in the impugned
judgment, the High Court completely ignored and
overlooked this aspect of the matter though specifically
pleaded and argued.
The grievance of the appellant was that the
Revenue, subsequent to the impugned order of the High
Court, had passed ex parte assessment orders and raised
demand of Rs.303.98 crores retrospectively from the
years 1994-95 to 1997-98 and levied tax on the entire
amount collected by the appellant from its customers
without giving any adjustment of the sales tax paid by
the appellant to the BRPL on which tax had already been
levied treating the same as first sale under Section 8(1) of
the Act and also levied huge amount of Rs.158.12 crores
by way of interest.
According to the appellant, the question which
arose for consideration was \026 whether the "sale price"
was the consideration receivable by the dealer which was
fixed by the Government of India or the amount the
dealer was required to collect by way of consideration
plus amount payable to the ’Oil Pool Account’. The other
question which, according to the appellant, arose for
consideration was \026 if the ’first point of sale’ is deemed to
be the sale of the appellant (IOC) by virtue of Explanation
1 to Section 8 of the Act, it cannot be taxed in the hands
of the BRPL because Explanation 1 to Section 8 does not
contemplate ’first point sale’ in the hands of two dealers,
it only contemplated shifting of ’first point of sale’. A
question would also arise as to whether non-adjustment
of taxes paid by the appellant while purchasing the goods
from the BRPL at the point of first sale in Assam, when
the second sale by the appellant of the same goods in
Assam was treated to be the first sale because of the
deeming provision in Explanation 1 to Section 8(1)(a) of
the Act and the tax was charged on the same goods
would not amount to double taxation.
The appellant company reiterated that it had to sell
its products at the prices fixed by the Government of
India and while fixing such prices, an amount on account
of ’surcharge’ had been included which was to be
collected as ’surcharge’ and had to be deposited with the
’Oil Pool Account’. Under the Administered Price
Mechanism, oil companies were obliged to charge a
uniform sales tax price within the State irrespective of
first sale of the taxable goods or resale of tax paid goods.
Any under-recovery or over-recovery on account of the
different incidence of tax on sale of taxable/tax paid
goods had to be adjusted through the ’Oil Pool Account’
by appropriate claim/surrender respectively. The State
Surcharge Scheme for a particular State was formulated
by the Oil Co-ordination Committee by considering
various taxes leviable in that State. While doing so, any
over/under-recovery which arose on account of
composite billing, where inter oil company exemption was
not available, was also adjusted to work out the net
amount to be charged to the consumers of the State by
way of State Surcharge. The appellant submitted that
during the years 1994-95 to 1997-98, it had paid
Rs.44.16 crores by way of sales tax to the BRPL in
respect of the same transactions in question.
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The Senior Superintendent of Taxes, respondent
no.3, on 7.2.1996, asked the appellant company about
details of the "purchase" and "sale price" of various
products dealt with by the appellant company and was of
the view that since the "sale price" of the appellant
company is more than 40% of the purchase price, as per
the Explanation to Section 8(1)(a) of the Assam General
Sales Tax Act, 1993 read with Rule 12 of the Assam
General Sales Tax Rules, 1993, the second sale was to be
treated as the first sale and the appellant company was
liable to pay tax on the second sale considering it to be
the first sale in the State of Assam.
The appellant company pointed out to the Senior
Superintendent of Taxes, respondent no.3, that the "sale
price" of the appellant company included an amount of
’surcharge’ collected on behalf of the Central Government
and in that view of the matter the "sale price" for the
purpose of the Act should be determined after reducing
the amount of ’surcharge’ collected by the appellant
company on behalf of the Central Government which had
to be contributed to the ’Oil Pool Account’.
The Senior Superintendent of Taxes, on 17.2.1996,
directed the appellant company to produce the accounts
and records relating to purchase and sale of the BRPL
products from 1.7.1993 up to date on 18.2.1996. The
information as required was submitted by the appellant
company.
The appellant company was served with another
notice dated 28.3.1996 by the Senior Superintendent of
Taxes directing the appellant company to show cause
against initiation of penal action on the ground that the
appellant company was liable to pay tax on the sale of
products purchased from the BRPL being selling agent as
per Section 8(1)(a) of the Act read with Rule 12 of the
Rules, but the appellant company allegedly suppressed
the liability by not paying the taxes on such sale. The
appellant company was also directed to clear the
payment of taxes on sale of products from the BRPL and
disposed within the State of Assam for the period from
1.7.1993. The appellant filed a writ petition in the High
Court challenging the aforesaid notice dated 28.3.1996
whereby the demand was made of payment of tax inter
alia on the ground that the notice was without
jurisdiction since no tax was payable by the appellant
inasmuch as the difference between the purchase price
and the "sale price" received/retained by the appellant
was much less than 40% so as to attract the tax liability.
The learned Single Judge vide judgment dated 2.11.1998
dismissed the writ petition holding that the amount of
’surcharge’ collected by the appellant company even
though passed on to the ’Oil Pool Account’ had to be
included in the "sale price" as defined under sub-section
(34) of Section 2 of the Act.
The appellant aggrieved by the said judgment of the
learned Single Judge filed a writ appeal before the
Division Bench of the High Court. The Division Bench,
vide judgment dated 3.5.2001, dismissed the writ appeal
inter alia holding that the ’surcharge’ collected by the
appellant on behalf of the Central Government and
contributed to the ’Oil Pool Account’ was not statutory
collection but was collected under the executive
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instructions and cannot be excluded while calculating
the "sale price". It was held that the sale by the
appellant company was to be treated as first sale within
the meaning of Section 8(1)(a) of the Act read with Rule
12 of the Rules since the resale price exceeded 40% of the
purchase price.
The appellant aggrieved by the impugned judgment
has preferred this appeal before this Court.
The appellant company, though reiterated all the
grounds, challenged before the High Court but during the
course of arguments Mr. G.E. Vahanvati, the learned
Solicitor General laid emphasis on the following
submissions:
a) That, according to the provisions of the Act,
particularly sub-section 1 of Section 8 read
with Explanations 1 & 2 did not envisage
double taxation;
b) That, the appellant on purchase of petroleum
products from the BRPL had already paid sales
tax construing the same as the first point of
sale in the State. The question of levying tax
on the very same goods again in the State in
the hands of IOC cannot arise because
Explanation 1 merely contemplated shifting of
first point of sale in the State on the happening
of certain contingencies stipulated therein but
did not contemplate double or multipoint
taxation by levying tax in the hands of two
dealers in the State in respect of sale of the
very same goods.
c) According to Mr. Vahanvati, the High Court, in
the impugned judgment, ought to have held
that the sales tax would be leviable only on the
difference of the resale price and purchase
price since under Section 8(1) of the Act, tax
was levied at the point of first sale. The
appellant on purchase of goods from the BRPL
had paid sales tax and as such the sales tax
would be leviable on the difference of the price
otherwise it would amount to double taxation
not envisaged by the Scheme of the Act.
Mr. Vahanvati, to buttress his submissions had
placed reliance on the judgment of this Court in M/s
Advance Bricks Company v. Assessing Authority,
Rohtak & Another [1987 (Supp) SCC 650]. In this
case, the appellant was a registered dealer under the
Haryana General Sales Tax Act, 1973. The appellant’s
case was that it had purchased sun-dried bricks from a
registered dealer on payment of sales tax and that
amount represented the sale price of such tax-paid
bricks and subsequently burnt and sold the same bricks
at a higher price. It was held that the appellant was
liable to pay tax on such burnt bricks. The question
arose whether the appellant was entitled to set-off the
sales tax already paid to the registered dealer when they
purchased the sun-dried bricks. The appellant’s claim
was rejected by all authorities including the High Court.
Ultimately, this Court held that the appellant had paid
sales tax to a registered dealer at the time of purchase of
sun-dried bricks and the amount of tax then paid should
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be given credit and balance should be recovered.
The learned Solicitor General submitted that on the
same analogy, the appellant company in the instant case
should be directed to pay the sales tax on the difference
of amount between the purchase price and resale price.
This would be in consonance with the scheme of the Act.
In pursuance to the show-cause notice issued by
this Court, counter affidavit was filed on behalf of the
respondents by the Extra Assistant Commissioner,
Government of Assam. In the said counter affidavit, it
was alleged that in the instant case, the appellant
company had purchased petroleum products from the
BRPL and sold the same through its various dealers to
the consumers and had also collected sales tax from the
consumers on the entire sales. The entire collection of
sales tax was done as per the provisions of the Act.
However, instead of depositing the entire collected sales
tax with the State government, the appellant had
misappropriated it and contrary to the statutory
provisions had not deposited the sales tax with the State
Government.
Mr. C. A. Sundram, the learned Senior Counsel
appearing for the respondents, submitted that the
definition of "sale price" includes every amount received
by the appellant company from the buyers as
consideration for the sale of the goods. As per the sub-
clause (d) of Section 2(34), the amount received or
receivable by the dealer as the valuation of the
consideration in the sale of goods including any sum
charged whether stated separately or not or anything
done in respect of the goods at the time of or before
delivery comes within the definition of the "sale price".
Mr. Sundram stated that bare reading of Section
8(1)(a) of the Act and Rule 12(1) of the Rules makes it
abundantly clear that the provisions of the Act stipulate
in no unambiguous term that the levy of tax was on the
second sale, treating the same to be the first sale, if the
difference of the original purchase price and the resale
price was more than 40%.
It was further submitted by Mr. Sundram that it
was unfair to suggest that contribution to the ’Oil Pool
Account’ should not be taken into account for
determining the sale price, when the appellant itself had
collected sales tax from the purchasers on sale price
which was inclusive of the purported surcharge towards
the Central ’Oil Pool Account’. In the counter affidavit,
para ’C’ has mentioned that the invoice issued by the
appellant clearly revealed that the appellant had collected
sales tax on the total assessable value which was
inclusive of the ’Oil Pool Account’ contribution. Mr.
Sundram further submitted that there was no
justification in not depositing the sales tax amount
collected by the appellant from the consumers and
misappropriating the same.
We have heard the learned counsel for the parties at
length and examined the pleadings. In our considered
view, a conjoint reading of Section 8(1) of the Act and
Explanations I & II clearly lead to the conclusion that the
second point of sale was shifted as first point of sale if
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the resale price of a dealer exceeded 40% of the purchase
price. Admittedly, resale price in the instant case
exceeded 40% of the purchase price, therefore, the resale
price was deemed to be the first point sale.
According to the scheme of the Act, particularly
sub-section (1) of Section 8 did not envisage double
taxation in the same State. In the instant case, the
appellant company had paid sales tax on purchase of
petroleum products from the BRPL. In that event,
according to the scheme of the Act, the sales tax would
be leviable only on the difference of the resale price and
purchase price since under sub-section (1) of Section 8 of
the Act, tax is levied at the first point sale. The appellant
company had purchased goods from the BRPL and
admittedly paid sales tax on the said purchase.
According to the clear construction of the provisions of
the Act, the appellant was now under an obligation to
pay sales tax only on the difference amount between
purchase price and the entire sale price. Directing the
appellant company to pay sales tax on the entire amount
resold would amount to double taxation.
In the counter affidavit, it was clearly alleged that
the appellant company had collected sales tax from the
consumers through various dealers on the entire resale
price. However, instead of appellant company depositing
the entire collected sales tax with the respondent State
government had misappropriated it. According to the
respondents it was a clear case of unjust enrichment and
the appellant company cannot retain the excess amount
collected by it.
In the additional affidavit filed by Mr. Ajay Sinha,
Deputy Manager (Finance) on September 21, 2006 stated
that the company had not collected any amount by way
of sales in their invoices and sale made by them out of
the purchases made from the BRPL. In case what is
stated in the counter affidavit is correct then the
appellant company cannot be permitted to retain the
amount collected towards sales tax from the consumers
on the entire sales. The amount, if any, collected had to
be deposited with the State government. It is not
possible for this Court to resolve this factual controversy
whether in fact the appellant company had collected
sales tax on the entire amount from the consumers. In
view of the conflicting averments in the counter affidavit
and the additional affidavit, we deem it appropriate to
remit this matter to the Senior Superintendent of Taxes,
Gauhati Unit ’A’ for ascertaining the fact whether the
appellant company had in fact collected sales tax on the
entire sales as alleged by the respondents in the counter
affidavit. If necessary, the said Senior Superintendent of
Taxes may give opportunity to the parties to submit
relevant documents in order to ascertain the said fact. In
order to avoid any further delay in the matter, we direct
the Senior Superintendent of Taxes to decide this
controversy as expeditiously as possible and in any event
within three months from the date of the receipt of this
order.
In case, the Senior Superintendent of Taxes arrives
at a definite conclusion that the appellant company had
in fact collected sales tax on the entire sales, then the
appellant company would deposit the entire sales tax
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amount collected from the consumers with the
respondent-State within four weeks’ of the order passed
by the Senior Superintendent of Taxes along with 9%
interest from the date of collecting the amount towards
sales tax till payment. If the amount, as directed, is not
paid by the appellant company within the stipulated
period, the same would be recovered as the arrears of
land revenue by the respondent State.
This appeal is disposed of according to the
aforementioned terms indicated in the preceding
paragraphs. In the facts and circumstances of the case,
we direct the parties to bear their own costs.