Higher VAT liability must be calculated on the original sale price, crediting tax previously paid.

Hawkins Cookers Ltd. filed six revision petitions challenging the order dated 30 May 2024 passed by the Joint Commissioner of Taxes, Assam, concerning the VAT payable on sales of pressure cookers made prior to 2010.

The petitioner had initially treated pressure cookers as falling under Entry 6 of Part A of the Second Schedule to the Assam Value Added Tax Act, 2003, attracting VAT at 4%. The High Court subsequently held that pressure cookers were covered by Entry 1 of Schedule V and were taxable at 12.5%.

In 2010, pressure cookers were expressly included with aluminium utensils in Entry 6 of Part A of the Second Schedule, but that amendment was not relevant to the disputed pre-2010 sales.

The Assam Board of Revenue, by order dated 8 August 2017, remanded the matter for fresh determination, including the question whether VAT had been levied on the VAT component of the gross consideration.

On remand, the Joint Commissioner held that the petitioner’s taxable turnover was the gross consideration less only the tax actually charged or collected, and rejected the petitioner’s method of reducing the sale price before calculating the differential VAT.

Whether the 12.5% VAT payable on pre-2010 sales of pressure cookers was to be calculated on the original sale price, or on the amount obtained by deducting the previously charged 4% VAT from the total consideration received.

Whether, under the Assam Value Added Tax Act, 2003, the petitioner could reduce the taxable sale price by recalculating it after deducting the entire 12.5% VAT from the gross consideration, thereby limiting its additional liability to 7.375% rather than 8.5%.

The Court applied Sections 2(33), 2(44), 2(23) and 2(54) of the Assam Value Added Tax Act, 2003. Section 2(33) defines “output tax” as the tax charged or chargeable on goods sold by a registered dealer.

Section 2(44) defines “sale price” as the consideration payable for the sale, while Explanation II excludes tax charged or chargeable under the Act from the sale price. Section 2(23) defines “gross turnover” by reference to the aggregate sale price received or receivable, and Section 2(54) defines “taxable turnover” as the turnover liable to tax after permissible deductions from gross turnover.

The governing principle was that VAT must be imposed on the sale price or taxable turnover excluding the applicable tax component, but the previously collected 4% VAT could not be used to artificially reduce the underlying sale price on which the correct 12.5% liability was to be determined.

The Court accepted that the applicable rate for the disputed pre-2010 transactions was 12.5%, and that the only controversy concerned the computation of the differential liability.

By way of illustration, it treated the pressure cooker’s pre-tax sale price as ₹100, on which the petitioner had collected ₹4 as VAT and received a total of ₹104 from the buyer.

The petitioner’s proposed method treated ₹104 as the tax-inclusive amount, deducted 12.5% from it, and arrived at a reduced taxable base of approximately ₹91, resulting in an additional liability of only ₹7.375 after crediting the earlier ₹4 payment.

The Court rejected that approach because the earlier 4% VAT had been charged on the original ₹100 sale price. Recalculating the sale price downward to ₹91 would effectively reduce the base for the original tax and produce an anomalous and unjustified reduction in the State’s lawful VAT revenue.

The correct computation was therefore to retain ₹100 as the sale price, calculate total VAT at 12.5%, namely ₹12.50, and give credit for the ₹4 already paid, leaving a balance of ₹8.50. The Court held that this did not amount to impermissible “tax on tax” because the differential VAT was calculated on the original sale price, not on the tax component.

The petitioner was liable for the balance 8.5% VAT after crediting the 4% VAT already paid on the original sale price.

Finding no error in the Joint Commissioner’s order dated 30 May 2024, the Court dismissed all six revision petitions.