2001 (9) TMI 925 - SC - VAT and Sales Tax

Proposal to include in the turnover the amount received by the appellant from the industrial pool account and treating the same as sale price - Held that - Appeal allowed. The position in law being thus clear, namely, that any money received either from the Indian Oil Corporation Ltd. or from the compensation pool which is relatable to the sales made by the appellant to IOCL, is not to be included in the taxable turnover as it is not to be regarded as the first sale in the State; therefore, to that extent, no tax can be levied in the hand of the appellant on the amount so received.

Summary

Issues:
Challenge to show cause notices regarding inclusion of amount received from industrial pool account in taxable turnover for specific years under the Tamil Nadu General Sales Tax Act, 1959.

Analysis:
In Civil Appeal Nos. 6243-6245 of 1998, the appellant challenged three show cause notices issued by the respondent for the years 1984-85, 1986-87, and 1988-89, aiming to include in the turnover the amount received from the industrial pool account and treating it as part of the sale price. The appellant, a refinery, primarily sells products to oil companies, mainly Indian Oil Corporation Ltd. (IOCL). The money received from the industrial pool account is to achieve price equivalization, especially when the retention price exceeds the sale price. Under the Tamil Nadu General Sales Tax Act, sales tax is levied on mineral oils at the point of first sale in the state, with specific exemptions for sales between oil companies as per prescribed explanations.

The dispute arises from the interpretation of Explanation I under the Act, which exempts certain sales from sales tax, including those between oil companies. The appellant contends that the amount received from the compensation pool, related to sales to IOCL, should not be included in the taxable turnover as it does not constitute the first sale in the state, as per the statutory provisions. The Tribunal did not address this crucial aspect, leading to the Supreme Court clarifying that any money received from IOCL or the compensation pool, linked to sales to IOCL, should not be part of the taxable turnover, thus not subject to sales tax.

The Supreme Court directed the assessing authority to proceed with the case based on the clarification provided, allowing the appellant to file objections to the show cause notices within eight weeks. The order of the Tribunal was set aside, and the case was remanded for fresh adjudication in accordance with the law.

In Civil Appeal Nos. 1048-1049 of 1999, the Court disposed of the appeals similarly to the previous case, remanding them to the assessing authority for fresh adjudication based on the clarified interpretation of the law. The appellant was granted the opportunity to file objections to the show cause notices within eight weeks, with the assessing authority instructed to proceed accordingly. The appeals were allowed in favor of the appellant.