2001 (8) TMI 1165 - SC - VAT and Sales Tax

Whether subsidy given to the dealer as a part of the sale price and added it to the turnover and levied sales tax justified? Held that - Appeal allowed. The expenses which are incurred which are relatable to the purchase of a taxable item may or may not be regarded as part of the purchase price but as far as the present case is concerned lumpsum payment which in the very nature of things is ex gratia cannot be regarded as being part of the sale price and consequently form part of the gross turnover of the dealer. There was no statutory obligation of TISCO to pay any amount to the dealer. It is only as a measure of staff welfare that ex gratia payment was made from time to time which in our opinion cannot be regarded as part of the sale price of the meals sold by the canteen to the employees

Summary

Issues:
Interpretation of sales tax law regarding subsidies given to a dealer for running a canteen.

Analysis:
The appellant, a dealer under the Bihar Sales Tax Act, operated a canteen for the benefit of officers and employees of a company. The prices of food items sold were fixed below cost price, resulting in a deficit, which was compensated by the company. Sales tax authorities treated this subsidy as part of the sale price, adding it to the turnover for tax purposes. The appellant's appeal challenges this treatment.

The Court examined the legal basis for charging sales tax, emphasizing that it applies to the sale of goods by a dealer based on the gross turnover. The definition of "sale price" is crucial, referring to the amount payable for goods sold. Despite the prices being below cost, the Court noted that the fixed prices for food items constitute valuable consideration for the sale.

Regarding the subsidies given to cover the deficit in running the canteen, the Court distinguished them from direct consideration for goods sold. Citing precedents, the Court clarified that such subsidies do not form part of the sale price. The Court highlighted the distinction between expenses related to purchases and ex gratia payments, emphasizing that the subsidies in this case were not obligatory but aimed at staff welfare.

In conclusion, the Court allowed the appeal, setting aside the decisions of lower authorities. It held that the subsidies provided for running the canteen should not be considered part of the sale price for sales tax calculation purposes. The Court's decision was based on the interpretation of sales tax law and the nature of the subsidies as voluntary and unrelated to the goods sold.