1987 (7) TMI 562 - HC - VAT and Sales Tax

Summary

Issues: Interpretation of the term "cost" in a sales tax notification

Analysis:
1. The reference under section 24(1) of the Orissa Sales Tax Act, 1947, was made to interpret the expression "cost" in a specific notification. The question referred was whether the term "cost" in the notification referred to the purchase cost or the selling cost of a radio.

2. The dealer contended that since the purchase price of each radio was less than Rs. 150, tax should be levied at 6 per cent on the sale of radios. However, the first appellate authority interpreted that the "cost" mentioned in the notification referred to the "sale price" and not the "purchase price."

3. The Tribunal, on appeal, took a different view and agreed with the dealer's interpretation that the "cost" meant the purchase price. Consequently, the State sought a proper interpretation of the term "cost" leading to the reference.

4. The dealer argued before the Court that "cost" should be understood as the cost to the selling dealer and not the sale price. They contended that the notification would not apply to radios purchased for less than Rs. 150 but sold at a higher price. The dealer presented other notifications to support their interpretation.

5. The Court analyzed the relevant provisions of the Sales Tax Act, emphasizing that the taxable turnover is based on the sale price. While the Act defines "purchase price" and "sale price," it does not define "cost price." The Court highlighted that sales tax is levied on the sale, and the notification aimed at realizing sales tax. Therefore, the term "cost" in this context referred to the sale price of the goods.

6. As the sale price of each radio was Rs. 150, the Court concluded that the dealer was liable to pay tax at the rate of 12 per cent as per the notification. The purchase price was deemed irrelevant for tax computation in this scenario.

7. Consequently, the Court ruled in favor of the department and against the dealer, stating that the rate of tax was determined by the sale price, not the purchase price. Both judges, Chief Justice H.L. Agrawal and Justice S.C. Mohapatra, concurred on the decision, and the reference was answered in the negative.