1993 (3) TMI 343 - HC - VAT and Sales Tax

Summary

Issues:
1. Inclusion of amount paid as cess in gross and taxable turnovers for sales tax assessment.

Analysis:
The case involved a dealer engaged in the supply of minerals in inter-State trade from leased mines. The Sales Tax Officer discovered that the dealer had not included the amount of royalty and cess paid in its turnover for the sale of chrome ore to M.M.T.C., Calcutta. The dealer contended that the royalty and cess were part of the contracted price, but the Tax Officer disagreed and imposed tax on the unreported amount. Subsequent appeals by the dealer were unsuccessful, leading to a reference under section 24(1) of the Orissa Sales Tax Act to determine the legality of including the cess amount in the turnover for tax assessment.

The judgment emphasized that if the chrome ore had a statutory price, tax would be calculated based on that price. However, since the price was agreed upon, the correct sale price needed to be ascertained based on various factors. These factors included analyzing the cost of production, prevailing market rates, and whether the agreed price would lead to a loss for the dealer. The court highlighted that in business transactions, there is a profit motive, and prices are not set to incur losses. The assessing authorities were expected to consider the real business scenario and the rationale behind the agreed prices.

Regarding the inclusion of cess in the sale price, the court ruled that cess, being a payment for extracting ore from mines and not directly linked to the sale transaction, should not be considered part of the sale price for tax purposes. The judgment clarified that the definition of sale price does not encompass costs incurred before the sale, such as production costs. Therefore, the cess paid for mining operations should not be included in the sale price for tax assessment.

The court criticized the Tribunal's reasoning and emphasized that the sale price should reflect the actual consideration received for the goods sold. Since the cess was not paid for the sale of chrome ore but for mining operations, it should not be treated as part of the sale price. The court highlighted the lack of evidence or inquiry by the Tax Officer to substantiate suspicions about the agreement between the parties. Consequently, the court ruled in favor of the dealer, stating that the cess should not be included in the sale price for tax assessment.

In conclusion, the reference was answered in the negative, favoring the assessee in this specific case, with no order as to costs. Both judges, Mohapatra S.C. and Padhi A.K., concurred with the decision.