2004 (2) TMI 658 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality and propriety of the revision order under section 46(4) of the Bihar Finance Act, 1981.
2. Inclusion of excise duty as a component of the sale price.
3. Permissibility of trade discount on excise duty component of the sale price.

Detailed Analysis:

1. Legality and Propriety of the Revision Order under Section 46(4) of the Bihar Finance Act, 1981:
The petitioner argued that the Joint Commissioner of Commercial Taxes (Administration) acted beyond his powers under section 46(4) of the Act by revising the assessment order, effectively acting as an appellate authority. The court clarified that section 46(4) grants supervisory power to the Commissioner to ensure that subordinate authorities discharge their functions in accordance with the law. This power is distinct from appellate power and can be exercised to correct manifest errors, procedural defects, or breaches of natural justice. The court found that the Joint Commissioner had valid grounds for revising the assessment order, as the relevant statements from the excise department were not considered and the discount was allowed contrary to legal provisions.

2. Inclusion of Excise Duty as a Component of the Sale Price:
The petitioner contended that excise duty, paid by the purchaser, should not be included in the sale price for tax purposes. The court referred to the definitions of "gross turnover" and "sale price" under sections 2(j) and 2(u) of the Act, respectively. The court held that excise duty is a component of the sale price because it is a liability of the manufacturer, which is passed on to the purchaser as part of the total consideration. The court cited the Supreme Court's rulings in McDowell & Co. Ltd. v. Commercial Tax Officer (1977 and 1985) and Hindustan Sugar Mills Ltd. v. State of Rajasthan, which established that excise duty, though paid by the purchaser, is part of the consideration for the sale and thus includible in the turnover of the manufacturer. Therefore, the court concluded that excise duty is part of the sale price and should be included in the gross turnover.

3. Permissibility of Trade Discount on Excise Duty Component of the Sale Price:
The petitioner claimed that trade discount should be allowed on the entire sale price, including the excise duty component. The court noted that while Explanation II to the definition of "sale price" explicitly excludes cash discount from the sale price, it does not mention trade discount. However, the Supreme Court in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. Advani Oerlikon (P.) Ltd. held that trade discount, though not specifically mentioned, is permissible and should be excluded from the sale price. The court agreed that the sale price cannot be segregated into components for the purpose of allowing trade discount. Therefore, once excise duty is included in the sale price, trade discount should also be permissible on the entire sale price, including the excise duty component. However, the court emphasized that the assessing authority must determine whether the trade discount claimed is bona fide and reasonable or a device for tax evasion.

Conclusion:
The court disposed of the writ applications with a direction to the assessing authority to reconsider the matter in light of the observations made. The assessing authority must ensure that the trade discount is bona fide and reasonable, and not a device for tax evasion. The court clarified that excise duty is a component of the sale price and trade discount is permissible on the entire sale price, including the excise duty component, depending on the facts of each case.