2003 (9) TMI 726 - HC - VAT and Sales Tax

Issues Involved:
1. Whether forest development tax (FDT) collected by the forest department on the auction sale of timber forms part of the turnover for the purpose of levy of tax under the Kerala General Sales Tax Act, 1963.
2. Whether the petitioners are entitled to a refund of the excess sales tax collected on the element of forest development tax.

Issue-wise Detailed Analysis:

1. Inclusion of Forest Development Tax in Turnover:

The core issue is whether the FDT paid by the petitioners at the time of purchasing timber in auctions from the forest depots of the State Government should be included in the turnover for the purpose of sales tax under the Kerala General Sales Tax Act (KGST) and Central Sales Tax Act (CST).

The petitioners argued that FDT should not be included in the turnover for the levy of sales tax, relying on a government communication dated August 21, 1996, and a judgment dated January 8, 1997, which stated that it is not proper to collect sales tax on a tax already collected for the consideration paid. They also referenced the Full Bench decision in Madras Rubber Factory Limited v. State of Kerala, which was later reversed by the Supreme Court.

The forest department contended that in light of the Supreme Court's decision in State of Kerala v. Madras Rubber Factory Ltd., the FDT should form part of the taxable turnover. The department argued that the FDT is an additional tax collected along with the sale price and should be included in the aggregate amount for which goods are sold.

Upon examining the provisions of sections 75A and 75B of the Kerala Forest Act, the court noted that FDT is levied at 5% of the consideration paid for the forest produce disposed of by the Government by sale. The tax is collected along with the sale price but is an independent charge intended for the development of forest industries and research.

The court concluded that FDT paid by the purchasers cannot be treated as part of the consideration for the sale of timber and thus does not form part of the turnover subject to sales tax under the KGST Act. The forest department acts only as an agent of the State for collecting and remitting the FDT to the Forest Development Fund.

The court relied on the Supreme Court's decisions in Spencer & Co. and Anand Swarup Mahesh Kumar, which established that taxes collected by the seller on behalf of the government do not form part of the seller's turnover. The court distinguished the case from the Supreme Court's decision in Madras Rubber Factory Ltd., noting that FDT is not akin to excise duty and is an independent levy on the purchaser.

Therefore, the court declared that FDT collected under section 75A of the Kerala Forest Act does not form part of the turnover for the purpose of levy of sales tax under the KGST Act. The forest department is not entitled to collect sales tax on the element of FDT.

2. Refund of Excess Sales Tax Collected:

The petitioner in W.P. (C) No. 22610 of 2003 sought a refund of the excess sales tax collected on the element of FDT from 1995-96 to 1998-99, with interest, or an adjustment towards the amount due as per the final assessment of sales tax for subsequent years.

The court noted that the forest department had levied FDT only on the bid amount exclusive of the sales tax due on the bid amount, which would require a recomputation of the liability to pay FDT under section 75A of the Kerala Forest Act. The question of refund would arise only after such recomputation and adjustment.

The court emphasized that the petitioners might have passed on the tax liability to consumers by including the tax paid on the element of FDT in the price of timber or finished products. Ordering a refund without considering the doctrine of unjust enrichment could lead to unjust enrichment of the petitioners.

The court allowed the petitioners to agitate the matter before the concerned authorities for recomputation of the liability to FDT and determination of any excess tax paid. The petitioners were entitled to relief regarding the payment of sales tax on the element of FDT, subject to recomputation.

In conclusion, the court allowed the writ petitions to the extent that FDT does not form part of the turnover for the purpose of sales tax and directed recomputation of the liability to FDT for determining any excess tax paid.

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