2014 (11) TMI 966 - HC - VAT and Sales Tax

Valuation - sale price in relation to sale of petrol and diesel by a retail outlet - Haryana Value Added Tax Act, 2003 - The petitioner-association has raised a plea that motor- spirit and high-speed diesel sold by the companies to them gets evaporated during storage, transit and sale of such products and thus these products to such an extent are not subjected to sale and sequelly the retail outlets are not able to get credit of input tax for loss in quantity of petrol/diesel because of evaporation, resulting in ever increasing gap between the input tax paid and credit taken thereof. Held that - The argument has no merit. It is a conceded fact that Ministry of Petroleum had allowed such losses to the extent of 0.6% in case of motor-spirit and 0.2% in case of high speed diesel. Vide separate instructions issued in this behalf to the assessing authorities, they were asked to ensure that the VAT payable at the hands of dealers, on this account, does not remain unassessed. Whether tax is being levied on commission paid to dealers - held that - Neither the price structure nor the taxation regime gets affected by the quantum of commission disbursed to the dealers because gross turn over in terms of Section 2(1)(u) after certain deductions in terms of Section 6 is computed to arrive at a figure of taxable turn over in terms of Section 2(1) (zn). Thus, there is no case of payment of tax on the amount of commission paid to the dealers by the oil companies. The plea regarding notional or artificial sale value or price of the diesel/petrol on which pursuant to the explanation, tax is levied, is also incorrrect. Rather, the levy of tax is on the sale price of petrol/diesel price whereof is fixed by oil companies and is declared and predetermined by oil companies and VAT is charged on the said actual value and not on the notional/ artificial value. The amendment brought about in the term sale price vide the impugned notification is in conformity with term sale as is understood in the Sales of Goods Act, 1930. The evaporation loss is fully taken care of by the provisions of the Principal Act. The petrol outlets/dealers receive the commission as per quantity of petrol/diesel sold which aspect is also duly taken care of in the procedure for arriving at input as also output tax credit. - There is no merit in the petition - Decided against the assessee.

Issues Involved:
1. Legislative competence to amend the Haryana Value Added Tax Act, 2003.
2. Validity of explanation (v) to Section 2(1)(zg) regarding the sale price for VAT calculation.
3. Impact of the amendment on the input tax credit concerning evaporation losses.
4. Inclusion of dealer commission in the sale price for VAT purposes.

Issue-wise Detailed Analysis:

1. Legislative Competence to Amend the Haryana Value Added Tax Act, 2003:

The petitioner contended that the State Legislature lacked the authority to amend the Haryana Value Added Tax Act, 2003, specifically challenging the legislative competence to introduce explanation (v) to Section 2(1)(zg). The argument was based on Entry 54 of List II of the 7th Schedule of the Constitution, which empowers states to levy taxes on the sale or purchase of goods, excluding newspapers and inter-state trade.

The court concluded that the amendment did not infringe upon the restrictions outlined in Entry 54 and Entry 92A of List I. The Haryana Value Added Tax Act, 2003, is a legislation enacted under Entry 54 of List II, and there were no legal impediments preventing the State Legislature from introducing the amendment. Therefore, the court rejected the contention that the amendment was beyond the legislative competence of the State of Haryana.

2. Validity of Explanation (v) to Section 2(1)(zg) Regarding the Sale Price for VAT Calculation:

The petitioner argued that the amendment, which included the commission payable to retail dealers in the sale price for VAT purposes, was ultra vires of Entry 54 of List II. They claimed that the State could only tax the actual sale price agreed upon between oil companies and retail outlets, not a notional price including the dealer's commission.

The court held that the amendment was valid and within the legislative competence of the State. The amended definition of "sale price" was intended to streamline VAT collection by ensuring that the tax was levied on the price at which petrol and diesel were sold to consumers, including the dealer's commission. The court noted that the sale price of petroleum products is fixed by oil companies and is part of an agreement between the oil companies and the retail outlets. Therefore, the amendment did not violate the constitutional provisions and was in conformity with the definition of "sale" under the Sale of Goods Act, 1930.

3. Impact of the Amendment on the Input Tax Credit Concerning Evaporation Losses:

The petitioner raised concerns about the impact of the amendment on input tax credit, particularly regarding evaporation losses during storage, transit, and sale of petroleum products. They argued that the excess tax paid due to evaporation losses was not being adjusted, leading to blocked funds.

The court addressed this issue by referring to the provisions of the Principal Act and the guidelines issued by the Ministry of Petroleum. It was noted that evaporation losses within specified limits (0.6% for motor-spirit and 0.2% for high-speed diesel) were allowed, and the VAT payable on these losses was accounted for in the assessment orders. The court concluded that the provisions of the Principal Act and the guidelines adequately addressed the issue of evaporation losses, ensuring that dealers received full input tax credit for such losses.

4. Inclusion of Dealer Commission in the Sale Price for VAT Purposes:

The petitioner contended that including the dealer's commission in the sale price for VAT purposes was unjustified. They argued that the commission paid to dealers was not part of the sale price determined between the oil companies and the retail outlets.

The court found no merit in this argument. It was clarified that the sale price of petroleum products is fixed by oil companies and is part of an agreement between the oil companies and the retail outlets. The commission paid to dealers is included in the sale price, and the VAT is levied on this actual sale price, not a notional or artificial value. The court emphasized that the amendment was in conformity with the term "sale" as understood in the Sale of Goods Act, 1930, and that the inclusion of the dealer's commission in the sale price for VAT purposes was justified.

Conclusion:

The court dismissed the petition, upholding the validity of the amendment to the Haryana Value Added Tax Act, 2003. The amendment was found to be within the legislative competence of the State of Haryana and in conformity with the constitutional provisions and the Sale of Goods Act, 1930. The court also addressed the concerns regarding input tax credit for evaporation losses and the inclusion of the dealer's commission in the sale price for VAT purposes, finding them to be adequately addressed by the provisions of the Principal Act and the guidelines issued by the Ministry of Petroleum.

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