1998 (8) TMI 93 - SC - VAT and Sales Tax

Issuance of a writ of mandamus to declare the action of the respondents in demanding and collecting sales tax from them on the royalty and extraction charges paid for the supply of bamboo and hardwood to them from the forest for the period 1978-79 onwards as illegal, null and void and for a consequential relief of refund of the taxes so collected from them. Held that - The High Court was not right to held that the transactions in question were not exigible to tax. The refund was, however, denied on the ground that the appellants must be deemed to have passed on the liability to the consumer in the light of the case Titaghur Paper Mills Co. Ltd. 1985 (3) TMI 226 - SUPREME COURT OF INDIA put forward by the Government Pleader. The appellants have reimbursed a tax liability which was on the Forest Department and the appellants have consumed the goods for manufacturing paperboards, etc. Therefore, the question of the appellants passing on the tax liability to the consumer, on the facts of this case, would not arise. Consequently, the appellants are entitled for refund of the tax collected from them, not for the entire period but for the period commencing three years prior to the date of filing of the writ petition. Appeal allowed.

Summary

Issues:
1. Whether the demand and collection of sales tax on royalty and extraction charges for the supply of bamboo and hardwood from the forest is legal.
2. Whether the appellants are entitled to a refund of sales tax collected from them.

Analysis:
1. The appellants approached the High Court seeking a writ of mandamus to declare the demand and collection of sales tax on royalty and extraction charges for the supply of bamboo and hardwood as illegal. The Sales Tax Department collected tax on the value of bamboo and hardwood removed by the appellants from the forest. The High Court held that no sales tax was payable by the appellants on royalty and extraction charges from November 1, 1985, onwards. However, it refused to grant a refund for the period before that, stating that the burden of tax is presumed to have been passed on to consumers unless proven otherwise.

2. The appellants challenged the High Court's decision on the refund issue. The appellants argued that they did not pass on the tax burden to consumers, as claimed by the Revenue before the High Court. The Revenue's position was that the Forest Department, as a dealer, was liable to pay the sales tax. The appellants contended that since they reimbursed the tax liability of the Forest Department and used the goods for manufacturing, the question of passing on the tax burden to consumers did not apply in this case.

3. The respondents argued that unless the appellants challenged the assessments made for collecting sales tax, a refund could not be granted. They also contended that any refund should be limited to three years before the filing of the writ petition. The Supreme Court found that the High Court erred in presuming that the appellants passed on the tax burden to consumers. Considering the facts of the case and the Revenue's position, the Court held that the appellants were entitled to a refund for the period starting three years before the writ petition was filed.

4. In conclusion, the Supreme Court allowed the appeal, stating that the appellants were entitled to a refund of the sales tax collected from them. The Court emphasized that the appellants did not pass on the tax burden to consumers and should be refunded for the period commencing three years before the writ petition was filed. The judgment highlighted the importance of considering the specific circumstances of each case in determining the entitlement to a refund of taxes collected.