2016 (7) TMI 76 - SC - VAT and Sales Tax

Benefit of sales tax exemption in respect of tea packets - sale price were same from the exempted and non-exempted units - It was noticed by the said authority that sale of tea packets by the respondent-company from the Dharwad unit which had the benefit of exemption and the units manufacturing tea outside Dharwad unit which did not have the benefit of exemption were similarly priced. Two invoices one from Dharwad unit and one from non-Dharwad unit were taken note of and found that the ultimate sale price in both cases is ₹ 118 (the non-Dharwad tea had a sales tax component of ₹ 12.27, whereas the Dharwad tea had no sales tax component). Held that - The respondent is entitled and can fix a uniform price meant for whole of India. The uniform market price does not differ in spite of differences in sales-tax payable at the end point, i.e., at the point of sale. This is a matter of business policy and cannot be taken exception to. The respondent has also explained that uniform market retail price at all India level ensures that the goods from one State do not flow to the other State, thereby distorting sales. It avoids and prevents shortages of goods in lower tax area. Uniform pricing cannot be a ground to hold that the respondent was charging sales tax on a sale price of the goods manufactured in the exempt unit. Cost of production in different units of the respondent assessee can vary. Cost of production has various components and is computed with reference to revenue expenditure, rate of return on the capital expenditure, etc. These are complex commercial and business considerations which cannot be decided with reference to a single factor, i.e., the uniform market retail price. A market retail price stating that it is inclusive of all taxes could be the starting point, but would not prove and establish that the sales-tax has been collected. In the case at hand, when the respondent was not liable to pay tax and had not passed on the tax liability, we do not think, sale consideration received should be bifurcated and divided on the basis of any assumption that the sale price received must have included the tax. This fiction has no application in the present case. - Revenue appeal dismissed with a cost of Rs. one lac.

Summary

Issues Involved:
1. Whether the consideration of sales tax in fixing the price of the goods resulted in an implied collection of tax in respect of sales tax-exempted goods.
2. Whether the sale of identical products, one exempt from sales tax and one taxable, priced on par, leads to a presumption of deemed collection and inclusion of sales tax.
3. Whether the legend "inclusive of taxes" on packets of both exempted and non-exempted tea implies that taxes are included and collected on tax-exempted tea.

Issue-wise Detailed Analysis:

1. Implied Collection of Tax in Sales Tax-Exempted Goods:
The Assistant Commissioner of Commercial Taxes noted that the sale prices of tea packets from the Dharwad unit (exempted) and non-Dharwad unit (non-exempted) were identical. The non-Dharwad tea had a sales tax component, whereas the Dharwad tea did not. It was concluded that the dealer had added the tax component to the sale price of Dharwad tea, violating Explanation III(e) to the notification dated 19.06.1991. However, the tribunal held that the company had not collected local taxes as such from consumers, as the invoices for Dharwad tea specifically left the tax component blank. The High Court agreed with this finding, stating that mentioning MRP does not prove tax collection under sales tax laws.

2. Presumption of Deemed Collection and Inclusion of Sales Tax:
The High Court framed the question of whether pricing identical products on par, one exempt from sales tax and one taxable, could lead to a presumption of deemed collection of sales tax. The court noted that the company was required by the Standards of Weights and Measures Act, 1976, to print the sale price inclusive of all taxes on the packages. The tribunal and the High Court found that the company had not collected sales tax, as evidenced by invoices and price circulars showing no separate tax component. The High Court concurred with the tribunal's view that the company's uniform MRP policy across India did not imply tax collection.

3. Legend "Inclusive of Taxes" on Packets:
The High Court considered whether the legend "inclusive of taxes" on packets of both Dharwad and non-Dharwad tea implied that taxes were included and collected on tax-exempted tea. The court found that the statutory requirement to print MRP inclusive of all taxes did not mean that the company had collected sales tax. The respondent's invoices clearly stated that the goods were exempt from sales tax. The tribunal and the High Court concluded that the company had not collected sales tax on Dharwad tea, as the sale price did not include a tax component.

Conclusion:
The Supreme Court upheld the High Court's decision, agreeing that the respondent had not collected sales tax on the sale of tea from the Dharwad unit. The court emphasized that the statutory requirement to print MRP inclusive of all taxes did not imply tax collection. The appeal was dismissed with costs assessed at ?1,00,000.