2017 (6) TMI 304 - HC - VAT and Sales Tax

Levy of sales tax on liquor Vendors - merger of sales tax with excise duty - case of petitioner is that by the Notification dated 8th December, 1998 and 9th December, 1998, the Petitioners are being subjected to double taxation since the initial levy of sales tax which was levied on liquor had not been withdrawn - Held that - There is no issue that such licensees are collecting the sales tax based upon the impugned provisions/circulars/notifications from the date of advertisement dated 3.2.1999 as recorded in order dated 8.2.1999. The challenge, though raised through the grounds contending that imposing of such sales tax is amounting to double taxation, but the fact that since the date of notification/circular, the members have been collecting the sales tax from the consumers regularly. The vendors are under obligation to collect and pay the sales tax accordingly. Ultimately, the consumers who are required to make the payment of the sales tax so imposed and not the vendors directly from their profit. The Petition, as recorded above, is not by the consumers. The challenge is only by the vendors. In a case, where vendors have already collected the sales tax pursuant to these notifications/circulars, there remain no doubt that they have to make the payment of sales tax to the Department in accordance with law. Petition dismissed - decided against petitioner-assessee.

Summary

Issues Involved:
1. Validity and legality of the impugned Circular and Notifications dated 8th and 9th December 1998.
2. Allegation of double taxation on the stock manufactured before 9th December 1998.
3. Obligation of retailers to collect and deposit sales tax.
4. Impact of interim orders and advertisements on the collection of sales tax.
5. Special circumstances of non-collection of sales tax due to confusion and reasonable doubt.

Detailed Analysis:

1. Validity and Legality of the Impugned Circular and Notifications
The petitioners, a registered association of retailers holding FLII Licences under the Bombay Prohibition Act, 1949, challenged the Circular dated 9th December 1998 and Notifications dated 8th and 9th December 1998. The court upheld the validity of these documents, stating that both the Prohibition Act and the Rules made thereunder, including the Bombay Sales Tax Act, are constitutionally valid. The court emphasized that unless a specific case is made out against the validity of such Acts, Circulars, and Notifications, the presumption is always in favor of their validity.

2. Allegation of Double Taxation
The petitioners contended that the impugned Notifications subjected them to double taxation since sales tax had already been merged with excise duty in 1979. The court dismissed this argument, noting that the state had clarified through advertisements and notifications that sales tax was to be collected in addition to the maximum retail price (MRP) mentioned on the labels. The court found that the petitioners had been collecting sales tax from consumers since the advertisement dated 3rd February 1999, thereby nullifying the double taxation claim.

3. Obligation of Retailers to Collect and Deposit Sales Tax
The court highlighted that the retailers are obligated to collect sales tax from consumers and deposit it with the Department as per the valid provisions of the law. The court noted that the retailers had been collecting sales tax since the advertisement dated 3rd February 1999 and that the challenge to the imposition of sales tax was unsustainable. The court emphasized that the consumers are required to pay the sales tax, and the retailers are merely the collectors of this tax.

4. Impact of Interim Orders and Advertisements on the Collection of Sales Tax
The court referred to its interim order dated 8th February 1999, which did not stay the recovery of sales tax but directed that the respondents should not insist on the deposit of sales tax from vendors who had not collected it until the advertisement dated 3rd February 1999. The court noted that all parties had acted accordingly, and the retailers had been collecting sales tax from consumers since the advertisement. The court found no illegality or irregularity in the imposition of sales tax and upheld the notifications and circulars.

5. Special Circumstances of Non-Collection of Sales Tax Due to Confusion and Reasonable Doubt
The court acknowledged the confusion and reasonable doubt that existed among retailers regarding the collection of sales tax before the advertisement dated 3rd February 1999. The court directed the Department to consider individual cases where retailers had not collected sales tax due to this confusion and to pass appropriate orders. The court also provided that any adverse orders passed by the Department should not be given effect for four weeks from the date of communication of such orders, allowing retailers time to respond.

Conclusion
The court dismissed the petition and the prayers for quashing the impugned Circular and Notifications. The court upheld the validity of the Circular and Notifications and confirmed the obligation of retailers to collect and deposit sales tax. The court also provided specific directions for handling cases where sales tax was not collected due to confusion, ensuring that the Department considers these special circumstances before passing adverse orders.

Order
(a) The writ petition and the prayers are rejected/dismissed, however, with the observations mentioned above.
(b) Rule stands discharged accordingly.
(c) No costs.