2018 (7) TMI 1109 - HC - VAT and Sales Tax

Levy of VAT - supply of Rice - whether the price fixed for levy rice, includes the element of tax on paddy and rice? - Held that - Besides the cost of paddy, the components which have been taken care of while calculating the price of rice, included the element of tax on rice. The basic price of rice after adding all costs including the profit of the miller was calculated at ₹ 935.36 for common variety of rice and component of 4% VAT was added thereon to the tune of ₹ 37.41. After adding the cost of gunny bags and tax thereon, final procurement price was determined. Hence, the argument that merely because in the price of levy rice fixed by the Central Government the word, inclusive of all taxes has been mentioned, the same will not mean that the tax is included therein, is totally misconceived. While making the payment of the amount of rice supplied by the petitioner to the Corporation, out of the bills so raised, while calculating the value as per the price fixed by the Government of India, the Corporation had deducted the element of tax on rice finding that the petitioner is an exempted unit, which is not liable to pay tax to the State. The fact cannot be denied that in case the petitioner being an exempted unit collects tax on sale, he shall not be entitled to retain the same as on the principle of unjust enrichment, the same may have to be deposited with the State. The price of levy rice fixed by the Government of India, at which the petitioner had supplied rice to the Corporation, includes the component of tax on rice, he will not be entitled to claim the same from the Corporation being a unit exempted from payment of sales tax - Petition dismissed - decided against petitioner.

Issues Involved:
1. Quashing of communication dated 2.12.2008 and letter dated 11.5.2006 by the Food Corporation of India.
2. Entitlement of the petitioner to claim tax on rice supplied under the levy order.
3. Deduction of tax component from the total sale price by the Corporation.
4. Applicability of the principle of unjust enrichment.
5. Jurisdiction of the Corporation to deduct tax from bills.
6. Maintainability of the writ petition for recovery of the deducted amount.

Issue-wise Detailed Analysis:

1. Quashing of Communication Dated 2.12.2008 and Letter Dated 11.5.2006 by the Food Corporation of India:
The petitioner sought the quashing of the communication dated 2.12.2008 and the letter dated 11.5.2006, which declined the payment of tax on the rice supplied under the levy order. The court examined these communications and found that the deductions made by the Corporation were based on the fact that the petitioner was enjoying the benefit of tax exemption. The court upheld the validity of these communications, stating that the Corporation acted within its rights by not paying the tax component to an exempted dealer.

2. Entitlement of the Petitioner to Claim Tax on Rice Supplied Under the Levy Order:
The petitioner argued that the sale price of levy rice, as fixed by the government, was inclusive of all taxes, and thus, they were entitled to claim the tax component. However, the court referred to the communication dated 31.10.2005, which explicitly mentioned that the price fixed included all taxes, including those leviable at the rice stage. The court concluded that the petitioner, being an exempted unit, was not entitled to claim the tax component from the Corporation.

3. Deduction of Tax Component from the Total Sale Price by the Corporation:
The petitioner contended that the Corporation had arbitrarily deducted tax amounts from the total bills raised for the seasons 2005-06, 2006-07, and 2007-08. The court examined the calculation sheet provided by the Corporation, which showed that the price of rice included the element of tax. The court held that the deductions made by the Corporation were justified, as the petitioner was exempted from paying tax.

4. Applicability of the Principle of Unjust Enrichment:
The court discussed the principle of unjust enrichment, stating that any amount collected as tax by an exempted dealer must be paid to the State. The court emphasized that the petitioner could not retain the tax amount, as it would result in unjust enrichment. The court referred to the judgment in M/s Hindustan Lever Limited's case, distinguishing it based on the facts that the price in the present case was fixed by the buyer (Corporation) and included the tax component.

5. Jurisdiction of the Corporation to Deduct Tax from Bills:
The petitioner argued that the Corporation did not have the jurisdiction to deduct tax from the bills. The court rejected this argument, stating that the Corporation had the right to deduct the tax component, as the petitioner was exempted from paying tax. The court noted that the issue of whether the petitioner could retain the tax collected was a matter between the petitioner and the Excise and Taxation Department.

6. Maintainability of the Writ Petition for Recovery of the Deducted Amount:
The respondents contended that the writ petition was not maintainable for the recovery of the deducted amount and that the petitioner should have filed a civil suit. The court did not explicitly address the maintainability issue but proceeded to decide the case on its merits. The court ultimately dismissed the writ petitions, finding no merit in the petitioner's claims.

Conclusion:
The court concluded that the petitioner, being an exempted unit, was not entitled to claim the tax component from the Corporation. The deductions made by the Corporation were justified, and the petitioner could not retain the tax amount, as it would result in unjust enrichment. The court dismissed the writ petitions, upholding the validity of the communications and deductions made by the Corporation.

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