9911796707
TMI Blog2000 (2) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... ed assessments for the periods of four quarters each ending March 31, 1990, March 31, 1991 and March 31, 1992 respectively should not be re-opened in terms of section 11E(2) of 1941 Act in view of the fact that expenditure tax collected by the applicants was not included in taxable turnover for the purpose of levy of sales tax. By order dated March 18, 1999 respondent No. 1 was directed to finally dispose of the proceedings by passing a reasoned order under section 11E(2) of 1941 Act, according to law, within eight weeks. Applicants were given liberty to file supplementary affidavit, if it felt aggrieved by such orders. In terms of the order dated March 18, 1999, respondent No. 1 passed a combined order dated April 9, 1999 for the aforesaid three periods of four quarters each. In that order, respondent No. 1 held that the amount of expenditure tax should be a part of sale consideration and exigible to sales tax. He reopened the orders of deemed assessments under section 11E(2) of 1941 Act and directed the assessing authority, namely, the Assistant Commissioner, Commercial Taxes, Corporate Division, to make orders of assessment under section 11(1) of 1941 Act, because incorrect part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March 31, 1995. The assessing authorities accepted the proposition that amount of expenditure tax did not form a part of the applicant's turnover. For the first time, the respondents took the view in course of the assessment for the period of 4 quarters ending March 31, 1996 that the amount of expenditure tax constituted a part of sale price and turnover. An appeal was preferred before respondent No. 1 who rejected the same by order dated April 23, 1999. A revision has been preferred before the West Bengal Commercial Taxes Appellate and Revisional Board (in short, "the Board") which is pending. It is claimed that even though the amount of expenditure tax was not shown as a part of turnover and no sales tax was paid thereon, the applicant did not furnish any incorrect statement of turnover or incorrect particulars of sales in the returns so as to attract the mischief of section 11E(2). There was no valid reason to reopen the deemed assessments under section 11E(2). On May 3, 1999 applicant received notice dated April 26, 1999 issued by respondent No. 1 under section 11E(2) alleging that there was reduction of the amount of sales tax payable for the periods of four quarters each endi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not to be included in the sale price or turnover. The applicant claims that collection of expenditure tax cannot be treated as a pre-sale activity. 6.. In the affidavit-in-opposition filed in both the batches of the present applications the respondents have taken a similar stand. According to them, the orders passed by respondent No. 1 were valid and lawful, because amounts of expenditure tax collected by the applicants really formed a part of sale price and turnover, but such amounts were left out of turnover in the returns filed. The gist of their case is that expenditure tax was collected as a part of and along with the price in the bills. Without payment of expenditure tax the supply of food or drink would not have been made. The agreement between the hotelier and the customer regarding supply of food and drink includes an agreement to pay expenditure tax. In other words, the case of the respondents is that without payment of expenditure tax the sales or supply of food, drink, etc., would not have taken place. According to respondents, sales tax is levied under entry 54 of List II of the Seventh Schedule to the Constitution of India and under that provision the State Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of law, as distinguished from contract, where the party acts affirmatively. To become liable or subject to". Thus, even when cash payment is not made, there can be incurrence of expenditure. Section 7(1) lays down that either the person who carries on the business of a hotel, or the person who provides the specified services, is the person responsible for collecting the tax. According to section 7(2), monthly collection of expenditure tax must be paid to the credit of the Central Government by the 10th day of the next month. In terms of section 7(4) the person responsible for collecting the tax shall be liable to pay the tax, if he fails to collect. There is provision in section 14 for payment of interest on delayed credit of expenditure tax to Central Government. There is also provision for levy of penalty in section 15 for failure to collect expenditure tax or pay the already collected tax to the credit of the Central Government. There are other provisions for penalty in other circumstances. Section 19 lays down that no penalty shall be imposable, where it is proved that there was reasonable cause for the failure. A hotelier or a provider of services is called in E.T. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hotels Co. Ltd., Mr. R.N. Bajoria, counsel, advanced the following arguments: Subsequent to the impugned periods, in the orders of assessment for the periods of four quarters each ending March 31, 1993, 1994 and 1995, amount of expenditure tax was not included in the turnover. But in the order of assessment for the period of four quarters ending March 31, 1996, the assessing authority included the amount of expenditure tax in the turnover. That is now under challenge before the Board. The hotelier supplies food and drinks to customers and is a recipient; he earns an income. The taxable event of expenditure tax is "expenditure", not "income". He referred to the preamble and section 4 of E.T. Act. Mr. Bajoria contended that the hotelier does not pass on the expenditure tax element to the buyer; he merely collects it. With reference to section 2(1), which is the definition of "assessee" (i.e., the person responsible for collecting the expenditure tax), it was contended that a hotelier merely collects the tax, he is not liable to pay the tax himself, unlike in sales tax, where the liability to pay is on the selling dealer, who generally passes on the amount of sales tax to the buyer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Seventh Schedule to the Constitution of India (i.e., the residuary entry). Expenditure tax is a part of consideration under the main part of the definition of "sale price", because without payment of that tax the seller will not sell the goods or supply food or drinks. According to Mr. Saha, the liability to pay the tax is on the hotelier. There is no provision in E.T. Act imposing liability on the customer to pay the tax. Mr. Saha distinguished [1980] 46 STC 477 (SC) (Anand Swarup Mahesh Kumar v. Commissioner of Sales Tax). He referred to [1989] 74 STC 102 (SC) (Federation of Hotel Restaurant Association of India v. Union of India) and submitted that there are two aspects of the same transactions of supply of food or drinks in a hotel. "Sale price" is one aspect which is relevant to sales tax. "Chargeable expenditure" is the second aspect which is relevant to expenditure tax. According to Mr. Saha, "chargeable expenditure" is nothing but "sale price". By referring to section 12(6) of E.T. Act, it was argued that the provision for refund of tax to "assessee", i.e., the hotelier, indicates that expenditure tax is a part of "sale price" or "turnover". By referring to [1961] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam (25 of 1964) paid on transactions of sales or purchases can be included in the turnover of purchases for the purpose of levy of tax under the U.P. Sales Tax Act, 1948. It was held that such fees did not form part of the consideration for the purpose of levy of sales tax. The court observed that where a dealer is authorised by law to pass on any tax payable by him on the transaction of sale to the purchaser, the tax does not form part of the consideration for purposes of levy of tax on sales or purchases, but where there is no statutory provision authorising the dealer to pass on the tax to the purchaser, such tax does form part of the consideration, when he includes it in price in the absence of a statutory provision authorising a dealer to recover the tax. In the same case of Anand Swarup Mahesh Kumar [1980] 46 STC 477 (SC); AIR 1981 SC 440, another question arose as to whether the commission (dami) payable by the purchaser to a commission agent operating within a market area established under the Adhiniyam would form a part of the turnover of purchases. It was held that the commission would form a part of the turnover of purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the aforesaid decisions in [1988] 68 STC 1 (SC) (Food Corporation of India v. State of Kerala), [1980] 46 STC 477 (SC); AIR 1981 SC 440 (Anand Swarup Mahesh Kumar v. Commissioner of Sales Tax) and [1975] 36 STC 188 (SC); AIR 1975 SC 1801 (Joint Commercial Tax Officer v. Spencer Co.), the following position emerges. If any tax or any amount is collected, according to a statutory obligation, statutory authorisation or other obligations as in [1988] 68 STC 1 (SC) (Food Corporation of India v. State of Kerala), by the seller, such tax or amount does not form a part of the turnover of the seller for the purpose of assessment of his sales tax. Where the dealer is authorised by law to pass on any tax payable by him on the transaction of sale to the purchaser, the amount of tax does not form part of the consideration for the sale for the purpose of sales tax. Where, however, there is no statutory provision authorising the dealer to pass on the amount of tax to the purchaser, such amount of tax forms a part of the consideration, when he includes it in the price. An amount of sales tax which the dealer is liable to pay, and which he passes on to the buyer according to his volition, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al course of trade, include it in the price and realise it as a part of sale price from the purchaser. Therefore, whether the excise duty was paid by him, or by the purchaser, the ultimate result was the same. It became a part of the sale price, and hence formed a part of turnover of the manufacturer for the purpose of assessment of his sales tax. In paragraph 35 (page 292 of STC) of the second McDowell case [1985] 59 STC 277 (SC); AIR 1986 SC 649, it was held that payment of excise duty was a legal liability of the manufacturer. According to normal commercial practice, excise duty should have been reflected in the bill as merged in price or being shown separately. As a matter of fact, in the hands of the buyer the cost of liquor is what is charged by the manufacturer in its bill together with excise duty which the buyer directly paid on seller's account. The consideration for sale is thus the total amount, and not what is merely reflected in the bill. The court held: "We are, therefore, clearly of the opinion that excise duty though paid by the purchaser to meet the liability of the appellant, is a part of the consideration for the sale and is includible in the turnover of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of assessment of sales tax. It is not a case where in the absence of a statutory provision for realisation of the tax from customer, the hotelier passes on his liability to the customer. Here, the situation is just the reverse. The statutory liability to pay expenditure tax is on the customer. For easy collection of tax, provision has been made in the statute to the effect that the hotelier shall collect it. In R.C. Jall Parsi v. Union of India AIR 1962 SC 1281, while dealing with excise duty which is on the production or manufacture of goods, the Supreme Court of India held: "The method of collection does not affect the essence of the duty but only relates to the machinery of collection for administrative convenience". 17.. In Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 (SC); AIR 1978 SC 1496, the question was whether in the sale of cement by the producer, governed by Cement Control Order, the freight paid by the producer and then recovered from the purchaser under the scheme, would form a part of the sale price of cement. It was held that the amount of freight formed a part of the sale price, and consequently of the turnover of the producer fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1961] 12 STC 429 (SC), it was held that it is not an essential characteristic of sales tax that the seller must have the right to pass it on to the consumer, nor is the power of the Legislature to impose a tax on sales conditional on its making a provision for sellers to collect the tax from the purchasers. It was also held, inter alia, that a sales tax is, according to accepted notions, to be passed on to the buyer. The distinction between the concept of sales tax and the concept of expenditure tax under E.T. Act is two-fold. The hotelier is not liable to pay expenditure tax. The customer is the person who is liable to pay it. The hotelier is statutorily bound to collect it, or else to face several consequences. In case of sales tax, the seller is free to pass on the amount of sales tax to the buyer, or not do so. The sales tax statutes of West Bengal do not impose a mandatory obligation on the seller to collect sales tax from the buyer. It is optional for the seller. 18.. The above principle will be clear from the case of Delhi Cloth and General Mills Co. Ltd. v. Commissioner of Sales Tax, Indore [1971] 28 STC 331 (SC). There, the question was whether "sale price" under Mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure tax. Therefore, in reality, sale price and chargeable expenditure are not two aspects of the same transaction. Sale price is relevant up to the stage when sale becomes complete, and that is relatable to sales tax. A sale may be complete, even though the sale price is not paid, but only promised. The same transaction does not have two aspects of sale price and chargeable expenditure notionally either at the same stage or to the same extent. The concept of chargeable expenditure comes into play, when sale is complete and the expenditure is already incurred, irrespective of making of cash payment by way of expenditure. In other words, the concept of chargeable expenditure operates when the person making the expenditure becomes liable (vide Black's Law Dictionary, 5th Edition, already referred to). But "chargeable expenditure" has been defined in E.T. Act. Ascertainment of chargeable expenditure can be made only when expenditure has been incurred after sale is complete. Sale price consists of several components, some of which, like the amount of tax, are clearly excluded from chargeable expenditure in the definition in section 5 of E.T. Act. Sales tax is decidedly a compon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as already said, the Parliament could not enact such a provision, because it could not have been enforceable. Customers are numerous and generally a floating mass of people. Their identities are not normally verifiable during their brief stay in a hotel or during their consumption of food and drinks in a hotel. Therefore, what is possible and pragmatic, has been provided for in the E.T. Act. 21.. We have not been able to agree with the contentions of Mr. Saha appearing for respondents. In our view, expenditure tax does not form a part of sale price or a part of turnover of the hotelier. Therefore, amounts of expenditure tax collected by hoteliers for sale or supply of food, drinks, etc., are not exigible to sales tax either under 1941 Act or under 1994 Act. That being the position, the orders passed and actions taken by respondents in respect of the applicants under section 11E(2) of 1941 Act and consequential actions if taken, are all invalid and accordingly those are quashed. 22.. The plea of want of legislative competence and the plea of violation of articles 251 and 254 of the Constitution of India were not pressed. 23.. The applications in RN-51, 52 and 53 of 1999 and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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