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TMI Blog2014 (12) TMI 1073X X X X Extracts X X X X X X X X Extracts X X X X ..... ursued by the Corporation. The other object clauses contained in the said memorandum includes the following clauses : "5. To act as an entrepreneur on behalf of the Central Govt. to identify new areas of economic investments and to undertake or help in the undertaking of such investment. 6. To act as an instrument to implement the policy of the Central Govt. subject to such directives as may be issued by the President from time to time, with a view to exercise control over strategic areas of economy and to serve public interest." 2.1. For the first quarter of April to June 2004, ONGC had given credit to Indian Oil Corporation("IOC" for short), the oil company, on the sale price discount as directed by the Government of India in its letter dated 27.8.2004 by way of a credit note dated 13.9.2004. The credit of tax relating to such discount was claimed by ONGC. Such tax credit on discount came to Rs. 11,07,06,024/. The ONGC claimed that discount would not form part of taxable turnover. The Assessing Officer however, objected to the stand of the ONGC. The D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an instance of under recovery of the sale price. Such under realisation of the sale price was absorbed by ONGC through its profit generating products. The very expression "under realisation of sale price" would mean that sale price was not reduced in any manner. This was therefore, not a case of a trade discount since trade discounts are given on the basis of bilateral contract between seller and buyer. In the present case, such discount was not on account of any contractual relation between the buyer and seller but on account of mandate of the Government of India. According to the Government counsel, it was a case of part of the sale price voluntarily not recovered from the purchaser. Reference was also made to the provisions of the Competitions Act suggesting that a trade practice in the nature of artificial determination of the sale price would be restrictive trade practice. 2.4. The Tribunal by the impugned judgement upheld the stand of the Revenue. It was observed that the decision to discount the price was not that of ONGC taken on its free volition but such decision was imposed on it by the Central Government. The instance therefore, would not fall in any of the well reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such price for the computation of its turnover. In the background of such facts, counsel raised the following contentions : 1) The reduced price was in the nature of a discount given by ONGC to the oil companies and was not in the nature of a bad debt. Our attention was drawn to the decision of the Madhya Pradesh High Court in case of GAIL India Ltd. v. State of M.P. and others reported in (2014) 72 VST 161(MP) in which in a writ petition, under similar circumstances, the High Court held that the authority committed an error in law in disallowing the deductions claimed by ONGC from the total turnover on the basis of credit notes issued to the Oil Marketing Companies. 2) Counsel submitted that the turnover would form the sale price realised or realisable. In the present case, it was only the discounted price which was realisable price by ONGC from Oil Marketing Companies ("OMC" for short). Counsel referred to clause(b) of subsection( 1) of section 8 of the Gujarat Valued Added Tax Act ("the VAT Act" for short) to contend that even in case of consideration previously agreed upon for sale has been altered by agreement with the recipient, whether due to the offer of a discount or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r which the goods are sold by the assessee. In a case where trade discount is allowed on the catalogue price, the sale price is the amount determined after deducting the trade discount. The trade discount does not enter into the composition of the sale price, but exists apart from and outside it and prior to it. It was held that it is immaterial that the definition of 'sale price' in Section 2(h) of the Act does not expressly provide for the deduction of trade discount from the sale price. 7) Reliance was also placed on decision of learned Single Judge of Kearla High Court in case of Madras Fertilisers limited v. Asst. Commissioner(Assessment), Agrl. Income Tax and Sales Tax Dept. and anr. reported in (1994) 95 STC 134 (Ker) in which the Fertiliser company received subsidy from the Government to offset for the losses suffered in the sale of fertiliser on the controlled price. The High Court held that such component cannot form part of the sale price as the same was received for a different purpose and not as a consideration of sale. The counsel submitted that in the present case, ONGC did not even receive any subsidy from the Government but had to absorb the losses of the reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the nature of trade discount. It was only a refund for the manufacturing defect and the tyres sold. 3) In case of Commissioner of Central Excise, New Delhi v. Vikram Detergent Ltd. reported in (2001) 2 Supreme Court Cases 417 in which the component of damage discount to compensate the buyer of damaged goods was held not deductible for computation of excise duty. 4) In case of Ambica Mills Ltd and others v. The State of Gujarat and another reported in (1964) XV STC 367, where the Division Bench of Gujarat High Court noted that after the goods were sold and delivery taken, the invoices on the basis of original contract price were prepared. Later on discount was given through the credit note. Such discount was in the nature of a lumpsum. It was held that such reduced price could not be excluded for the computation of turnover. 6. Section 7 of the VAT Act pertains to levy of tax on turnover of sales and rates of tax. Subsection( 1) thereof provides that subject to the provisions of the Act, there shall be levied a tax on the turnover of sales of goods specified in Schedule II or Schedule III at the rate set out against each of them in the respective Schedule. The 'taxable turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration payable to a person for such delivery;" 8. Terms defined in Gujarat Sales Tax Act, 1969, Central Sales Tax Act and VAT Act are substantially similar. We may therefore, concentrate on such provisions as contained in the VAT Act. 9. The entire focus of the controversy revolves around the expression " the amount of sale price received or receivable by a dealer in respect of any sale of goods". In facts of the case, what would be the amount of sale price received or receivable by ONGC from OMC is the fundamental question. According to ONGC, it is the finally computed sale price which alone would qualify as one being received or receivable. The State however, contends that it is the originally invoiced price and not the discounted price which would be receivable, whether received or not. 10. In this context, we may peruse the facts more minutely. As noted and even otherwise undisputedly ONGC was under an obligation to implement the policy of the Central Government and carry out such directives as may be issued from time to time in public interest. The fact that ONGC therefore, was bound by the price mechanism created by the Central Government from time to time is not in disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uary 2003 for administering post APM subsidies on these products. The issue of post APM pricing of PDS Kerosene and Domestic LPG has been reexamined by the Government and it has been decided that the Oil Marketing Companies (OMCs) viz IOC (including IBP), BPC and HPC will not increase the selling prices of these products during 200304. The resultant under recoveries of OMCs would be absorbed/shared amongst the oil companies. 2. Based on the methodology adopted in computing the costs under "The PDS kerosene and Domestic LPG Subsidy Scheme, 2002" and assuming (i) average international prices of kerosene and LPG during 200304 at the same level as during 2002-03, (ii) budgetary subsidy for 2003-04 as per the allocation and (iii) projected consumption of PDS kerosene and Domestic LPG during 2003-04 the underrecoveries of OMCs during 2003-04 on account of non-revision in the selling prices of PDS Kerosene and Domestic LPG, have been assessed. The amount of actual underrecoveries would however, depend inter alia upon prices of these products, growth in domestic demand, taxation structure and other related factors. The Government has considered the matter and decided that follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Governments in terms of royalty on Crude oil should not be affected by the discount. However, royalty payable to the Central Government on offshore crude has always been paid on postdiscount prices or the sale price actually obtained by Upstream Oil Companies. Subsequently keeping in view the provisions of the Oilfields (Regulation and Development) Act 1948, the Petroleum & Natural Gas Rules, 1959 the Petroleum & Natural Gas (Amendment) Rules 2003 and Notifications issued thereunder. ONGC's representation and the opinion of the Ministry of Law on the issue, the decision to pay onshore royalty on postdiscount prices i.e. on the actual sale price realiszed, was conveyed by the Government in May 08. 5. In view of above, it is clarified that (a) The mechanism under which upstream oil companies issue price discounts to OMCs is not their internal arrangement but decisions taken at the level of the Union Cabinet from time to time. (b) The above burden sharing mechanism effective from 2003-04 is still in vogue and offering of discounts is not a postsale event. As explained in para 3 above, discounts are calculated and communicated by Government on a quarterly basis. (C) During 2003 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding on the fluctuations as compared to provisional price earlier declared by the Government of India. Several such invoices at the time of actual sale and the credit notes subsequently issued on the basis of finalisation of the discounted rates are on record to demonstrate this cycle. Short question is, which component would qualify for computation of turn over. In other words, originally invoiced price or the subsequently discounted price would form the basis for sale price of the goods released or realisable. 15. In our understanding, it is the final price which the ONGC received from the OMCs which alone can form part of the taxable turnover. As noted, under the price control mechanism, ONGC was under an obligation to sale its specified petroleum products at the rate fixed by the Government of India. To ensure that such petroleum products are available to the consumer at affordable price, the Government of India devised a mechanism where such products would be sold by ONGC and other oil companies to the OMCs at a price less than the market price or may even be less than its procurement price. Such component the ONGC and other oil companies had to bear from their other profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e never entered the turnover. Merely because its precise computation was differed at a later point of time, would not change the situation. 17. Perhaps it is a misnomer though consistently so referred to as Government of India as well as by ONGC, to term this component as discount. A discount is reduction in catalogue price for any reason recognised by the trade. In the present case, there is no prefixed price which as per the trade practice is reduced by a discount given by the seller to the purchaser. It is a case where under a price control regime under the directives of Government of India, ONGC is obliged to sell its products at lesser than the market price. These terms are determined even before the sale. Initial invoices at the time of actual supply of petroleum products by ONGC were merely provisional. They were based on provisional price fixation by the Government. They were never meant to reflect final sale consideration for the goods sold. They were always subject to adjustment once the Government of India finally declared the reduced rate of specified petroleum products. Comparing the invoiced price with the finalised price after adjustment, was a complete fallacy. Eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; "16. In the present case, the provisional invoice price and final price both are controlled by PPAC. The petitioner has no liberty to fix price. The change in sale price is due to the directions and fixation of price by PPAC because the domestic LPG is being sold to a consumer on a subsidized price and shortfall has been made good by the manufacturing companies and oil marketing companies on sharing basis as directed by MOP and NG and also partly from the contribution of Central Government through issue of oil bonds. Hence, in our opinion, the sale price of LPG in the case of the petitioner would be the price fixed by the petitioner after deduction in primary invoice on the basis of credit notes issued subsequently because that was the price, which was released by the petitioner effectively and fixed under the price fixation mechanism. The authority committed an error of law in disallowing the deductions from total turnover on the basis of credit notes issued to oil marketing companies which had resulted reduction in the turnover and liability of tax of the petitioner." 20. In case of IFB Industries Limited v. State of Kerala (supra), the Supreme Court observed that there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases where the buyer may become entitled to an extra allowance for some service unconnected with the sale of goods and in such cases, such discount would not qualify for deduction in the determination of taxable turnover. Such are not the facts in the present case. 24. In case of Government of India and others v. Madras Rubber Factory ltd. and others(supra), the seller had given discount to the purchaser for repurchase of tyres since the earlier lot suffered from some defect. It was observed that the purchaser would have refused or accept such arrangement and insist on cash refund which the assessee was bound to accept. In such a case, such refund would not amount to trade discount. 25. In case of Commissioner of Central Excise, New Delhi v. Vikram Detergent Ltd.(supra), relying on the decision of Supreme Court in case of Government of India and others v. Madras Rubber Factory ltd. and others(supra), the Supreme Court rejected the claim for damage discount which was given in order to compensate the buyer for damaged goods which was admittedly on account of damages suffered after removal of goods from factory. 26. In case of Ambica Mills Ltd and others v. The State of Gujarat and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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