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TMI Blog2015 (8) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the writ petition filed by the Delhi Petrol Dealers Association (DPDA), 74 of its members who are all running petroleum retail outlets of various oil companies in the National Capital Territory of Delhi have joined in as co-petitioners. Some of them have also filed separate writ petitions for the same reliefs. 3. The Respondents are the Government of National Capital Territory of Delhi (Respondent No.1), Commissioner of Trade and Taxes, Delhi (Respondent No.2) and the Additional/Deputy Commissioner of Trade and Taxes, Delhi (Respondent No.3). 4. The members of the DPDA sell petroleum products of oil companies to consumers. The supply and distribution of diesel and petrol is controlled by the Motor Spirit & High Speed Diesel (Regulation of Supply and Distribution and Prevention of Malpractices) Order, 1998 which in turn has been issued in exercise of the powers conferred on the Central Government under Section 3 of the Essential Commodities Act, 1955. The sale and purchase of petroleum products is exigible to sales tax under the DVAT Act. 5. The VAT system replaced the single point tax regime. Tax is now collected at every point of sale. The seller is entitled to adjust the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i whether such duties are payable by the seller or any other person; and (vi) amount received or receivable by the seller by way of deposit (whether refundable or not) which has been received or is receivable whether by way of separate agreement or not, in connection with, or incidental to or ancillary to the sale of goods; (vii) in relation to works contract means the amount of valuable consideration paid or payable to a dealer for the execution of the works contract; less- (a) any sum allowed as discount which goes to reduce the sale price according to the practice, normally, prevailing in trade; (b) the cost of freight or delivery or the cost of installation in cases where such cost is separately charged; and the words "purchase price" with all their grammatical variations and cognate expressions, shall be construed accordingly; PROVIDED that an amount equal to the increase in the price of petrol (including the duties and levies charged thereon by the Central Government) taking effect from the 3rd June, 2012 shall not form part of the sale price of petrol sold on or after the date of the commencement of the Delhi Value Added Tax (Third Amendment) Act, 2012 till such date as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he return form. This has been assailed by the Petitioners on the ground that it is contrary to the statutory provisions, the concept of VAT and the scheme of the DVAT Act. It is submitted that it completely deprives the dealers of claiming any input tax credit. Issue of evaporation loss not considered 11. It must be pointed out at this stage that the second issue raised by the Petitioners was not pressed by them during the hearing. This concerns the natural evaporation loss that the products in question i.e. petrol and diesel undergo. According to the Petitioners there is an average evaporation loss of 0.6% in petrol and diesel. Resultantly, if the oil marketing company sells, for instance, 100 litres of petrol to a retail outlet what is actually delivered to it would be 99.4 litres of petrol. It may be noted that earlier a Circular No. 47of 2005-06 dated 23rd January 2006 was issued by the Commissioner, VAT to the Zonal Joint/Deputy Commissioners advising them to reverse the input credit claim by dealers on evaporated quantities. The challenge to the said Circular was upheld by the Court by judgment dated 10th September 2012 in Writ Petition (C) No. 2921 of 2006 (Delhi Petrol De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondents that "the petrol pump dealers are not required to collect VAT from end customers as VAT is charged only on value addition and purchase price of the oil is the same as the selling price of oil by the petrol pump dealers to the end customers." He pointed out with reference to a circular issued earlier by the Respondents in 2006 that even according to them there was a difference in the price at which the dealer purchases the petrol/diesel from the oil companies and the price at which he subsequently sells it to the ultimate consumer. He submitted that the impugned amendment is therefore irrational, arbitrary and violative of Article 14 of the Constitution of India. It also violates Article 265 since it authorises imposition and collection of tax with reference to the price of a transaction of sale that is yet to take place. It also placed an unreasonable restriction on the Petitioner"s right to carry out trade and business under Section 19 (g) of the Constitution. Mr. Laxmi Kumaran also referred to the decisions in Moriroku UT India (P) Ltd. v. State of U.P. 2008 (224) ELT 365 (SC) and Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash AIR 1954 SC 459. Submissions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol and diesel to the ultimate consumer is already fixed by the oil companies, there is a difference in the sale price in the two transactions. In the circular issued on 23rd January 2006 by the Commissioner of Trade and Taxes, GNCTD Department instructing his subordinates to reverse the input tax credit claimed by dealers on the total purchased quantities to the extent of the losses due to evaporation, the following illustration was given: "1000 litres of, say, petrol is purchased, purchase cost is Rs. 42480/- @ Rs. 42.48 per liter (inclusive of 20% VAT), which makes out an input tax of Rs. 7080/- considering standard allowance of 0.6% on account of evaporation made full use of by the dealer, 994 litres of the petrol is sold for Rs. 43229/- @ Rs. 43.49 per litre (inclusive of 20% VAT). The output tax involved is Rs. 7205/- Thus, the effective tax paid to the department is Rs. 125/- only (Rs. 7205 - Rs. 7080)." 18. What is relevant for the present purposes is the acknowledgement by the Respondents that there were two distinct transactions of sale and that the price for each varied. In the above example the purchase price was Rs. 42.48 per litre and the selling price was Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a certain rate on such forward contracts, were ultra vires. The decision of the High Court was affirmed by the Supreme Court. 21.1 In State of Rajasthan v. Rajasthan Chemists Association (supra), the Supreme Court was examining the validity of Section 4-A of the Rajasthan Sales Tax Act, 1994 ("RSTA") which sought to charge tax with reference to the maximum retail price ("MRP") published on the package although that was not the price chargeable by the wholesaler from the retailer. The Division Bench of the Rajasthan High Court had upheld the challenge and struck down the said provision. It was explained by the Supreme Court that "the tax on sale must be leviable with reference to something related to taxing event i.e. the sale or purchase of goods which becomes subject of charge and not dehors it." After referring to a large number of decisions, the Court observed in paras 28 and 33 as under: "28. The question of tax on sale of goods may be examined in the said background. The subject of tax being sale, measure of tax for the purpose of quantification must retain nexus with 'sale' which is subject of tax. As noticed above, tax on sale of goods, is tax on vendor in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of Revenue that the retail sale price likely to be received when such transaction takes place is taken only as a basis to provide measure of levying tax on a completed transaction between wholesalers and retailer would make it suffer from basic fallacy of importing the composition of sale which has not come into existence to determine tax which is fixed as soon as the taxable sale is completed." 21.3 It was further held by the Supreme Court that: "by substituting the assumed quantity of goods or a price which is not the subject-matter of that contract of completed sale for the purpose of measuring tax, the legislature assumes existence of contract of sale of drugs by legal fiction which has not taken place and which cannot be considered to be a sale in the manner stated in the Sales Act, which alone can be the subject of tax under Entry 54 in List II. Substitution of assumed price or the assumed quantity in place of actual price/quantity in a completed sale transaction, for the purpose of levy of tax on the subject-matter of tax results in taking away from it the character of "sale of goods" as envisaged under the Sales Act." 21.4 It was further observed in paras 52 ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dealer to the ultimate consumer. The aforementioned authoritative pronouncement of the Supreme Court settles the legal position being beyond any doubt that "law prohibits taxing of a transaction which is not a completed sale". The Court holds that the expression 'sale' within the meaning of Section 3 of the DVAT Act is confined to the actual sale that has taken place and it is only the price of that sale that can legitimately constitute the measure for the levy of tax. As explained in State of Rajasthan v. Rajasthan Chemists Association (supra) this cannot be overridden by devising a measure of tax which relates to an event which has not come into existence. The price of the completed sale cannot be transplanted by the price likely to be charged for the subsequent sale. The devise adopted is beyond the legislative competence of the legislature with reference to Entry 48 in List II of the Seventh Schedule to the Constitution. Conclusion 25. For the aforementioned reasons, Explanation 2 to Section 2 (1) (zd) of the DVAT Act is hereby struck down as being ultra vires the Constitution. Consequently, the omission in Form DVAT-16 of the relevant column to enable a dealer to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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