1996 (8) TMI 483 - AT - VAT and Sales Tax

Issues Involved:
1. Whether the deposit representing 27% of the differential amount is a part of the sale price and should be included in the taxable turnover.

Issue-wise Detailed Analysis:

1. Whether the deposit representing 27% of the differential amount is a part of the sale price and should be included in the taxable turnover:

The core question raised before us for our decision is whether the deposit representing 27 per cent of the differential amount is a part of the sale price and as such the amounts received are to be included in the taxable turnover of the petitioner-company. Before we answer this question it is apposite here to reproduce section 2(p) and (t) of the RST Act and section 2(h) of the CST Act which are as hereunder:

The RST Act:

"2(p) 'sale price' means the amount payable to a dealer as consideration for the sale less any sum allowed as cash discount according to the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in case where such cost is separately charged, and the expression 'purchase price' shall be construed accordingly:

(t) 'turnover' means the aggregate amount of sale prices received or receivable for a sale, transfer, delivery or supply by a dealer in any of the ways referred to in clause (o):

The CST Act:

"2(h) 'Sale price' means the amounts payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charged."

The learned counsel for the petitioner-company contends before us that the deposit of the amounts which was taken from the customers on the clear understanding and specific condition that it would be refunded to them in case of the Central excise duty being charged at 8 per cent and which was placed in the books of account under a separate account, namely, contingency charges account, could not be termed as a part of consideration for the sale and as such could not be included in the taxable turnover of the petitioner-company. This deposit represents an amount which was taken because of a probable contingency which could happen in the future. It was taken on the condition that it would be refunded to the purchasers/customers from whom it was taken. It could not be refunded because of lock-out in the petitioner-company's factory for the period from August 23, 1986 to January 14, 1990. The mere fact that this deposit remained with the petitioner-company could not be converted into a part of the sale price. As against this, the learned counsel for the respondent contends before us that this amount of deposit has remained with the petitioner-company. It has not so far been refunded to the purchasers from whom it was taken. The fact is that it has gone into the pocket of petitioner-company. He further contends that it was taken as a consequence of sale transactions which took place between the petitioner-company on the one hand and purchasers/customers on the other.

As such it is a part of the sale price and is to be included in the taxable turnover of the petitioner-company. We have given our careful consideration to the rival contentions. We do not find ourselves in agreement with the learned counsel for the petitioner-company for the reasons to be stated here.

The deposit taken from the purchasers was as a consequence of sale transactions entered into between the petitioner-company on the one hand and the purchasers/customers on the other. The amounts have remained with the petitioner-company. The learned counsel for the petitioner-company has candidly conceded before us that the excise duty is a part of the sale price and as such is to be included in the taxable turnover. This differential amount calculated at 27 per cent would have definitely been a part of the sale price if the apex Court had decided that Central excise duty was leviable at 35 per cent.

The learned counsel for the petitioner-company has pressed into service the decision of the apex Court in the State of Mysore v. Mysore Spinning and Manufacturing Co. Ltd. [1960] 11 STC 734 (SC), wherein certain amounts were collected by the Cement Marketing Co., Mysore S. & M. Company and the Minerva Mills Ltd., only as a deposit to cover a possible contingency of these companies being held liable to pay the tax. These amounts were collected because the companies did not want to take any risk in the matter. In certain cases the, amounts so collected were also deposited with the department. The question of interpretation of section 11(1) and (2) of the Mysore Sales Tax Act, 1948, came in for consideration. On the facts of the case the apex Court held that the amounts so collected did not constitute the collection of tax within section 11(2) of the Act of 1949. The following quotes which appear at pages 743 and 744 of the Report deserve our special attention:

".................On the facts of these appeals we are unable to hold that there has been any 'collection' by way of tax of any amount under section 11(2) of the Mysore Sales Tax Act, 1948.

...................

In view of this conclusion, we consider it proper not to embark on an investigation of the proper construction of section 11(1) and (2) of the Act and the sustainability of the rival contentions urged before us on this matter. Nor do we consider it necessary or proper to deal with the soundness or otherwise of the constitutional objections which have been put forward to the demand by the State, to amounts 'collected by way of tax' if that were to include collections in respect of sale transactions not charged to tax under the Act. We consider it desirable to reserve the determination of these questions to an occasion when they properly arise and have necessarily to be decided."

This decision is to be distinguished on facts from the case in hand. In that decision amounts were collected on the sale transactions which were not exigible to tax. In the present case before us there is no dispute about the exigibility of the sale transactions, but what is in dispute is whether the amounts taken as deposit on account of Central excise duty, were to be considered a part of a sale price.

The learned counsel for the petitioner-company has placed his reliance on the decision in State of Tamil Nadu v. Srinivasa Timber Depot [1991] 80 STC 393 (SC) wherein the apex Court upheld the judgment of the Madras High Court in State of Madras v. Srinivasa Timber Depot [1974] 33 STC 423, which reaffirmed its earlier decision in Srinivasa Timber Depot v. Deputy Commercial Tax Officer [1969] 23 STC 158 (Mad.). The decision in State of Madras v. Srinivava Timber Depot [1974] 33 STC 4.23 (Mad.) is an authority for the proposition that sales tax is to be charged on the price of the goods sold. Other amounts which have no sufficient nexus within the sale are not to be made exigible to sales tax. In this case the amounts received as lot cooly charges were not considered a part of the sale price and as such could not be included in the taxable turnover. This decision was considered by the Madras High Court in the State of Tamil Nadu v. Malabar Timber Company [1974] 33 STC 428, which was also concerned with the collection of amounts as lot cooly charges which did not form a part of sale price. The fact that there is some excess collection in the hands of the assessee will not make it part of the sale price. Thus the lot cooly charges were not included in the taxable turnover because they were considered as service charges. In the case before us the amounts collected by the petitioner-company could not be termed as service charges.

The decision in State of Maharashtra v. Britannia Biscuits Company Limited [1995] 96 STC 642 (SC), the learned counsel for the petitioner-company has placed his reliance upon, is also of no help to him. The facts were that the respondent-company used to sell in the city of Bombay and its suburbs biscuits packed in tins on the understanding that in case the empty tins were returned to it within a period of 3 months the amount of deposit taken at the time of sale as the price of tins and kept in "deposit account returnable tins" would be refunded to the customers. A large number of the empty tins were not returned. There remained outstanding a sum of Rs. 1,68,027.05 in the foregoing account, namely, "deposit account returnable tins". At the end of the year the respondent-company wrote off half the balance, namely Rs. 84,013 and treated it as a trading receipt and transferred it to its profit and loss account. The question was whether this trading receipt could be included into the taxable turnover of the respondentcompany. It was held that it was a part of the sale price. In that case the price of tins sold but not returned was treated as a trading receipt. Respondent-company parted with the tins for the price which was included in the taxable turnover.

In the present case before us the petitioner-company has received the amounts on account of the Central excise duty for which it has given nothing to its purchasers/customers.

The learned counsel for the petitioner-company has placed his reliance upon seven Judge Bench decision of the apex Court in R.S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited [1977] 40 STC 497, wherein the provisions contained in sections 37(1), 46 and 63 of the Bombay Sales Tax Act, I 959 as applicable to the State of Gujarat came in for consideration. A question of seminal importance was whether the State Legislature could make law which permitted the forfeiture to the State of the amount collected by the dealers as sales tax.

This question was answered in the affirmative. It was held that since the State Legislature was competent to make law under entry 54 of List II of the Seventh Schedule of the Constitution of India with regard to tax on the sale and purchase of goods it could also make law with regard to the forfeiture of the amount collected as sales tax for the reason that such a legislative power was incidental or/and ancillary to the power to make law with regard to tax on the sale and purchase of goods. Following paragraphs at pages 511-512 of the Report need to be reproduced here:

"Despite this holding in Orient Paper Mills Ltd. v. State of Orissa [1961] 12 STC 357 (SC); [1962] 1 SCR 549 the Court-a larger Bench-held that the taking over of sums collected by dealers from the public under guise of tax solely with a view to return them to the buyers so deprived was not 'necessarily incidental' to 'tax on the sale and purchase of goods'. We respectfully disagree.

In a developing country, with the mass of the people illiterate and below the poverty line, and most of the commodities concerned constitute their daily requirements, we see sufficient nexus between the power to tax and the incidental power to protect purchasers from being subjected to an unlawful burden. Social justice clauses, integrally connected with the taxing provisions, cannot be viewed as a mere device or wanting in incidentality. Nor are we impressed with the contention turning on the dealer being an agent (or not) of the State vis-a-vis sales tax; and why should the State suspect when it obligates itself to return the moneys to the purchasers? We do not think it is more feasible for ordinary buyers to recover from the common run of dealers small sums than from Government. We expect a sensitive Government not to bluff but to hand back.

So, we largely disagree with Ashoka Marketing Ltd. v. State of Bihar [1970] 26 STC 254 (SC); [1970] 3 SCR 455, while we generally agree with R. Abdul Quader & Co. [1964] 15 STC 403 (SC); [1964] 6 SCR 967. We must mention that the question as to whether an amount which is illegally collected as sales tax can be forfeited did not arise for consideration in Ashoka Marketing Ltd. v. State of Bihar [ 1970] 26 STC 254 (SC); [ 1970] 3 SCR 455."

To sum up, we uphold the impugned orders dated October 31, 1995 and dismiss the revision petitions. We make no orders as to cost.

Petitions dismissed.

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