2007 (1) TMI 513 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Consideration of sales tax in fixing the price of goods.
2. Presumption of deemed collection of sales tax.
3. Inclusion of taxes in the price of tax-exempted goods.

Detailed Analysis:

1. Consideration of Sales Tax in Fixing the Price of Goods:
The State of Karnataka contested that the respondent included sales tax in the sale price of tea produced at their Dharwad unit, which was exempt from sales tax under a government notification. The Assistant Commissioner of Commercial Tax noted that the respondent marketed Dharwad tea along with non-Dharwad tea, which was not exempt, at the same price, implying a consideration of sales tax in the price structure. The Tribunal, however, found that the sale invoices for Dharwad tea clearly indicated that the goods were exempt from sales tax, and there was no separate collection of tax. The Tribunal concluded that merely considering the tax component in the price does not equate to the collection of tax.

2. Presumption of Deemed Collection of Sales Tax:
The State argued that selling identical products, one exempt from sales tax and the other not, at the same price, leads to a presumption of deemed collection and inclusion of sales tax in the price. The Tribunal disagreed, stating that the respondent did not bifurcate the sale price and tax collected in their books of account, and there was no agreement between the buyer and the respondent to pay sales tax. The Tribunal emphasized that the inclusion of tax in the price structure does not constitute a collection of tax unless explicitly agreed upon and documented separately.

3. Inclusion of Taxes in the Price of Tax-Exempted Goods:
The State contended that the legend "inclusive of taxes" on the tea packets indicated that taxes were included and collected on the tax-exempted tea. The Tribunal noted that the respondent's invoices explicitly stated that the goods were exempt from sales tax, and the inclusion of the phrase "inclusive of all taxes" on the Maximum Retail Price (MRP) did not imply tax collection. The Tribunal held that the mention of MRP inclusive of all taxes is a statutory requirement under the Standards of Weights and Measures Act, 1976, and does not prove tax collection.

Conclusion:
The Karnataka High Court upheld the Tribunal's decision, agreeing that there was no collection of sales tax by the respondent on the exempted goods. The court emphasized that the mere consideration of tax in the price structure does not amount to tax collection. The court also noted that the State should consider redrafting exemption notifications to ensure that any consideration of tax components could result in the denial of exemptions in the future. The judgment was delivered without costs, affirming the Tribunal's majority view in favor of the respondent.