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2015 (8) TMI 539 - DELHI HIGH COURT

2015 (8) TMI 539 - DELHI HIGH COURT - [2015] 83 VST 396 (Del) - Levy of tax on ‘deemed sale price’ – Constitutional validity – Explanation 2, Section 2(1)(zd) – Prior to amendment to Explanation to Section 2 (1) (zd) input tax liability was included in sale price and passed on to purchaser – However by explanation 2 VAT was to be levied on price charged for sale which was yet to take place – sale and purchase of petroleum products - It was assailed by petitioners that it was contrary to statutor .....

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– It was not on price of actual completed sale but price of sale which is yet to take place – Law prohibits taxing of transaction which is not completed sale – Expression 'sale' within meaning of Section 3 was confined to actual sale that has taken place and it was only price of that sale that can legitimately constitute measure for levy of tax.

As explained in State of Rajasthan v. Rajasthan Chemists Association [2006 (7) TMI 17 - SUPREME COURT OF INDIA] this cannot be overridden by .....

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f 2013, W.P. (C) No. 2179 of 2014, W.P. (C) No. 2240 of 2014, W.P. (C) No. 2499 of 2014 - Dated:- 4-8-2015 - S. Muralidhar And Vibhu Bakhru,JJ. For the Petitioner : Mr. Laxmi Kumaran with Mr. Manu Sheshadri, Mr. Arjun, Mr. Aditya Bhattacharya and Mr. Ansul Mathur, Advocates. For the Respondents : Mr. Satyakam, Additional Standing counsel for GNCTD with Mr. Naushad Ahmed Khan, Advocate. Mr. Ashok K. Bhardwaj, Mr. A.P.Vinod and Mr. Manish Kumar Hirani, Advocates for R-3. JUDGMENT Dr. S. Muralidhar .....

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e 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 die .....

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ller is entitled to adjust the tax paid by him on his purchases (input tax) against his tax liability on sales made by him (output tax). The concept of input tax credit has been dealt with under Section 9 of the DVAT Act. Under Section 11 of the DVAT Act there can be an adjustment of the input tax against output tax. Where there is a surplus i.e. where the net tax calculated under Section 11 (1) amounts to a negative value then the dealer can adjust the said amount in the same tax period against .....

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s liable under this Act. Section 2 (l) (zm): Turnover means the aggregate of the amounts of sale price received or receivable by the person in any tax period, reduced by any tax for which the person is liable under Section 3 of this Act. 7. Prior to the amendment to the Explanation to Section 2 (1) (zd) of the DVAT Act with effect from 16th January 2013, the said provision read as under: Section 2 (l) (zd): sale price means the amount paid or payable as valuable consideration for any sale, inclu .....

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hiring charges received or receivable for such transfer; (iv) any sum charged for anything done by the dealer in respect of goods at the time of, or before, the delivery thereof; (v) amount of duties levied or leviable on the goods under the Central Excise Act, 1944 (l of 1944) or the Customs Act, 1962 (52 of 1962), or the Punjab Excise Act, 1914 (l of 1914) as extended to the National Capital Territory of Delhi whether such duties are payable by the seller or any other person; and (vi) amount r .....

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revailing 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 s .....

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ce of petrol declines but remains above the price prevailing prior to 3rd June, 2012, the aforesaid proviso shall have effect to the extent to the remaining increase: PROVIDED ALSO that the aforesaid proviso shall not take effect till the benefit is passed on to the consumers. Explanation .- A dealer 's sale price always includes the tax payable by it on making the sale, if any 8. As can be seen, there was only one Explanation to Section 2 (1) (zd) which stated that the dealer s sale price w .....

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hall be deemed to be equivalent to the price on which the retail outlets will sell these commodities to the consumer. The case of the Petitioners 9. The Petitioners submit that this change permits VAT to be levied on the price charged for a sale which is yet to take place. It is submitted that Section 3 of the DVAT Act, which is the charging section, makes it clear that the incidence of tax is on the sale of goods. Therefore, tax has to be levied on the sale price actually received or receivable .....

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from the 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 produ .....

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put 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 Dealers Association v. The Commissioner, New Delhi). It was held that the said Circular would not be binding. However, the assessing authorities would examine all claims for evaporation losses on a case by case basis without reference to the Circular under challenge. Submissions of counsel for th .....

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be determined with reference to Rule 7(3) of the DVAT Rules. 13. Reverting to the merits of the challenge in the present petitions to the validity of the newly added Explanation 2 to Section 2 (1) (zd) of the DVAT Act, Mr. Laxmi Kumaran submitted that it has substituted for the actual sale price, a price that had not been paid by the Petitioners to the oil companies. It, therefore, had no nexus or connection between the actual taxable event of sale. He submitted that the substitution of assumed .....

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n State of Rajasthan v. Rajasthan Chemists Association (2006) 6 SCC 773. He next submitted that the word sale meant transfer of property in the goods from one person to another for consideration. The taxable event being the sale it is the actual consideration paid or payable which is subject to tax. Further, the title in the goods is passed from the oil companies to the dealers. Once the sale takes place, the oil companies can collect tax from the dealer only on the price at which they sell the .....

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fference 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 restri .....

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mer for the petrol and diesel purchased is already fixed by the oil companies, VAT is being charged, by virtue of the added Explanation 2 to Section 2 (i) (zd) of the DVAT Act, on the actual and not a notional value. The price at which the petrol/diesel is sold is unaffected by the quantum of commission paid by the oil companies to the dealers. The commission to the dealers is disbursed by the oil companies in terms of the agreements entered into with the dealers. He submitted that the petrol pu .....

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d in the tax period in which the goods are claimed to have been lost or destroyed. He submitted that the decision in State of Rajasthan Chemists Association was distinguishable on facts since it was not dealing with sale of petroleum products. Further, the provision in the Rajasthan legislation which was being considered in that case was different. He referred to the judgment dated 17th January 2014 of the Division Bench High Court of Punjab and Haryana in CWP No. 21948 of 2012 (All Haryana Petr .....

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the first stage there is a sale of the product by the oil companies to the dealer. In the second stage there is a sale by the dealer to the ultimate consumer. Although the price at which the dealer can sell petrol 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 .....

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tre (inclusive of 20% VAT). The output tax involved is ₹ 7205/- Thus, the effective tax paid to the department is ₹ 125/- only (Rs. 7205 - ₹ 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 ₹ 42.48 per litre and the selling price was ₹ 43.29 per litre. 19. In every taxing statute there is a ta .....

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lated under Section 11 of the Act. When the oil companies sell the petrol/diesel to the dealer they include the VAT in the invoices and, therefore, the price at which they sell includes the VAT. Consequently as far as the first stage of transaction is concerned, the taxable event is not in doubt. The value i.e. the sale price on which the VAT is levied is also known. 20. The central issue therefore, as far as the present petitions are concerned, is whether Explanation 2 added to Section 2 (i) (z .....

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of the provincial legislature. Section 2(h) of the UP Sales Tax Act defined sales to include forward contracts. The High Court held that there was a distinction between a sale and an agreement to sell. The expression sale of goods under Entry 48 in List II of the 7th Schedule to the Constitution of India authorised imposition of tax only when there is a completed sale involving transfer of title and not when there is a mere agreement to sell. A forward contract was in the nature of an agreement .....

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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 leviab .....

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is tax on vendor in respect of his sales and is substantially a tax on sale price. The vendor or buyer cannot be taxed de hors the subject of tax that is sale by the vendor or purchase by the buyer. The four essential ingredients of any transaction of sale of goods include the price of the goods sold, therefore, in any taxing event of sale, which become subject matter of tax price component of such sale, is an essential part of the taxing event. Therefore, the question does arise whether a part .....

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harge itself. 21.2 The Supreme Court then examined the question whether sales tax could be levied on the MRP which was different from the price charged by the wholesaler to the retailer. It was observed in paras 43 and 45 as under: 43. The principal contention about the invalidating of the basis of the measure of tax envisaged under Section 4A of the Act as inserted vide Finance Act, 2004 is that while it levies taxes on the sale transaction carried on by the manufacturer or wholesalers or distr .....

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8% profit on the purchase price. There being statutory prohibition against the wholesalers to charge MRP from its buyer, the maximum retail price fixed on the packet has no rational connection with the taxable sale effected by the wholesalers and which becomes subject matter of charge as a first point tax. In such event, there exists no nexus between the measure of levy and subject of levy. 45. Accepting the contention of Revenue that the retail sale price likely to be received when such transa .....

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r 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 th .....

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as defined under the Act. This cannot be overridden by devising a measure of tax which relates to an event which has not come into existence when tax is ex-hypothesi determined, much less which can be said a completed sale and which cannot be subject of legislation providing tax on 'sale of goods' by transplanting a sum related to as "likely price" to be charged for subsequent sale to be taxed by the devise of measuring tax for the completed transaction which has become subjec .....

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unsustainable on that basis. 23. Apart from the fact that the judgment of the Punjab and Haryana High Court in All Haryana Petroleum Dealers Association, Bhiwani v. The State of Haryana (supra) does not refer to the above decision in State of Rajasthan v. Rajasthan Chemists Association, the Court finds that, in any event, the said decision is subject-matter of challenge before the Supreme Court. Inasmuch as the enunciation of the legal position in State of Rajasthan v. Rajasthan Chemists Associ .....

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