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Deputy Commissioner of Commercial Taxes (Vigilance) Versus M/s Hindustan Lever Limited

2016 (7) TMI 76 - SUPREME COURT

Benefit of sales tax exemption in respect of tea packets - sale price were same from the exempted and non-exempted units - It was noticed by the said authority that sale of tea packets by the respondent-company from the Dharwad unit which had the benefit of exemption and the units manufacturing tea outside Dharwad unit which did not have the benefit of exemption were similarly priced. Two invoices – one from Dharwad unit and one from non-Dharwad unit – were taken note of and found that the ultim .....

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at uniform market retail price at all India level ensures that the goods from one State do not flow to the other State, thereby distorting sales. It avoids and prevents shortages of goods in lower tax area. Uniform pricing cannot be a ground to hold that the respondent was charging sales tax on a sale price of the goods manufactured in the exempt unit. - Cost of production in different units of the respondent assessee can vary. Cost of production has various components and is computed with .....

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e tax liability, we do not think, sale consideration received should be bifurcated and divided on the basis of any assumption that the sale price received must have included the tax. This fiction has no application in the present case. - Revenue appeal dismissed with a cost of Rs. one lac. - Civil Appeal No. 656 of 2008 - Dated:- 30-6-2016 - Dipak Misra And N. V. Ramana, JJ. For the Appellant : Mr. V. N. Raghupathy, AOR Mr. Parikshit P. Angadi, Adv. For the Respondent : Mr. Rajan Narain, AOR JUD .....

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(for short, the tribunal ) constituted under the Karnataka Sales Tax Act, 1957 (for short, KST Act ). 2. Requisite facts to be exposited for adjudication of this appeal are that Brooke Bond India Limited established its factory at Dharwad in the State of Karnataka and the said factory was engaged in manufacture of blended packet tea. With the passage of time, Brooke Bond India Limited was amalgamated with the respondent-company with effect from 21.03.1997. There is no dispute over the fact that .....

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the Assistant Commissioner of Commercial Taxes (Intelligence), Kolar visited the premises of the respondent-assessee on 20th December, 1996. During the course of physical inspection the authority noticed that there was contravention of the conditions laid down under Explanation III(e) to the notification dated 19.06.1991. It was noticed by the said authority that sale of tea packets by the respondent-company from the Dharwad unit which had the benefit of exemption and the units manufacturing tea .....

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lligence officer arrived at the conclusion that the dealer had added the tax component to the sale price of Dharwad tea though not under the nomenclature of tax or cess. Hence, it was concluded that the respondent company was not entitled to the benefit of exemption, for Explanation III(e) to the notification dated 19.06.1991 had been violated. 4. As the facts would further unravel, on the basis of the aforesaid finding of fact of the inspecting authority, a series of assessment orders dated 15. .....

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ction of tax by considering the tax component in determination of sale price, though the same was not distinctly shown as tax and collected as such. The orders passed by the appellate authority were challenged before the tribunal which thought it appropriate to constitute a Special Bench and, accordingly, five members of the tribunal took up the matter. The tribunal after hearing learned counsel for the parties came to hold that though the company had considered the local tax element in the pric .....

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ales tax in fixing the price of the goods and sale of such goods along with identical goods on which taxes are collected along with the price has not resulted in an implied collection of tax in respect of such sales tax exempted goods? (2) Whether the assessee who produces identical products, one which is exempt from sales tax and one which sales tax is payable, both being priced on par and sold off the same shelf, could not lead to the presumption that there is a deemed collection and inclusion .....

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vocate General invites our attention with regard to the price being the same with regard to Dharwad tea and non-Dharwad tea. Same is reflected in the books of accounts. The Company is governed by the Standards of Weights and Measures Act, 1976 and Rules. Rule 6 read with Rule 2(r) of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 requires that the sale price of the package commodity shall be printed on the packages strictly in the following form: Maximum (or Max) Retail .....

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not by itself a proof of any collection of tax in terms of sales tax laws. We are in agreement with the finding of the Tribunal. 32. In fact, in Annexure-F there is a clear mention of exemption of tax in terms of the note at the end of the invoice itself. Therefore, the buyer is told in unmistakable terms that what is being paid as sale price and not as sales tax. 33. The Tribunal, in our view, has considered not only the facts of the case but also all the case laws as applicable, and thereafte .....

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he third round of litigation. In the first round, the State of Karnataka had availed the plea that the Government Order dated 27.07.1990, pursuant to which the Exemption Notification dated 19.06.1991 was issued, was itself not gazetted. The controversy travelled to this Court in Lipton India Ltd. and another v. State of Karnataka and others (1996) 10 SCC 710 . In the said case, the Court has held that:- 7. The administration of the State of Karnataka represented by its Chief Secretary, does not .....

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nd proceeds upon the basis of that statement. The High Court s judgment must, therefore, be set aside and the matter remanded to the High Court to be heard and decided afresh. 8. We must caution the High Court at Karnataka, having regard to what we have stated above, that it should be very vigilant in accepting as correct a statement, even though it be made on oath, on behalf of the State Government. It is unfortunate that we should have to say this of a State Government, but the record before u .....

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was grossly negligent in making the statement that the said government order was not gazetted only on the basis of going through the Gazettes for the succeeding three months. We must assume that other officers of the State Government will be encouraged to make statements before the courts on oath upon as little or no enquiry, expecting from the Chief Secretary the same unconcern . 9. After so holding, the Court has allowed the appeals and directed the State Government to pay costs which was qua .....

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ate would urge that the tribunal as well as the High Court is not justified in interfering with the finding of fact recorded by the Assessing Authority and the first appellate authority that the assessee had collected sales tax on the sale of tea manufacture at Dharwad and hence, not entitled for the benefit of sales tax exemption solely on the ground the company had considered local sales tax element in the sale price fixed. It is also contended by him that the levy of tax on the assessee canno .....

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that in the end consumer price sales tax element has been considered, has not been properly considered by the High Court. Learned senior counsel would submit that the High Court has not properly appreciated the authorities in the field and arrived at the erroneous conclusion. Mr. Patil has placed reliance on State of Karnataka v. M/s C. Venkatagiriah and Brothers 1994 Supp (2) SCC 572 and T. Stanes & Co. Ltd. v. State of T.N. and another (2005) 9 SCC 308 . 11. Mr. Salve, learned senior couns .....

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urged by him that the assessee had taken the stand that it has uniform MRP throughout India irrespective of whether sales tax is payable in certain States or not and despite the fact that the rate of tax is also different in different States because the assessee has felt that it is necessary to have uniform MRP for PAN India to prevent flowing of goods from one State to another. It is his further submission that revenue has erroneously based its conclusion on a comparison of price between the tw .....

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y kind of comparison. Mr. Salve would contend that the authorities cited by the revenue are absolutely inapplicable to the facts of the case, for the controversy is totally different therein. According to Mr. Salve, the controversy in the case has been put to rest in Delhi Cloth and General Mills Co. Ltd. v. Commissioner of Sales Tax, Indore (1971) 2 SCC 559 . 12. The heart of the matter is whether the respondent has violated clause (e) of Explanation III to the Sales Tax Exemption notification .....

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ubmission of the appellant that inference should be drawn that the respondent company had collected sales-tax on packaged tea sold by the new industrial unit, and thus, there was violation of clause (e) of Explanation III to the Sales Tax Exemption Notification. Reliance is primarily placed on the observations of this Court in Amrit Banaspati Co. Ltd. and another v. State of Punjab and another (1992) 2 SCC 411 and more particularly on paragraph 11, which reads as under:- 11. Exemption from tax t .....

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ndirect tax which is ultimately passed on to the consumer. If an industry is exempt from tax the ultimate beneficiary is the consumer. The industry is allowed to overcome its teething period by selling its products at comparatively cheaper rate as compared to others. Therefore, both the manufacturer and consumer gain, one by concession of non-levy and other by non-payment. Such provisions in an Act or Notification or orders issued by Government are neither illegal nor against public policy. 13. .....

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s on the tax and the buyer had agreed to pay the sales tax in addition to the price and that in the accounts of the dealer he has shown such amounts separately. (emphasis supplied) Applying the said proposition, the Tribunal held that even though the bills issued by the dealer in this case did say specifically that the price charged was inclusive of tax it cannot be held that he has collected the tax. We are of the opinion that the additional requirement envisaged in Spencer & Co. Ltd (supra .....

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is reflected in the account books of the dealer, it cannot be said to have been collected. No such general proposition can be evolved in a matter totally within the realm of appreciation of evidence. It is up to the dealer to discharge the said burden by producing such material as he can and it is for the appropriate authority to say whether the dealer has succeeded in discharging the burden or not. In this view of the matter, we cannot agree with the Tribunal s view which has been upheld by th .....

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mer does not have to pay any amount beyond MRP and that is how the business model of the assessee operates and hence, there is no question of any comparison. In fact, the appellant department is of the view that the respondent assessee ought to have determined lesser price for the exempted unit as compared to other units. It is urged that the absence of any price control the view of the department is neither a legal requirement nor practically possible. Once this erroneous comparison is oblitera .....

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volved in the said case relates to refund of tax paid to the State. In this context, this Court observed that refund of tax was made in consequence of excess payment or when it was realized illegally or contrary to law. The refund of tax due and realised in accordance with law cannot be comprehended and no law can be made for refund of tax to a manufacturer realized under the statute for the same would be invalid and ultra vires. A promise or an agreement to refund tax which was due under the la .....

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from tax. The exemption granted under the law by a legally valid notification was to encourage investment in the backward districts and enabled the newly established industry to overcome initial financial problems, recoup and ensue reasonable return on the capital expenditure and associated risks. Exemptions are allowed to industrial units to overcome the teething problems. Observations in paragraph 11 in Amrit Banaspati (supra), nowhere stipulate that the sale price as fixed must expressly exc .....

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ion, collected any tax and to the extent the tax was collected the turnover was not exempted. Sales-tax, as noticed above, is an indirect tax, which is charged from the consumer or the purchaser. But the liability to pay is that of the dealer. It may be charged by the dealer from the purchaser. Sometimes this indirect tax is inbuilt and included in the retail price. This may be mandated by law to protect consumer interest. One frequently comes across products where the maximum sale price is spec .....

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ded in the price mentioned. It should not be constructed as an admission that the respondent had charged sales tax. The respondent could not have deviated or ignored the statutory requirement by making a declaration contrary to the statutory rules. The consequences of not obeying and violating the statutory rules would have been severe. 18. Observations made in M/s C. Venkatagiriah and Brothers (supra) have to be again understood in the context in which they were made. In the said case the deale .....

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he should produce material to displace the presumption. The finding of the tribunal that the Central Sales-tax had not been charged independently in the Bills, it was observed, would not be a conclusive proof or good finding in law. Importantly, this Court observed that the question whether the dealer had discharged the burden placed upon him by the statute is the question of fact and has to be decided in each case with respect to facts and material of the case. Significantly, in the present cas .....

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Commerce Department, Govt. of Karnataka, Bangalore as applicable to our newly set up tea factory at Dharwad. We are on rolls of Asst. Commissioner, ST Bangalore. Our principal place of business is at No.2 4th Cross, MM Compound, Mysore Road, Bangalore. OR Goods sold under this invoice are fully exempted from levy of KST/CST in terms of Govt. of Karnataka s order No. C/1/138/SPC/90 (GO dt. 27.9.1990 and Finance Department Notification No. FD/239/CSI/90 dt. 19.6.1991 and Industries and Commerce De .....

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unt corroborate the trade price circular and invoices. The entire sale proceeds or consideration was shown as receipt and the amount was not bifurcated into sale price and tax collected. 20. An assessee is entitled to carry on and conduct business, fix the maximum retail price of its products. In the present case in spite of the multiple units both exempted and non-exempted, the respondent had adopted and followed uniform market price throughout India. The respondent is entitled and can fix a un .....

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annot be a ground to hold that the respondent was charging sales tax on a sale price of the goods manufactured in the exempt unit. Cost of production in different units of the respondent assessee can vary. Cost of production has various components and is computed with reference to revenue expenditure, rate of return on the capital expenditure, etc. These are complex commercial and business considerations which cannot be decided with reference to a single factor, i.e., the uniform market retail p .....

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uch collection, except in accordance with the provisions of the Act and the rules. The proviso stipulated that the sub-section would not apply to collection of an amount by a registered dealer towards an amount of tax already suffered under the Act in respect to the goods, the sale or purchase price of which was controlled by any law in force. In this background, it was observed that the term collected would include any collection in any manner and purported recoupment as projected and pleaded w .....

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ity to pay tax was on the dealer and the purchaser had no liability to pay tax. If a dealer had to pass the tax burden on to the purchaser, he could only do by adding the tax in question to the price of the goods sold. If that be so, the taxes collected by the dealer from the purchaser became a part of the sale price as fixed. Thus, the amount recovered by the dealer was in reality a part of the entire sale consideration. To appreciate the principle we may usefully reproduce certain passages fro .....

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es the valuable consideration given by the purchasers for the goods purchased by him. It that be so, the tax collected by the dealer from his purchasers becomes a part of the sale price fixed, as defined in Section 2(o). In some of the Sales Tax Acts power has been conferred on the dealers to pass on the incidence of tax to the purchasers subject to certain conditions. Those provisions may call for different consideration. In the Act there is no such provision except Section 7-A which was introd .....

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being subjected to any physical, chemical or other process for being made fit for consumption save mere dehusking, cleaning, grading or sorting. 7. In these appeals, it is not necessary to examine the relevance of that provision. But that provision does any give only statutory power to collect sales tax as such from any class of buyers. There is no other provision in the Act which confers such a power on the dealers. Unless the price of an article is controlled, it is always open to the buyer a .....

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