Supreme Court of India
DEPUTY COMMISSIONER OF COMMERCIAL TAXES (VIGILANCE)versusM/S HINDUSTAN LEVER LIMITED
- Citation
- 2016 INSC 478
- Decided
- 30 June 2016
- Disposal
- Dismissed
- Bench
- DIPAK MISRA
Holding
The presence of a uniform MRP inclusive of taxes does not prove collection of sales tax; the assessee is entitled to fix such a price and retain the exemption.
Summary
The appellant, Deputy Commissioner of Commercial Taxes, challenged the exemption granted to Mis Hindustan Lever Ltd under the Karnataka Sales Tax Act, 1957, on the ground that the company fixed a uniform maximum retail price (MRP) for tea packets that were marked "inclusive of all taxes" despite some units being tax‑exempt. The revenue authority alleged that this indicated an implied collection of sales tax, violating Explanation III(e) of the exemption notification dated 19‑06‑1991. The Karnataka Appellate Tribunal and the High Court held that the company had not collected any tax and that the statutory requirement to display MRP inclusive of taxes does not constitute proof of tax collection. The Supreme Court affirmed this view, holding that a uniform price and the statutory legend are matters of business policy and not evidence of tax collection, and therefore the exemption stands. The appeal was dismissed with a cost of Rs. 1,00,000 imposed on the appellant.
Issues considered
- Whether the consideration of sales tax in fixing a uniform price, when the same price is charged for both tax‑exempt and taxable units, results in an implied collection of tax on the exempt units.
- Whether identical products, one exempt and one taxable, priced identically, creates a presumption of tax collection.
- Whether the legend "inclusive of taxes" on packaged goods leads to a conclusion that tax has been collected.
Legislation cited
Subjects
sales tax exemptionuniform retail priceinclusive of taxesKarnataka Sales Tax ActStandards of Weights and Measurestax collection inferencebusiness policy
Judgment
[2016] 5 S.C.R. 635
DEPUTY COMMISSIONER OF A
COMMERCIAL TAXES (VIGILANCE)
v.
MIS HINDUSTAN LEVER LIMITED
(Civil Appeal No. 656 of2008) B
JUNE 30, 2016
(DIPAK MISRA AND N.V. RAMANA, JJ.J
Karnataka Sales Tax Act, 1957 - Exemption from sales tax -
To one of the 111anufacturing units of the assessee-Company - Under c
Exe111ption Notification dated 19. 6.1991 - Revenue noticed that
maxi111um retail price of a product fro111 the unit which had the benefit
exemption and also from other unit which did not have benefit of
exemption were the sa111e - Revenue therefore concluded that the
exempted unit had added the tax co111ponent to the sale price which
D
was violative of condition under Explanation III (e) of the
Notification and hence the assessee-company was not entitled to
tax exemption - Revenue, therefore, rejected claim of exe111ption by
the assessee - Appellate auhority upheld the view of assessing
authority - Appellate Tribunal as well as High Court held that the
assessees were liable to tax exemption - On appeal, held: Assessee E
is entitled to fix unifor111 price meant for whole of India - Uniform
market price does not differ in spite of differences in sales-tax
payable at the end point - A market retail price stating that it is
inclusive of all taxes could be a starting point and would not prove
collection of sales tax - Also state111ent on the packaged product
F
'inclusive of all taxes' is a statutory requirement under Standards of
Weights and Measures Act, and should not be construed as an
admission for having charges sales tax - The documents on record
show that the assessee had not collected any sales tax - Appeal of
Revenue liable to be dismissed - Cost of Rupees one lakh imposed
- Standards of Weights and Measures (Packaged Commodities) G
Rules, 1977 - r.2 - Standards of Weights and Measures Act, 1976.
Dismissing the appeal, the Court
HELD: 1. An assessee is entitled to carry on and conduct
business, fix the maximum retail price of its products. In the
H
635
636 SUPREME COURT REPORTS [2016] 5 S.C.R.
A 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 uniform price meant for whole of India. The uniform
market price does not differ in spite of differences in sales-tax
payable at the end point, i.e., at the point of sale. This is a matter
B
of business policy and cannot be taken exception to. (Para
20)[(649-G-H]
2. Rule 2 of the Standards of Weights and Measures
(Packaged Commodities) Rules, 1977, framed under the
erstwhile Standards of Weights and Measures Act, 1976,
c stipulated that the maximum sale price should be inclusive of all
taxes. This was the statutory requirement binding on the
respondent, who was selling packaged product. The statement
on the packaged product inclusive of all taxes, means all taxes
which were leviable, were already included in the price mentioned.
D 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. (Para 17)(648-B-D]
3. It has been highlighted that 3,50,000 invoices relating
E to the said product manufactured and sold from the Dhaward unit
were placed on record. Apart from this the assessee-respondent
had also placed 1200 price circulars issued, which showed that
the assessee respondent had not collected sales tax. The books
of account corroborate the trade price circular and invoices. The
entire sale proceeds or consideration was shown as receipt and
F the amount was not bifurcated into sale price and tax collected.
[Para 19)(649-E-F]
4. The respondent has also explained that 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
G 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
H components and is computed with reference to revenue
DEPUTY COMMISSIONER OF COMMERCIAL TAXES 637
(VIGILANCE) v. MIS HINDUSTAN LEVER LTD.
expenditure, rate of return on the capital expenditure, etc. These A
are complex commercial and business considerations which
cannot be decided with reference to a single factor, i.e., the
uniform market retail price. A market retail price stating that it
is inclusive of all taxes could be the starting point, but would not
prove and establish that the sales-tax has been collected. [Para
B
20][649-H; 650-B-C]
5. In a given case the tax component may form a part of
the sale price and cannot be treated as a separate component. In
the present case when the respondent was not liable to pay tax
and had not passed on the tax liability, sale consideration received
should not be bifurcated and divided on the basis of any assumption c
that the sale price received must have included the tax. This
fiction has no application in the present case. There is neither
such principle nor any precept in law. In any case the finding of
fact is to the contrary. [Paras 22, 23][652-E-G]
State of Karnataka v. Mis C. Venkatagiriah and Brothers D
1994 Supp (2) SCC 572;Amrit Banaspati Co. Ltd. and
another v. State of Punjab and another (1992) 2 SCC
411 : 1992 (2) SCR 13; T. Stanes & Co. Ltd. v. State of
T.N. and another (2005) 9 sec 308 - distinguished.
Lipton India Ltd. and another v. State of Karnataka E
and others (1996) 10 sec 710 : 1996 (7)
Suppl. SCR 299; Delhi Cloth and General Mills Co. Ltd.
v. Co111111issioner of Sales Tax, Indore (1971) 2 SCC
559- referred to.
Case Law Reference F
1996 (7) Suppl. SCR 299 referred to Paras
1994 Supp (2) sec 572 distinguished Para 10
(2005) 9 sec 30s distinguished Para 10 G
(1971) 2 sec 559 referred to Para 11
1992 (2) SCR 13 distinguished Para 12
H
638 SUPREME COURT REPORTS [2016] 5 S.C.R.
A CIVIL APPELLATE JURISDICTION: Civil Appeal No. 656 of
2008.
From the Judgment and Order dated 25.01.2007 of the High Court
of Karnataka at Bangalore in S. T. R. P. No. 62/2004.
Basavaprabhu S. Patil, Sr. Adv., V. N. Raghupathy, Chinmay
B Deshpande,Anirudh Sanganeria,Amjid Maqbool,Advs. fortheAppellant.
Harish N. Salve, Arv ind P. Datar, Sr. Advs., Ravinder Narain,
Ajay Aggarwal, Ms. Mallika Joshi, Rajan Narain, Advs. for the
Respondent.
c The Judgment of the Court was delivered by
DIPAK MISRA, J. I. In the present appeal, by special leave,
the appellant has called in question the legal acceptability of the order
dated 25.01.2007 passed by the Division Bench of the High Court of
Kamataka at Bangalore in STRP No. 62 of2004 whereby the Division
Bench has dismissed the Special Revision Petition preferred by the
D
appellant-department and affirmed the order dated 27.12.2003 passed
by the Special Bench constituting five members of the Karnataka
Appellate Tribunal, Bangalore (for short, "the tribunal") constituted under
the Kamataka Sales Tax Act, 1957 (for short, "KST Act").
2. Requisite facts to be exposited for adjudication of this appeal
E
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 the
F respondent-company registered under the Companies Act is a dealer
under the KST Act. The dealer was granted sales tax exemption benefit
for five years from the date of commencement of production in
accordance with exemption eligibility certificate issued by the Government
ofKamataka as perthe package of incentive granted vide Government
Order dated 27.09.1990 and sales tax exemption notification dated
G
19.06.1991 to which we shall advert to at a later stage.
3. When the matter stood thus, the Assistant Commissioner of
Commercial Taxes (Intelligence), Kolar visited the premises of the
respondent-assessee on 20'h December, 1996. During the course of
physical inspection the authority noticed that there wa's contravention of
H
DEPUTY COMMISSIONER OF COMMERCIAL TAXES 639
(VIGILANCE) v. MIS HINDUSTAN LEVER LTD. [DIPAK MISRA, J.]
the conditions laid down under Explanation Ill(e) to the notification dated A
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 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
B
note of and found that the ultimate sale price in both cases is Rs. 118
(the non-Dharwad tea had a sales tax component of Rs. 12.27, whereas
the Dharwad tea had no sales tax component). Based on the said material
as well as material evincible from the price circulars of the respondent-
company found in the office, the intelligence officer arrived at the
conclusion that the dealer had added the tax component to the sale price c
ofDharwad 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 D
finding of fact of the inspecting authority, a series ofassessment orders
dated 15.06.1998, 31.01.1999, 22.02.2000 and 01.07.2000 were passed
wherein, inter alia, the claim of exemption on the turnovers ofDharwad
tea based on notifications dated 27.09.1990 and 19.06.1991 came to be
rejected. The assessment orders were assailed before the appellate
authority and vi de orders dated 25 .02.1999, 07 .03.2001 and 23 .03.2001 E
the appellate authority upheld the view of the assessing authority by
rejecting the claim of exemption advanced by the assessee on the ground
that there was collection 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 F
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 price fixed, but it cannot be stated that the company
has collected the local taxes as such from the consumers in view of the G
factthat in the invoice against KST and CST, it is specifically left blank
in respect ofDharwad tea; and accordingly accepted the stand put forth
by the assessee-respondent. The said order was challenged before the
High Court in revision petition.
H
640 SUPREME COURT REPORTS [2016] 5 S.C.R.
A 5. The High Court to appreciate the controversy framed the
following three questions oflaw:-
"( I) Whether the consideration of sales 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
B 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
c same shelf, could not lead to the presumption that there is a
deemed collection and inclusion of sales tax in the price
fixed?
(3) Whether the legend 'inclusive of taxes' found on the
packets ofDharwad and non-Dharwad tea, the distinction
o as such being lost on the consumer, whether it cannot be
said that taxes are inclined and collected on the tax exempted
tea."
6. The High Court, after hearing the learned counsel for the parties
and analysing the material on record, dissecting the relevant provisions
E of the KST Act and the notification for exemption came to hold as under:-
"30. Learned Advocate 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
F 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 Price Rs .....
G
... incl. of all taxes."
or
"MRP Rs .... INCL. OF ALL TAXES"
H
DEPUTY COMMISSIONER OF COMMERCIAL TAXES 641
(VIGILANCE) v. MIS HINDUSTAN LEVER LTD. [DIPAK MISRA, J.]
3 I. Much of arguments were advanced before us that in A
the light ofinclusive rate of tax, there is nothing but collection
in the case on hand. The Tribunal in its order would say
that so long as the buyer has not agreed to pay tax, and so
long as the bill would show that the company is exempted
from tax, there can be no inference of tax· collection.
B
Tribunal, in our view, is right in noticing that mere mentioning
ofMRP does not by itself a proofofany 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
c
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, D
and thereafter has come to a right conclusion in holding
against the State. We are in agreement with the findings of
the Tribunal."
On the basis of the aforesaid analysis, the High Court concurred
with the opinion expressed by the tribunal. E
7. We have heard Mr. Basava Prabhu S. Patil, learned senior
counsel along with Mr. V.N. Raghupathy for the appellant and Mr. Harish
N. Salve and Mr. Arvind P. Datar, learned senior counsel for the
respondent.
F
8. The present litigation has a history. Be it stated, this is the third
round oflitigation. In the first round, the State ofKarnataka had availed
the plea thatthe 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 otl1ers 1• In the said case, the G
Court has held that:-
"7. The administration of the State ofKarnataka represented
by its Chief Secretary, does not find the said officer guilty
1
(1996) 10sec110
H
642 SUPREME COURT REPORTS (2016] 5 S.C.R.
A of gross negligence. The Chief Secretary does not find it
unpardonable that the statement was made on oath on behalf
of the State Government in a pending proceeding before
the High Court. We cannot agree. Whether the Chief
Secretary thinks it necessary to take action against the said
officer or not is not our concern. Our concern is that the
B
State Government made a statement on oath before the
High Court that was incorrect and the judgment of the High
Court accepts and 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
c 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
D unfortunate that we should have to say this of a State
Government, but the record before us leaves us no option.
9. The learned counsel for the State Government now
submits that we should not make .this general observation
in respect of affidavits filed on behalf of the State
E Government. As we have already stated, we have done so
because the Chief Secretary of the State ofKarnataka does
not seem particularly troubled by the fact that a statement
was made on oath on behalf of the State Government before
the High Court which was not correct. He does not even
think that the said officer was grossly negligent in making
F 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
G 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 quantified in the sum of
Rs. 50,000/-. In the second round oflitigation, the State ofKarnataka
H sought to deny the exemption on the ground that grinding of tea does not
DEPUTY COMMLSSIONER OF COMMERCIAL TAXES 643
(VIGILANCE) v. M/S HINDUSTAN LEVER LTD. [DIPAK MLSRA, J.]
amount to manufacture and, therefore, as such the exemption was not A
available. The matter travelled to this Court but eventually the appeals
were dismissed by orders dated 17.07.1998 and 07.09.1998 preferred
by the State of Karnataka.
I 0. The present one is the third round. Mr. Patil, learned senior
counsel appearing for the State would urge that the tribunal as well as B
the High Court is not justified in interfering with the finding of fact recorded
by the Assessing Authority and the first appellate authority that 'lhe
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 c
the assessee cannot be found fault with inasmuch as inclusion of sales
tax in the sale price would disentitle the assessee from the benefit of
exemption stipulated in the Notification dated 19.06.1991 issued under
Section SA of the KST Act. Lastly, it is canvassed by Mr. Patil that the
issue whether the legend "inclusive of taxes" found on both the packed D
tea produced in the exempted unit, Dharwad, Karnataka and tea obtained
from outside the State and sold in the State (taxable tea), makes the end
consumer believe 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 E
conclusion. Mr. Patil has placed reliance on State:tJ,f Karnataka v. Mis
C. Venkataf(iriall and Brothers~ and T. Stanes & Co. Ltd. v. State of
T.N. and another'.
11. Mr. Salve, learned senior counsel appearing for the assessee-
respondent would urge that the declaration made by the assessee about F
MRP is a statutory declaration required as per Rule 2(r) of the Standards
of Weights and Measures (Packaged Commodities) Rules, 1977 framed
under erstwhile Standards of Weights and Measures Act, 1976 and the
same does not mean that the assessee had collected any amount by way
of tax. The aforesaid statutory declaration only means that the end G
consumer does not have to pay amount beyond MRP. It is 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
2
t 994 Supp (2) sec 572
' (2005J 9 sec 30s H
644 SUPREME COURT REPORTS [2016] 5 S.C.R.
A 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. lt is his further submission that revenue has erroneously based
its conclusion on a comparison of price between the two units of the
same manufacturer either in the same State or in two different States
B
wherein one unit is covered by exemption and the other is not.
Incrementing the said argument learned senior counsel would contend
that though the two prices are uniform, the revenue on an erroneous
comparison has presumed that the assessee has collected tax without
appreciating the fact that the assessee has adopted a singular business
c model to have a uniform price throughout India which does not
countenance any 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 Del/ti
Cloth and General Mills Co. Ltd. v. Commissioner of Sales Tax,
D
/11tlore•.
12. The heart of the matter is whether the respondent has violated
clause (e) of Explanation Ill to the Sales Tax Exemption notification
dated 19'" June, 1991. The said clause is reproduced below:-
E "Explanation III. The provisions of this Notification shall
not apply:
(a) X,'1:. X.\. xx xx
(b)xx xx xx xx
F
(c) xx xx xx X.\.
(d)xx xx xx xx
(e) To the turnovers on which any tax is collected by a new
Industrial Unit under the provisions of KST Act, 1957."
The above quoted clause stipulates that the notification will not
G apply on turnovers on which any tax is collected by the new industrial
unit under the provisions of the KST Act. It is the submission 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,
• <1971) 2 sec 559
H
DEPUTY COMMISSIONER OF COMMERCIAL TAXES 645
(VIGILANCE) v. MIS HINDUSTAN LEVER LTD. [DIPAK MISRA, J.]
and thus, there was violation of clause (e) of Explanation III to the Sales A
Tax Exemption Notification. Reliance is primarily placed on the
observations of this Coui1 in Amrit Bmwspati Co. Ltd. and another v.
State of Punjab and another' and more pa11icularly on paragraph 11,
which reads as under:-
"! I. Exemption from tax to encourage industrialisation should 8
not be confused with refund of tax. They are two different
legal and distinct concepts. An exemption is a concession
allowed to a class or individual fmm general burden for
valid and justifiable reason. For instance tax holiday or
concession to new or expanding industries is well known to
be one of the methods to grant incentive to encourage c
industrialisation. Avowed objective is to enable the industry
to stand up and compete in the market. Sales tax is an indirect
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 D
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." E
13. Reference is also made to the decision of this Court in Mis
C. VenkataJ?irialt and Brothers (supra) wherein it has been observed:-
"4. For the said proposition. the Tribunal relied upon a
decision of the Mysore High Court in Spencer & Co. Ltd.
F
v. Stale ofMysore". The proposition enunciated in the said
decision is that the dealer can be held to have collected the
tax under the Act, if:
"[F]rom the facts and circumstances, it can be inferred that
the seller intended to pass on the tax and the buyer had
agreed to pay the sales tax in addition to the price and thal G
in the accounts of the dealer he has shown such
amounts separately."
(emphasis supplied)
' ( 1992 l 2 sec 411
'' (1970) 26 STC 283 (Mys) H
646 SUPREME COURT REPORTS [2016] 5 S.C.R.
A 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) is not correct in law. Whether a dealer
B
has discharged the burden that is laid upon him by the statute
is a question of fact, to be decided in each case with
reference to the facts and material in that case. It is not a
matter of law nor can the mode of proof be reduced to a
proposition of law. Sub-section (2) or sub-section (I) of
c Section I 0 of the Amendment Act do not provide for such
a requirement. In such a situation, it cannot be said as a
general proposition that unless the tax collected 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
D
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. [n this view of
the matter, we cannot agree with the Tribunal's view which
E has been upheld by the High Court. The endorsement in
the bill that the price charged is inclusive of tax is prima
facie proof against the dealer's contention. Unless he
produces material to displace the presumption arising from
the said endorsement, he must be held to have collected
the tax."
F
14. rt is the argument of the assessee that the aforesaid declaration
about MRP is a statutory declaration and that does not mean that the
assessee had collected any amount by way of tax. The further stand is
that the end consumer does not have to pay any amount beyond MRP
G
and that is how the business model of the assessee operates and hence,
there is no question ofany 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
H
DEPUTY COMMISSIONER OF COMMERCIAL TAXES 647
(VIGILANCE) v. M/S HINDUSTAN LEVER LTD. [DIPAK MISRA, J.]
is neither a legal requirement nor practically possible. Once this erroneous A
comparison is obliterated, the entire case of department collapses.
15. First, we shall deal with the applicability of the principle stated
in Amrit Bmwsp"ti (supra). The issue raised in the case of Amrit
Bcmmp"ti (supra) was quite distinct and separate. The question raised
was whether the principle of promissory estoppel would apply, for the B
learned single Judge of the High Court on facts had found that there
was sufficient material to direct the State to honour its commitment to
refund the sales-tax. The issue involved in the said case relates to refund
of tax paid to the State. In this context, this Comt 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
c
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 law and realised in accordance
with the law would be a fraud on the Constitution and breach of faith of D
the people. It is in this context, the aforesaid observations were made in
paragraph 11 in the case of Amrit Bmwsp"ti (supra).
16. In fact, a careful elucidation of the said reasoning would
suppo1t the stand of the respondent. The assessee, on the basis of
exemption notification had set up a new undertaking incurring expenditure. E
This was done on the foundation that the new unit would be exempt
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 F
overcome the teething problems. Observations in paragraph 11 in Amrit
B"naspati (supra), nowhere stipulate that the sale price as fixed must
expressly exclude the tax component. It is obvious when a manufacturer
is granted an exemption, the unit would fix the sale price taking the said
exemption into account. In this manner both the manufacturer and the G
consumer gain. As sales-tax is an indirect tax, the purchaser has to pay
the same and when the tax is not levied, the purchaser does not pay the
same.
17. The respondent having set up a new industry which was
exempted, should not have, in terms of clause (e) of the Explanation llI H
648 SUPREME COURT REPORTS [2016] 5 S.C.R.
A of the notification, 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
B
frequently comes across products where the maximum sale price is
specified and stated on the packaging as in the present case. Ru le 2 of
the Standards of Weights and Measures (Packaged Commodities) Rules,
1977, framed under the erstwhile Standards of Weights and Measures
Act, 1976, stipulated that the maximum sale price should be inclusive of
c all taxes. This was the statutory requirement binding on the respondent,
who was selling packaged product. The statement on the packaged
product inclusive of alltaxes, means all taxes which were leviable, were
already included 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
D
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 Mis C. Ve11katagiria/1 a11d Brothers
(supra) have to be again understood in the context in which they were
made. In the said case the dealer was exigible to Central Sales-tax only
E if he had collected the tax and not otherwise. In the said context, this
Court referred to amendment made under the Central Sales-tax Act,
putting the burden of proof on the dealer to show that he had not collected
the tax. For this reason, it was observed that when an endorsement was
made in the Bill that price charged was inclusive of tax, it was prima
F facie proof against the dealer's contention and in such circumstances
where burden was on the dealer, 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
G 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 case no such burden has been placed on the
assessee. Further the tribunal and the High Court have recorded as a
finding of the fact that the assessee respondent had not collected the tax
H
DEPUTY COMMISSIONER OF COMMERCIAL TAXES 649
(VIGILANCE) v. MIS HINDUSTAN LEVER LTD. [DIPAK MISRA, J.]
on sales made from the exempted unit. The assessee has relied upon A
invoices issued by them to the purchaser which have the following
declaration:-
"Goods sold under this invoice are fully exempted from levy
of KST/CST under exemption certificate No. IDF/E3/50-
St/92-93 dt. 1-12-1992 by the Director of Industries and B
Commerce Department, Govt. ofKarnataka, 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 4•1> Cross, MM
Compound, Mysore Road, Bangalore.
c
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. I 990and Finance Depmtment
Notification No. FD/239/CSl/90 dt. 19.6.1991 and Industries D
and Commerce Department Certificate No. IDF/FS/91-24/
93-94 dt. 5.6.1993 applicable to our newly set up factory at
Dharwad (Ka). Our principal place of business is at Booke
Fields, Marathahalli".
19. It has been highlighted that 3,50,000 invoices relating to the E
said product manufactured and sold from the Dhaward unit were placed
on record. Apart from this the assessee-respondent had also placed 1200
price circulars issued, which showed that the assessee respondent had
not collected sales tax. The books of account cotTOborate 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 F
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 G
respondent is entitled and can fix a uniform price meant for whole of
India. The uniform market price does not differ in spite of differences in
sales-tax payable at the end point, i.e., at the point of sale. This is a
matter of business policy and cannot be taken exception to. The
respondent has also explained that uniform market retail price at all India
H
650 SUPREME COURT REPORTS [2016) 5 S.C.R.
A 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
B
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 price. A market
retail price stating that it is inclusive of all taxes could be the starting
c point, but would not prove and establish that the sales-tax has bee1~
collected.
21. Reliance placed on T. St(l11es & Co. Ltd. (supra) is
misconceived. The question involved therein related to interpretation of
Section 22 of the Tamil Nadu General Sales-tax Act. Tht< said Section
D stipulates that no person, who was not a registered dealer would collect
any more tax and no registered dealer shall make any such collection,
except in accordance with the provision~ 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
E which was control'::d 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 would be
nothing but collection. The contention of the assessee that he was only
recouping and was not collecting the tax was rejected. Thus, the factual
F score is totally different.
22. In this context, it would be relevant to refer to the decision of
the Court in Delhi Cloth (Ind General Mills Co. Ltd. (supra). This
case relates to Madhya Pradesh General Sales-tax Act, 1958. While
interpreting the words "turnover" and "sale price" in the context of the
G charging Section it was observed that the liability 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. ff 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
H
DEPUTY COMMISSIONER OF COMMERCIAL TAXES 651
(VIGILANCE) v. MIS HlNDUSTAN LEVER LTD. [DIPAK MISRA, J.]
a part of the entire sale consideration. To appreciate the principle we A
may usefully reproduce c0rtain passages from the said authority:-
"6. Under Section 4 the liability to payjax is that of the
dealer. The purchaser has no liability to pay tax. There is
no provision in the Act from which it can be gathered that
the Act imposes any liability on the purchaser to pay the 8
tax imposed on the dealer. If the dealer passes on his tax
burden to his purchasers he can only do it by additing the
tax in question to the price of the goods sold. In that event.
the price fixed for the goods including the tax payable
becomes the valuable consideration given by the purchasers
for the goods purchased by him. It that be so, the tax c
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 ce11ain conditions. Those provisions may call for D
different consideration. In the Act there is no such provision
except Section 7-A which was introduced into the Act by
Madhya Pradesh Act 23of1963. That provision would have
relevance only in respect of the assessment for the year
1963-1964.
E
Section 7-A says:
"No dealer shall collect any amount, by way of sales tax
or purchase tax, from a person who sells agricultural or
ho11icultural produce grown by himself or grown on any
land in which he has an interest, whether as owner, F
usufructuary mortgagee, tenant or otherwise, when such
produce is sold in the fonn in which it was produced. without
being subjected to any physical, chemical or other process
for being made fit for consumption save mere dehusking,
cleaning, grading or so11ing."
G
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
H
652 SUPREME COURT REPORTS [2016] 5 S.C.R.
A an ai1icle is controlled, it is always open to the buyer and
the seller to agree upon the price to be payable. While doing
so it is open to the dealer to include in the price the tax
payable by him to the Government. If he does so, he cannot
be said to be collecting the tax payable by him from his
buyers. The levy and collection of tax is regulated by law
B
and not by contract. So long as there is no law empowering
the dealer to collect tax from his buyer or seller, there is no
legal basis for saying that the dealer is entitled to collect the
tax payable by him from his buyer or seller. Whatever
collection that may be made by the dealer from his
c customers the same can only be considered as valuable
consideration for the goods sold.
x x x x x
x x x x x
D 10. From all these observations, it is clear that when the
seller passes on his tax liability to the buyer, the amount
recovered by the dealer is really part of the entire
consideration paid by the buyer and the distinction between
the two amounts, -tax and price- losses all significance."
E The relevance of this decision is that it holds that in a given case
the tax component may form a part of the sale price and cannot be
treated as a separate component.
23. In the case at hand, when the respondent was not liable to pay
tax and had not passed on the tax liability, we do not think, sale
F 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. There is neither such
principle nor any precept in law. In any case the finding of fact is to the
contrary.
24. In view of the aforesaid premised reasons, the appeal, being
G
sans merit, stands dismissed with costs which is assessed at Rs. 1,00,000
(Rupees One Lac Only).
\Kalpana K. Tripathy Appeal dismissed.
H
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