Holding

Tax is payable only on the differential turnover after deducting the amount on which tax has already been paid by the first seller, and the assessee must produce books of accounts to prove such payment.

Summary

The Supreme Court examined whether credit notes issued by liquor manufacturers to their distributors should be included in the distributors' taxable turnover under the Andhra Pradesh General Sales Tax Act, 1957. The distributors argued that the manufacturers had already paid tax on the full sale price and that the credit notes merely reduced their purchase price, so no additional tax should be levied. The Revenue contended that the credit notes represented a return of part of the consideration, including tax already collected, and therefore should be added to the taxable turnover. The Court held that the correct tax liability depends on the amount on which tax was actually paid by the first seller, and directed the assessee to produce its books of accounts before the Deputy Commissioner for adjudication. If it is shown that tax was paid on the original amount, tax is payable only on the differential (e.g., Rs.10 in the illustration); otherwise the Revenue's claim stands. The appeal was disposed of, with the assessee required to submit evidence of tax paid.

Issues considered

Whether credit notes issued by manufacturers to distributors are to be included in the distributors' taxable turnover under the Andhra Pradesh General Sales Tax Act, 1957.
Whether the assessee is required to produce books of accounts to establish the amount of tax already paid by the first seller.
Whether the Revenue's demand based on inclusion of credit notes is justified.

Legislation cited

Andhra Pradesh General Sales Tax Act, 1957s. 22(1), s. 23(1), s. 5, s. Schedule VI

Subjects

General Sales TaxTaxable turnoverCredit notesDifferential turnoverLiquorBooks of accountsAssessmentRevision

Judgment

(2008] 16 S. C.R. 264
r·
A M/S .. ANDHRA AGENCIES
If.
. STATE OF A.P.
(Civil Appeal No. 6694 of '2008} ·
NOVEMBER
.
18,. 2008 '
...•...·.
B ~ ., '

[DR. ARIJIT PASAYAT AND DR. MUKUNDAKAM .,, ,
SHARMA, JJ.]

Aildhra Prades.h General Sales Tax Act, 1957 - Credit
C notes issued by the manufacturers-first sellers to the
subsequent sellers/dealer - Inclusion of, in the taxable
· · turnover of the -dealers - Held: Books of accounts not
produced by assessees before authorities - Assessees
directed to produce books of accounts before the authorities
D for adjudication of issue in proper perspective.
•
The assessees were dealers/distributors of liquor.
The manufacturers-first sellers issued credit notes to the
assessees. The question before this Court is whether .
these credit notes were includible in the taxable turnover
E of assessees.

The stand of assessees before the authorities and
High Court was that the first seller collected tax on total
turnover representing the sale prices from respective
F dealers and claimed reduction/rebate in their turnover
representing credit notes and obtained reduction/rebate
of tax from the department and hence such amount
would not be part of taxable turnover in the hands of
dealers who were subsequent sellers. The High Court
G held that when the manufacturer returned a part of the
sale consideration under the credit notes, the returned
amount under the credit notes includes a part of the tax
that was already collected since the tax collected was an
inseparable part of the sale consideration.
H 264
ANDHRA AGENCIES v. STATE OF A.P. 265

in the instant appeal, it was contended for the· A
assessees that wholesaler had paid tax on the whole
amount before adjustment of the credit notes and hence
the revenue was not justified in levying further demand.

Disposing of the appeal, the Court
B
. HELD: 1.1. The. basic issue can be better appreciated
by way of an illustration. Hypothetically taking the sale
price to b.e Rs.100/-, the tax to be paid by the selling
dealets has to be on 100. He may collect 90, after giving
discount. If the sale price of the intermediate seller is 110 C
his liability to pay tax shall be on 10 i.e. 110-100. The
department's stand that it should be 20 i.e. 110-90, would
not be correct if the first seller had paid tax on 100.
Therefore; it has to be verified as to what was the amount
on which tax was paid on the illustrative figures given D
above by the selling dealer. The stand of the assesses
before the Tribunal and the High Court was that they
were not given personal hearing and only on
consideration of their objections, the orders were passed
- by the authorities. The Tribunal and the High Court held E
that since objections were considered, there was no need
for giving personal hearing .. Such conclusion is clearly
unsustainable. It is conceded that the books of accounts
were not produced before the authorities.·Additionally,
there was no document produced to show that the selling F
dealer had paid tax at 100 i.e. illustrative figure given
above. Certain documents relating to the purchases by
the assessees i.e. sale bills and memos of the selling
dealers were produced· to show as to the amount on

-
• ,._>-.-- ~
which the tax was paid by the selling dealers. These G
apparently were not considered because of the fact that
the books of account were not produced by the
assessee. [Paras 5 and 6] [268-E-H; 269-A-C]
1.2. As the adjudication to the basic issue involved
depends upon the amount on which tax has been paid H
266 SUPREME COURT REPORTS (2008] 16 S.C.R

A by the selling dealer, it would be appropriate to permit the
assessee to produce the books of accounts for
adjudication before the concerned Deputy Commissioner..
Assessees shall produce evidence to show that the tax
has been paid by the selling dealer on the illustrative
B figure of 100 given in the illustrative figure. The said
authority shall verify the correctness of the claim with
reference to the documents to be produced. If it is
'f ~
established, tax shall be payable on 10 as per the
illustration. Otherwise, the Revenues' stand shall stand
c established. [Para 8] [269-H; 270-A-C]

CIVIL APPELLATE JURISDICTION : Civil Appeal No.
6694 of 2008.

From the final Judgment and Order dated 16.8.2004 of the
D High Court of Andhra Pradesh at Hyderabad in TRC No. 36 of
1994. 4
-f
Dr. M.V.K. Moorthy, A Chandramohan and T. Anamika for
the Appellant.

E Anoop G. Choudhary, Manoj Saxena, Rajneesh Kr. Singh,
Rahul Shukla and T.V. George for the Respondent.

The Judgment of the Court was delivered by

DR. ARIJIT PASAYAT, J. 1. Leave granted.
F 2. Challenge in this appeal is to the judgment of the
+-
Division Bench of the Andhra Pradesh High Court dismissing
the Revision Petitions and special appeals filed by several
assessees under Section 22(1) (so far as the revisions are
concerned) and Section 23(1) (so far as the appeals are
G concerned) of the Andhra Pradesh General Sales Tax, 1957
(in short the 'Act'). The basic issues involved are the same. Fqr
different assessment years, orders were passed by exercising
-
~- .... ·
revisional power by the Commissioner of Sales Tax. In some
cases Deputy Commissioner exercised revisional power. The
h,
H issue involved was whether the value representing the credit
ANDHRA AGENCIES v. STATE OF A.P. 267
[DR ARIJIT PASAYAT, J.]

"" notes issued by the manufacturers to the distributors were to
be included in the taxable turnover. All the assessees involved
A

were carrying business in liquor as distributors of the brand
manufactured by Mis. Shaw Wallace & Co. Ltd. And Mis.
Vinadale Distilleries (P) Ltd., Hyderabad. For the relevant
assessment years, sales tax was leviable on the first and last B
sale of the total sales affected. At the same time as per the
•y proviso to Schedule VI the intermediate dealers are taxable on
the differential turnover i.e. the intermediate dealers are entitled
for exclusion of the turnover w11ith"1aq already suffered tax. The
assessees in question are intermecijate dealers which are
liable to tax only on the differential turnover i.e. after excluding
c
the turnover which had already suffered tax. It is the case of the
assessees that they used to purchase various brands of liquor
from the two manufacturers who are the first sellers and who
are liable to be taxed on the total turnover in so far as their sales
D
• are concerned. After the sales were affected by the dealers in
t question they have declared the differential turnover i.e. the
difference between the purchase price and the sales price
which was subjected to tax by the assessing officer. However,
it came to light that the assessees had received periodical
' credit notes representing the discount i.e. either annual discount E
or quarterly discount from the manufacturers. It was the stand
of the Revenue that they were not taken into account while
making assessment though they were entered in the books of
accounts. These facts came to light subsequently when the task
-~
force of the department verified the books of account of the F
above two manufacturers. Therefore, revisional proceedings
were initiated to include the amounts in question in the taxable
turnover in respect of the amounts representing the value

- _____ _..
covered by the Credit notes. In some cases the Commissioner
passed revisional orders because according to him while
revising the assessment, Deputy Commissioner had not taken
the correct figures. Assessees' stand before the Authorities as
G

well as the High Court was that the first seller had r,ollected tax
on the total turnover representing the sale prices from the
respective dealers and the first seller manufacturers claimed H
268 SUPREME COURT REPORTS [2008] 16 S.C.R.

A reduction/rebate in their turnover representing the credit notes
and obtain reduction/rebate of the tax from the department.
Therefore, such amounts should not have been treated as a
part of the taxable turnover in the hands of the dealers who are
the subsequent sellers. The stand of the Revenue was that when
B the manufacturer returned a part of the sale consideration under
the credit notes, the returned amount under the credit notes
includes a part of the tax that was already collect~d since the
'(
•
tax collected was an inseparable part of the sale consideration.
The High Court was of the view that the basic question was
whether value of the credit notes goes to reduce the purchase
c turnover of the dealers or not. The High Court found that the
Revenue's stand was correct.
3. In support of the appeal learned counsel for the appellant
submitted that the whole saler had paid tax on the whole amount
D before adjustment of the credit notes. Therefore the revenue
•
was not justified in levying further demand .. .-f
4. Learned.counsel for the Revenue on the other hand
supported the judgments of the Authorities and the High Court.

E 5. The basic issue can be better appreciated by way of
an illustration. Hypothetically taking the sale price to be Rs.100/
-, the tax to be paid by the selling dealers has to be on 100..
He may collect 90, after giving discount. If the sale price of the .
intermediate seller is 110 his liability to pay tax shall be on 10
~ '
F . Le. 110-100. The department's stand is that it should be 20 i.e.
110-90. This stand will not be correct if the first seller had paid
tax on 100. Therefore, it has to be verified as to what was the .
amount on which tax was paid on the illustrative figures given
above by the selling dealer. The stand of the assesses before
G
the Tribunal and the High Court was that they were not given
personal hearing and only on consideration of their objections,
-
the orders were passed by the authorities. The Tribunal and the · ""----
High Court held that since objections were considered, there
was no need for giving personal hearing. Such conclusion is
clearly unsustainable.
H
· ANDHRA AGENCIES v. STATE OF A.P. 269
[DR. ARIJIT PASAYAT, J.]

6. It is conceded that the books of accounts were not ·A
produced before the authorities. Additionally, there was no
document produced to show that the selling dealer had paid
tax at 100 i.e. illustrative figure given above. It appears that
certain .documents relating to the purchases by the assessees
i.e. sale bills and memos of the selling dealers were produced B

• )'
to show as to the amount on which the tax was paid by· the
selling dealers. These apparently were not considered because
of the fact that the books of account were not produced by the
assessee. The stand of the assessees is that because the
documents were seized by certain taxing authorities, they could c
not be produced. It is stated by learned counsel for the
assessee that if given the opportunity, they shall produce the
documents.
7. The Vlth Schedule as substituted by Act No. 22of1995
with effect from 1st April, 1995 relates to goods in respect of D
• which the tax is leviable under Section 5. The relevant provision
t
reads as follows :
"Provided that for the purpose of liquor at any point
...... of sale other than the first point of sale and the last point
E
of sale, the turnover of the goods liable to tax shall be
arrived at by deducting the turnover of such goods on which
tax has been levied at the immediately preceding point of
sale.
__ ...
Provided further in respect of goods other than liquor F
mentioned in this Schedule, tax to be paid at any point of
sale other than First Point of Sale, shall be determined
after deducting the tax levied on the turnover of such goods
at the immediately preceding point of sale by a registered
dealer from the tax leviable on the turnover of the same G
~ .. goods at the point of sale by selling dealer."
8. As the adjudication to the basic issue involved depends
upon the amount on which tax has been paid by the selling
\
dealer, it would be appropriate to permit the assessee fo
H
270 SUPREME COURT REPORTS [2008) 16 S.C.R.

;.._
A produce the books of accounts for adjudication before the
concerned Deputy Commissioner. In the instant case it is the
Dy. Commissioner (CT) Sikandrabad. The assessees shall
appear before the said authority on 4.11.2008 without further
notice. It shall produce evidence to show that the tax has been
B paid by the selling dealer on the illustrative figure of 100 given
in the illustrative figure. The said authority shall verify the
correctness of the claim with reference to the documents to be
produced. If it is established, tax shall be payable on 10 of the
illustration. Otherwise, the Revenues' stand shall stand
c established.
9. The appeal is accordingly disposed of.
D.G. Appeal disposed of.
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
D 6693 of 2008.
•
From the final Judgment and Order dated 16.8.2004 of the
High Court of Andhra Pradesh at Hyderabad in Special Appeal
Nos. 34 & 35 of 1994 & TRC Nos. 37 to 41 of 1994 .
Mis. Kumar Spirits Pvt. Ltd. etc. etc. ..... Appellant
versus
State of A.P. and Ors. ..... Respondents

F The Judgment of the Court was delivered by
DR. ARIJIT PASAYAT, J. 1. Leave granted.

2. The issues in the present appeal are similar with those
which form the subject matter of challenge in the appeal (Civil
Appeal No. 6694 of 2008) arising out of SLP (C) 21538 of
2006. The appeal has been disposed of by a separate order
today. The present appeal is also disposed of on the same
terms as were indicated in the appeal relating to SLP (C) 21538
of 2006.
1

D.G. Appeal disposed of.