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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 656 OF 2008

Deputy Commissioner  of ...Appellant(s) Commercial Taxes (Vigilance)

Versus

M/s Hindustan Lever Limited ...Respondent(s)

J U D G M E N T

Dipak Misra, J.

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

Karnataka at Bangalore in STRP No. 62 of 2004 whereby the

Division  Bench  has  dismissed  the  Special  Revision  Petition

preferred by the appellant-department and affirmed the order

dated 27.12.2003 passed by the  Special  Bench constituting

five members of the Karnataka Appellate Tribunal, Bangalore

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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  the

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 of Karnataka as

per the package of incentive granted vide Government Order

dated 27.09.1990 and sales tax exemption notification dated

19.06.1991 to which we shall advert to at a later stage.  

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3. When the matter stood thus, 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 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 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 of Dharwad tea

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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 15.06.1998, 31.01.1999, 22.02.2000

and  01.07.2000 were passed wherein, inter alia,  the claim of

exemption  on  the  turnovers  of  Dharwad  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  vide  orders  dated  25.02.1999,

07.03.2001 and 23.03.2001 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 were challenged before the

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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 fact that in the invoice against

KST and CST, it is specifically left blank in respect of Dharwad

tea;  and  accordingly  accepted  the  stand  put  forth  by  the

assessee-respondent.   The said order was challenged before

the High Court in revision petition.

5. The High Court to appreciate the controversy framed the

following three questions of law:-

“(1) 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 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

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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  of  Dharwad  and  non-Dharwad tea,  the  distinction  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  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  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.....

 ... incl. of all taxes.”

or

“MRP Rs. ... INCL. OF ALL TAXES”

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31. Much  of  arguments  were  advanced  before us that in the light of inclusive 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.  Tribunal,  in our view, is right in noticing that mere mentioning of MRP does 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 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.  

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.

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8. The present litigation has a history.  Be it stated, this is

the 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 others1.

In the said case, the Court has held that:-

“7. The administration of the State of Karnataka represented by its Chief Secretary, does not find the  said  officer  guilty  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  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 decided afresh.

1

 (1996) 10 SCC 710

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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 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 Government. As we have already  stated,  we  have  done  so  because  the Chief  Secretary  of  the  State  of  Karnataka 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 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

quantified in the sum of Rs. 50,000/-.  In the second round of

litigation, the State of Karnataka sought to deny the exemption

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on  the  ground  that  grinding  of  tea  does  not  amount  to

manufacture and, therefore, as such the exemption was not

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.   

10. The present one is the third round.  Mr. Patil,  learned

senior  counsel  appearing  for  the  State  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 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 8A

of the KST Act. Lastly, it is canvassed by Mr. Patil  that the

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issue whether the legend “inclusive of taxes” found on both the

packed  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 conclusion. Mr. Patil has placed

reliance  on  State of  Karnataka v.  M/s  C.  Venkatagiriah

and Brothers2 and  T. Stanes & Co. Ltd. v. State of T.N.

and another3.

11. Mr.  Salve,  learned  senior  counsel  appearing  for  the

assessee-respondent would urge that the declaration made by

the assessee about MRP is a statutory declaration required as

per  Rule  2(r)  of  the  Standards  of  Weights  and  Measures

2

 1994 Supp (2) SCC 572 3

 (2005) 9 SCC 308

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(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 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  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  two  units  of  the  same  manufacturer

either in the same State or in two different States 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

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has  collected  tax  without  appreciating  the  fact  that  the

assessee  has  adopted  a  singular  business  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  Delhi Cloth and General Mills Co.

Ltd. v. Commissioner of Sales Tax, Indore4.

12. The heart of the matter is whether the respondent has

violated  clause  (e)  of  Explanation  III  to  the  Sales  Tax

Exemption notification dated 19th June, 1991.  The said clause

is reproduced below:-

“Explanation  III.  The  provisions  of  this Notification shall not apply:

(a)  xx xx xx xx (b) xx xx xx xx (c)  xx xx xx xx (d)    xx xx xx xx

4

 (1971) 2 SCC 559

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(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 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, 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  another5 and  more

particularly on paragraph 11, which reads as under:-   

“11. Exemption  from  tax  to  encourage industrialisation  should  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  from  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

5

(1992) 2 SCC 411

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the  methods  to  grant  incentive  to  encourage 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 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. Reference is also made to the decision of this Court in

M/s C. Venkatagiriah 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. v.  State  of  Mysore6.  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 that in the accounts of

6

(1970) 26 STC 283 (Mys)

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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)  is  not correct in law. Whether a dealer 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  (1)  of  Section  10  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 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 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

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endorsement, he must be held to have collected the tax.”

14. It  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 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  obliterated,  the  entire  case  of  department

collapses.

15. First, we shall deal with the applicability of the principle

stated in  Amrit Banaspati (supra). The issue raised in the

case  of  Amrit  Banaspati (supra)  was  quite  distinct  and

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separate.  The  question  raised  was  whether  the  principle  of

promissory estoppel would apply, for the 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

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 law and

realised in accordance with the law would be a fraud on the

Constitution and breach of faith of the people.  It is in this

context, the aforesaid observations were made in paragraph 11

in the case of Amrit Banaspati (supra).

16. In fact, a careful elucidation of the said reasoning would

support  the  stand  of  the  respondent.  The  assessee,  on the

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basis of exemption notification had set up a new undertaking

incurring expenditure. 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  overcome  the  teething  problems.

Observations in paragraph 11 in  Amrit  Banaspati (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 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

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Explanation III 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  frequently  comes  across

products  where  the  maximum  sale  price  is  specified  and

stated on the packaging as in the present case.  Rule 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 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.  It  should  not  be

constructed as an admission that the respondent had charged

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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 dealer was exigible

to Central Sales-tax only 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 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

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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 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 on sales made

from the exempted unit. The assessee has relied upon 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  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

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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 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 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 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

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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 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 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

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taxes could be the starting point,  but would not  prove and

establish that the sales-tax has been collected.

21. Reliance  placed  on  T.  Stanes  &  Co.  Ltd. (supra)  is

misconceived.  The  question  involved  therein  related  to

interpretation  of  Section  22  of  the  Tamil  Nadu  General

Sales-tax Act.  The said Section 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 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 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 score is totally different.

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22. In  this  context,  it  would  be  relevant  to  refer  to  the

decision of the Court in  Delhi Cloth and 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 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.   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 from the said authority:-  

“6. Under Section 4 the liability to pay tax 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  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

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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 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 introduced into the Act by Madhya Pradesh Act 23 of 1963. That provision would have relevance only  in  respect  of  the  assessment  for  the  year 1963-1964.

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 horticultural produce grown by himself  or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee,  tenant  or  otherwise,  when  such produce  is  sold  in  the  form  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 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

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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 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 customers the same can only be considered as valuable consideration for the goods sold.

  x x x x x

x x x x         x

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.”   

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

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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. 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  sans  merit,  stands  dismissed  with  costs  which  is

assessed at Rs. 1,00,000 (Rupees One Lac Only).

        ...........................J. (Dipak Misra)

..........................J.  (N.V. Ramana)

New Delhi; June 30, 2016