Indian Oil Corporation Ltd. Vs The State of Bihar

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.3018 OF 2017

INDIAN OIL CORPORATION LIMITED …APPELLANT

VERSUS

STATE OF BIHAR & ANR. ...RESPONDENTS

WITH

SPECIAL LEAVE PETITION (CIVIL) NO.15875 OF 2017

SPECIAL LEAVE PETITION (CIVIL) NO.15893 OF 2017

SPECIAL LEAVE PETITION (CIVIL) NO.15896 OF 2017

SPECIAL LEAVE PETITION (CIVIL) NO.15899 OF 2017

SPECIAL LEAVE PETITION (CIVIL) NO.15900 OF 2017

SPECIAL LEAVE PETITION (CIVIL) NO.15926 OF 2017

SPECIAL LEAVE PETITION (CIVIL) NO.16192 OF 2017

J U D G M E N T 1

R.F. Nariman, J.

1. The present appeal and special leave petitions arise out

of demands made from the Appellant for payment of Entry Tax

under the Bihar Tax on Entry of Goods into Local Areas for

Consumption, Use or Sale Therein Act, 1993 (hereinafter

referred to as the Entry Tax Act).

2. The Appellant has its marketing division in the State of

Bihar with branches, inter alia, at Barauni and Patna. It is from

these branches that sales of petroleum products are effected.

The Corporation receives crude oil, which is imported from

outside the State of Bihar, which then enters Bihar, where the

Corporation has its oil refinery; and after undergoing certain

processes, crude oil is converted into petroleum products, like

High Speed Diesel, Petrol etc. The products manufactured in

the Bihar oil refinery are then sent to a branch in Patna, mainly

through a pipeline constructed specifically for this purpose.

Some part of these petroleum products, namely, High Speed

Diesel and Petrol are sold by the Appellant to two other oil

marketing companies (OMCs), namely, Bharat Petroleum

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Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation

Ltd. (HPCL), who then take the products from the depot of the

Corporation situated in Patna and thereafter sell the products to

their retail dealers or through their petroleum outlets. The

Appellants, apart from the sales made to these OMCs, also sell

the aforesaid petroleum products to local retailers and through

petroleum outlets in Patna. The Appellant pays Entry Tax at the

rate of 16% when the product enters the local area of Patna

and 24.5% VAT is paid and set off against the Entry Tax under

Section 3(2) second proviso of the Entry Tax Act for sales made

within the local area. The grievance of the Appellant in the

present appeals is that when a sale is made to the OMCs, after

payment of Entry Tax, VAT is not set off against the Entry Tax.

VAT is not actually paid by the Appellant by reason of a

notification dated 4th May, 2006 under the Bihar Value Added

Tax Act, 2005 (VAT Act), where, in case of petroleum products

sold by the Appellant to OMCs, the levy itself is at the point of

sale by the aforesaid OMCs to their retailers or directly to their

consumers, and this being the case, the set off of such VAT

paid, as claimed by the Appellant, was allowed until the year

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2014. However, pursuant to certain audit objections raised by

the Accountant General, Bihar, the aforesaid set offs that were

allowed to the Appellant, were re-opened with effect from the

assessment year 2008-09, as a result of which set offs that

were allowed were now disallowed. The Entry Tax demand

arising from such disallowance for the assessment years 2008-

09 till 2014-15 amount to Rs.1,683.03 crores.

3. In Civil Appeal No.3018 of 2017, the impugned judgment

dated 22nd October, 2013 of the Patna High Court agreed with

the Advance Rulings Authority, and rejected the case of the

Appellant under Section 3(2) second proviso of the Entry Tax

Act, stating that the set off would not be allowable under the

aforesaid proviso.

4. In the seven Special Leave Petitions before us by, a

common judgment dated 19th April, 2017, a Division Bench of

the Patna High Court framed five questions as follows:

“i) Whether the second proviso to Section 3(2) of

the Entry Tax Act is ultra vires to the Constitution?

(ii) Whether interest can be levied in the matter of

late payment of entry tax under the Entry Tax Act, 4

by virtue of the provisions of the Bihar Finance Act,

and, with the aid of Section 8 of the Entry Tax Act?

(iii) Whether entry tax is liable to be paid when the

goods only enter the local area and after such entry

is subjected to sell only without there being any use

of consumption of the goods in the local area?

(iv) Whether based on audit objection as

contemplated under the provisions of Section 33 of

the VAT Act, assessment can be re-opened with the

aid of Section 8 of the Entry Tax Act?

(v) Whether the assessment undertaken under

Section 33 of the VAT Act is permissible after a

period of four years in view of the provision of

Section 31 of the VAT Act?”

5. Questions 1, 3, 4 and 5 were answered against the

assessee, but question 2 was answered in its favour by stating

that since there was no substantive provision by which interest

could be levied, interest that was charged to the Appellant by

the assessment orders in question would have to be set aside.

6. Shri Arvind Datar, learned Senior Advocate appearing on

behalf of the Appellant, has referred in copious detail to various

provisions of the VAT Act, Rules made thereunder and Form

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RT-1 made under the VAT Act. He also referred in detail to

various provisions of the Entry Tax Act. It is his case that the

Entry Tax Act in Bihar, unlike other Entry Tax Acts, was

essentially to ensure that VAT was collected under the VAT Act

in the State. According to him, the moment products contained

in Schedule IV of the said Act suffer tax, the scheme of the

Entry Tax Act is that a set off on such goods, which bear VAT, is

allowable. According to the learned counsel, Section 3(2)

second proviso should be construed in such a manner as would

accord with this object and set off, as claimed by the Appellant,

cannot, therefore, be denied to it. According to the learned

counsel, it is clear that this practice of allowing set off was

followed right up to 2014, showing that both the Government as

well as the assessee were clear that the provision had to be

worked in this fashion. The reason for retrospectively reopening

the assessments made from 2008-09 is due to an audit

objection raised only in the year 2014, after which the assessee

has so arranged its affairs that set off would be claimable and

has, in fact, been allowed by the authorities. According to the

learned counsel, the audit objection was itself only on the

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footing that a 2006 amendment had changed the definition

contained in Section 2(1)(c) of the Entry Tax Act of the “entry of

goods” and it is for this reason that set off was disallowed, and

not the reasons given later by the State. According to the

learned counsel, what has to be seen is the overall picture qua

the goods under the Entry Tax Act and once it is clear that the

aforesaid goods suffer VAT, then a set off becomes payable.

According to the learned counsel, a large portion of

Rs.1,683.03 crores that is demanded relate to sales that are

made by HPCL and BPCL outside the local area of Patna,

which would, therefore, not attract Entry Tax at all. This has not

been segregated, and if segregated, the demand for the

assessment years in question would fall by at least Rs.1,000

crores. The Appellants were given no opportunity to

demonstrate this in detail, despite the fact that they were able

to give certificates by HPCL and BPCL for all the assessment

years in question that those companies had, in fact, effected

sales worth over a thousand crores outside the area of Patna.

7. According to Shri Datar, if this Court were to decide

against the appellant on the construction of Section 3(2) second

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proviso, then, in any case, he would be liable to succeed, as

the said proviso should be read down to make it constitutionally

valid, as otherwise it would fall foul of Article 14 of the

Constitution of India. According to the learned counsel, the

same goods cannot bear different rates of tax which are

ultimately passed on to the consumers and this ex facie

discrimination would, therefore, make the proviso bad in law

requiring this Court to read it down, so that, at least so far the

Appellant is concerned, a set off would be granted. Also,

according to him, in any case, the matter should go back to the

Appellate Tribunal to determine as to how much of the sales

made by HPCL and BPCL would be outside the Patna area

and, therefore, not exigible to Entry Tax at all.

8. Shri S. Ganesh, learned Senior Advocate, appearing on

behalf of the Revenue, has countered each of these

submissions. According to the learned counsel, a plain reading

of Section 3(2) second proviso of the Entry Tax Act would make

it clear that the provision is assessee based and not goods

based. According to the learned counsel, none of the conditions

of the second proviso have been met by the Appellant and only

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if the said provision is completely rewritten, can the Appellant

be given relief. Re-writing of the aforesaid provision, being a

legislative function, would, therefore, be outside the judiciary’s

ken. According to the learned counsel, in any case, VAT and

Entry Tax are separate taxes levied under separate Entries of

List II of the Seventh Schedule. The granting of set off is a

matter of indulgence and cannot be claimed as a matter of

right. It is of essence that the same person should have paid

both Entry Tax and VAT to claim set off. In the present case,

the Appellant admittedly pays only Entry Tax and no VAT as

there is no levy on the Appellant when it sells oil to other OMCs.

According to the learned counsel, Article 14 of the Constitution

cannot be invoked in the present case for the reason that there

is no clear and hostile discrimination, which is the requirement

of several judgments of this Court, before Article 14 can be

used to strike down tax legislation. In any event, according to

the learned counsel, striking down the second proviso would

only result in no set off being claimable at all and would be

counterproductive. The learned counsel made a fervent plea

that interest by way of restitution, at least, should be given to

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the Government since the Writ Petitions that were filed in 2014

resulted in stay orders which have continued till date, making it

impossible for the State to recover interest on the demands

made. He cited a number of judgments to support all these

propositions.

9. Having heard learned counsel for both the parties, it is

necessary to set out some of the provisions of the two Acts in

question. Since we are directly concerned with the Bihar Entry

Tax Act, the following provisions need to be adverted to:

“2. Definitions.– (1) In this Act unless the context otherwise requires,–

(c) “Entry of goods”, with all its grammatical variations and cognate expressions, means, entry of goods: (i) into a local area from any place outside such area, (ii) into a local area from any place outside the State, (iii) into a local area from any place outside the territory of India, for consumption, use or sale therein.

Provided that in case of such goods which are liable to tax under Section–12(1) of the Bihar Finance Act, 1981, entry of goods shall mean entry of goods into local area from any place outside the State for consumption, use or sale therein.

Explanation– Entry of goods into a local area for consumption, use or sale therein from any place

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outside the territory of India shall also be deemed to be an entry of goods for the purposes of this Act.

3. Charge of Tax– (I) There shall be levied and collected a tax on entry of scheduled goods into a local area for consumption, use or sale therein for the purpose of development of trade, commerce and industry in the State, at such rate, not exceeding twenty percent, of the import value of such goods, as may be specified by the State Government in a notification published in a official gazette subject to such conditions as may be prescribed:

Provided different rates for different scheduled goods may be specified by the State Government.

Provided further, that if an importer claims that he imported goods notified under sub-section (1) not for the purpose of consumption, use or sale, the burden of proving that the import was for purposes other than for consumption, use or sale shall be on importer importing such goods and making such claim.

Provided further, that if an importer claims that he imported goods notified under sub-section (1) not for the purpose of consumption, use or sale, the burden of providing that the import was for purposes other than for consumption, use or sale, shall be on importer importing such goods and making such claim.

(IA) The tax under sub-section (1) shall be continued to be levied till such time as is required to improve infrastructure within the State such as power, road, market condition etc. with a view to facilitate better market condition for trade, commerce and industry and to bring it to the level of, National average.

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(2) The tax leviable under this Act shall be paid by every dealer liable to pay tax under Bihar Value Added Tax Act, 2005 or any other person who brings or causes to be brought into the local areas such scheduled goods whether on his own account or on account of his principal or takes delivery or is entitled to take delivery of such goods on such entry:

Provided no tax shall be leviable in respect of entry of such scheduled goods effected by a person other than the dealer if, the value of such goods does not exceed one thousand in a year.

Provided further that where an importer of Scheduled goods liable to pay tax under the Act, incurs tax liability, at the rate specified under Section 14 of the Bihar Value Added Tax Act, 2005 (Act 27 of 2005), by virtue of sale of imported Scheduled goods or sale of goods manufactured by consuming such imported Scheduled goods, his tax liability under the Bihar Value Added Tax Act, 2005 (Act 27 of 2005) shall stand reduced to the extent of tax paid under the Act:

Provided also that if the sale of such scheduled goods is exempted from tax under any notification issued under Section 7 of the Bihar Value Added Tax Act, 2005, reduction of his liability under the Bihar Value Added Tax Act, 2005, as provided in this section or any notification there under, issued shall not be made.

(1) The amendment made in section 3 of the said Act shall be deemed to be, and to always have been, for all purposes, as validity and effectively in force at all material times (w.e.f. 25.2.1993)

(2) Any assessment, collection, adjustment, reduction or computation made or any other action taken or anything done or purported to have been taken or done under the Bihar Finance Act, 1981

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and the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 and notifications issued and rules made there under shall be deemed to be and to have always been, for all purposes, as validly and effectively, assessed, collected, adjusted, reduced, computed or taken or done as if the said Act as amended by this Ordinance had been in force at all material times and accordingly, notwithstanding anything contained in any judgment, decree, or order of any court, or tribunal or other authority:–

(a) no suit or other proceedings shall be maintained of continued in court or tribunal or other authority for the refund of any amount received or realized by way of such tax;

(b) no court, tribunal or other authority shall enforce any decree or order directing the refund or any amount received or realized by way of such tax;

(c) recoveries shall be made in accordance with the third proviso to subsection (2) of Section 3 of the Bihar Tax on Entry of Goods Into Local Areas for Consumption, Use or Sale Therein Act, 1993 of all amounts which could have been collected as tax under the said Act by reason of amendment made in Section 3 by this Ordinance but which had not been collected.

(3) For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if this section has not come into force.

Provided that in case of a manufacturer the reduction in tax liability as aforesaid shall only be allowed to industrial units of the small scale sector, the medium scale sector and sick industrial units:

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Provided that the said reduction in tax shall be available to manufacturer if the imported scheduled goods are used or consumed in the manufacture of goods which are sold within the State of Bihar or in the course of inter-State trade and commerce or in the course of export out of the territory of India. In case only a part of the goods manufactured out of imported Scheduled goods are sold within the State of Bihar or in the course of inter-State trade and commerce or in the course of export out of the territory of India, the claim for reduction in tax liability shall stand proportionately reduced:

Provided further that such reduction from the tax liability shall be admissible only if the dealer specifically mentions in the returns, filed under Section-24 of the Bihar Value Added Tax Act, 2005 (Act 27 of 2005), the Number, date and the amount of the Challan by which the payment of Entry tax in relation to which the reduction has been claimed, has been made.

(3) The liability to pay tax on Scheduled goods shall only be at the point of first entry into a local area and any subsequent entry or entries into any other local area or areas of the said Scheduled goods shall not be subject to tax provided the subsequent importing dealer produces before the assessing officer the original copy of the cash memo, invoice, bill or challan issued to him by the dealer from whom he purchased or received the said Scheduled goods, and files a true and complete declaration in the Form and manner prescribed:

Provided that no tax shall be levied and collected in respect of any motor vehicle which was registered in any other State or Union Territory under the Motor Vehicles Act, 1988 for a period of fifteen months or more before the date on which it is registered in the State under that Act.

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THE BIHAR TAX ON ENTRY OF GOODS INTO LOCAL AREA RULES, 1993

8. Manner for claiming reduction in the liability to pay sales tax.—(1) A claim for reduction in the liability to pay sales tax shall be made by registered dealer who is entitled to claim such reduction under sub-section (1) of section 4 or in accordance with the notification issued under sub-section (1) of Section 3 of the Act.

(2) The claim shall be valid only when the amount of entry tax has been paid on the concerned goods.

(3) The burden of proving the claim for reduction of sales tax shall be on the dealer.

(4) Such claim shall be made by furnishing a statement in triplicate in Form ET-X which shall be filed along with the quarterly return.

(5) On receipt of the claim in Form ET-X, the authority prescribed for assessment of tax shall scrutinize the same before the date for filing of the next quarterly return and shall satisfy itself regarding the correctness of the claim. He shall make appropriate endorsement in the assessment record of the dealer and sign the certificate in the said form.

(6) Two copies of the statement containing certificate of the assessing authority shall be returned to the dealer. He shall furnish one copy of the form to the authority prescribed under the Bihar Value Added Tax Act, 2005 to enable it to reduce the dealers liability at the time of assessment of sales tax payable under the said Act and shall keep other copy as evidence with himself.

FORM E.T.-X

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(See Rule 8)

Statement of claim for reduction in the liability of sales tax payable under the Bihar Finance Act, 1981 consequent upon payment of entry

tax.

(To be furnished in triplicate)

1. Name of the dealer.

2. Style of business & full address

3. Registration number under the B.T. on E. of G. into L.A. Ord., 1993

4. Registration No. under the Bihar Finance Act, 1981.

5. Period to which the claim relates.

I ............ (Full name of the dealer) hereby request for reduction in my liability of sales tax payable under the Bihar Finance Act, 1981 in accordance with the provision of sub-section (1) of section 4 of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Ordinance, 1993 the notification issued under sub-section (12) of section 3 in respect of the goods on which entry tax has been paid by me/us and which have been sold subsequently and sales tax under the Bihar Finance Act, 1981 has become payable.

PARTICULARS

Sl. No.

Description of schedule goods on which entry tax has been paid by the

Concerned Bill / Invoice / Challan No. & date in case of Motor Vehicles

Quantity Value

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dealer. mention Chassis no. & Engine No. also

1 2 3 4 5

Amount of entry tax paid (Quote T.C. No. & date)

Period during which sold

C.M. Bills / Invoice no. & date relating to sale

Sales tax payable

Sale tax payable after reduction of liability

Remarks

6 7 8 9 10 11

I hereby declare and certify that the above particulars are collect and complete to the best of my knowledge and belief.

I further certify that the amount of entry tax shown in this statement has been paid by me.

Signature of the dealer or his declared manager.

CERTIFICATE

(To be signed by the assessing officer)

Certified that the particulars furnished in this statement have been scrutinised by me and found to be correct. The amount of entry tax on the goods concerned, to the extent of which the liability of

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sales tax under the Bihar Finance Act, 1981 has been claimed to be reduced has been duly paid by the dealer.

Signature & designation of the authority.”

10. So far as the Bihar VAT Act is concerned, it is necessary

to refer to the following provisions:

“3. Charge of tax.– (1) Every dealer who is registered under the Bihar Finance Act, 1981 (Bihar Act 5 of 1981), as it stood before its repeal by section 94, shall be liable, on or after the commencement of this Act, to pay tax under this Act on sale or purchase, made by him.

(2) Every dealer to whom the provisions of sub- section (1) do not apply and whose gross turnover of sales calculated from the commencement of the year ending on the day immediately before the commencement of the Act, exceeds the specified quantum, as applicable to him under the Bihar Finance Act, 1981, as it stood before its repeal by Section 94, on the last day of such year shall, in addition to the tax, if any, payable by him under any other provision of this Act, be liable to pay tax under this Act on all his sales.

(3) Every dealer to whom the provisions of sub- section (1) or sub-section (2) do not apply, shall be liable to pay tax under this Act -

(a) on all his sales of goods which have been imported by him from any place outside Bihar, with effect from the day on which he effects first sale of such goods; or

(b) in any other case, from the date on which his gross turnover, during a period not exceeding

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twelve months, first exceeded such taxable quantum as may be prescribed:

Provided that the taxable quantum as may be prescribed under this sub-section shall not exceed ten lakh rupees.

Provided further that different taxable quantum may be prescribed for different classes of dealers.

13. Point or points in series of sales at which Sales Tax shall be levied.- (1) (a) Subject to the provisions of section 16 and section 17, tax on sale of goods shall be levied at each point in a series of sales in Bihar by a dealer liable to pay tax under this Act.

(b) Where the tax is levied at each point of sale, the tax payable by a dealer at any point shall be the amount arrived at after deducting, the input tax credit specified under section 16 or section 17, from the tax computed at that point of sale.

(2) (a) Notwithstanding anything contained in sub- section (1), the tax on the sale of goods specified in Schedule IV shall be levied at such point or points in a series of sales in the State as the State Government may, by notification, specify.

(b) Where by a notification published under clause (a), the State Government specifies, in respect of any goods specified in Schedule IV, that the tax shall be levied at the first point of their sale in the State of Bihar by a dealer, subsequent sales of the same goods in the State of Bihar shall not be levied to tax, if the dealer making subsequent sale produces before the prescribed authority the original copy of the cash memo, or invoice or bill issued to him and files a true and complete declaration in the form and in the manner prescribed.

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(c) Where by a notification published under clause (a), the State Government specifies, in respect of any goods specified in Schedule IV, that the tax shall be levied at more than one point or on all points of sale, the amount of tax paid at each preceding stage of sale shall be adjusted against the amount of tax payable at each subsequent stage of sale in the manner prescribed.

(d) The declaration referred to in clause (b) shall be issued by the selling dealer to the purchasing dealer not later than the 30th day of September of the year following the year to which such sales relate.

(3) If upon information, the prescribed authority has reasons to believe that the selling dealer has, without reasonable cause, failed to issue to the purchasing dealer the declaration referred to in sub- section (2), he shall, after giving the selling dealer a reasonable opportunity of being heard, direct that the selling dealer shall pay, by way of penalty, a sum of rupees five thousand per month for every month of default or the amount of tax involved, whichever is less.

14. Rate of Tax.- (1) Tax shall be payable on the sale price of—

(a) the goods specified in the Schedule II, at the rate of one percent;

(b) the goods specified in the Schedule III, at the rate of six percent;

(bb) the goods specified in the Schedule IIIA, at the rate of five percent;

(c) the goods specified in the Schedule IV, at the rate not below ten percent and not exceeding fifty percent and subject to such conditions and restrictions, as the State Government may, by notification specify.

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(d) any other goods, not specified in the Schedules I, II, III, IIIA and IV, at the rate of fifteen percent.

(2) The State Government may, by notification, alter any Schedule to this Act.

16. Input Tax Credit (3) No input tax credit under sub-section (1) shall be claimed or be allowed to a registered dealer —

(a) in respect of goods specified in Schedule-IV or such other goods as may be prescribed;

35. Taxable Turnover.- (1) For the purposes of this Act, the taxable turnover of a dealer shall be that part of his gross turnover which remains after deducting therefrom —

(f) sale price at the subsequent stages of sale of such goods as are specified in Schedule IV of the Act as being subject to tax at the first point of their sale in the State of Bihar, if necessary evidence as required by sub-section (2) of section 13 are filed with the return filed by the dealer under sub-section (3) of section 24.

Schedule-IV

(See section 14)

Goods 1. Country liquor including spiced

country liquor. 2. Portable spirit, wine or liquor

whether imported or manufactured in India.

3. High Speed Diesel Oil and Light Diesel Oil.

4. Motor Spirit. 5. Natural Gas.

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6. Aviation Turbine Fuel 7. Tobacco and tobacco products,

except biri and unmanufactured tobacco (commonly known as “Khaini”), and other unmanufactured tobacco used in manufacture of biri.

Bihar Value Added Tax Rules, 2005

18. Taxable turnover- For purposes of section 35 the taxable turnover of the dealer shall be that part of his gross turnover which remains after deducting therefrom:

(6) Sale price at the subsequent stages of sale of such goods:

(a) specified in Schedule IV of the Act as being subject to tax at the first point of their sale in Bihar, or

(b) on the sale whereof tax at the maximum retail price has been paid at the first point of its sale in Bihar,

if necessary evidence as required by sub-section (2) of section 13 is annexed with the return required filed by the dealer under sub-section (1) of section 24.

19. Returns. – [(2) Every registered dealer, other than a dealer paying tax under sub-section (1) or sub-section (1A) or sub-section (4) of Section 15, shall furnish to the authority specified in Rule 62:-

(a) A quarterly return in Form RT-I in duplicate;

(b) An annual return in Form RT-III in duplicate.

Provided that every registered developer, who has opted to pay compounding tax under the provisions

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of Section-15C of Bihar Value Added Tax Act, 2005 in lieu of tax payable under the Act shall furnish to the authority specified in Rule 62-

(a) a quarterly return in Form RT-IA;

(b) an annual return in Form RT-IIIB.

FORM RT-I [See Rule 19(2)]

Quarterly Return under Section 24 of the Bihar Value Added Tax Act, 2005

Name and style of the dealer: TIN: Period of Return (Quarter and Year):

Part I (Details of turnover/transfers)

1 Gross Turnover (including value of debit notes):

Deductions:

2 Sales in the course of inter-state trade and commerce

3(i) Value of sales outside the State under Section 4 of the Central Sales Tax Act, 1956

3(ii) Value of stock transfer to outside the State

4 Value of sales return of goods within 6 months of sale under the Act

5 Export sales

6 Amount of other allowable deductions [As per Box A]

7 Total of deductions [2+3+4+5+6]

8 Taxable turnover [1-7]

Box A (other allowable deductions)

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Deduction on account of: Value

(ii) Sale of Petrol, Diesel, ATF and Natural Gas by an Oil Company to another Oil Company (a list of different goods to be annexed to this return separately alongwith their respective sales values) [Details of goods sold to different companies to be submitted as per Box E-2]

11. A notification dated 4th May, 2006 issued under Section

13(2)(a) of the VAT Act reads as follows:

“In exercise of the powers conferred by clause (a) of sub-section (2) of section 13 of the Bihar Value Added Tax Act, 2005 the Governor of Bihar is pleased to direct that tax on the sale of goods specified in column 2 of the table appended hereto shall be levied at point or points in a series of sales specified in column 3 of the said table subject to the conditions and restrictions specified in column 4 of the said table.

Table

Description of Goods

Stage at which said tax is to be

levied

Conditions and Restrictions

1 Motor spirit (Petrol)

(A) At the point of sale by

importer if the goods are

imported from outside Bihar or at the point of

sale by

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manufacturer if the goods are

manufactured in Bihar or, (b) at

the point of sale by oil companies to the retailer or

direct to the consumers, if

goods are sold by these

companies.

2 High Speed Diesel Oil and

Light Oil

Do

12. Since the set off in question depends upon the

interpretation of Section 3(2) of the Entry Tax Act, it is

necessary to state, at the outset, that the following conditions

need to be satisfied for claim of set off under the said provision:

(i) First and foremost, under Section 3(2) itself, the tax

leviable by way of Entry Tax can only be paid by every

dealer liable to pay tax under the VAT Act;

(ii) The set off can only be granted if the assessee is an

importer of scheduled goods, who is liable to pay tax

under the VAT Act;

(iii) The assessee must incur tax liability at the rates specified

under Section 14 of the VAT Act;

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(iv) This must only be by virtue of the sale of imported

scheduled goods; and

(v) “His” tax liability under the VAT Act will then stand

reduced to the extent of tax paid under the Act.

13. It will be seen that the tax leviable under the Entry Tax Act

shall be paid by every dealer liable to pay tax under the VAT

Act. Under Section 3(1) of the VAT Act, all persons who are

registered dealers under the Bihar Finance Act, 1981, as it

stood before its repeal, are liable to pay tax under the said Act

on sales and purchases made by them. There is no dispute

that the Appellant is a registered dealer under the Bihar

Finance Act, 1981 and is thus liable to pay tax under the VAT

Act. Condition (i), therefore, is certainly fulfilled.

14. So far as Condition (ii) is concerned, the Appellant is an

importer of scheduled goods, viz., petroleum products.

Words and expressions that are not defined under the Entry Tax

Act shall have the meaning assigned to them under the VAT

Act, (See Section 2(2) of the Entry Tax Act). Under the VAT Act,

“importer” is defined as follows:

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“2. Definitions- In this Act, unless the context otherwise requires: (p) “importer” means a dealer who brings any goods into the State of Bihar or to whom any goods are despatched from any place outside the State of Bihar.”

It can be seen from the aforesaid definition that an importer

would necessarily refer to a dealer who imports scheduled

goods from outside the state. The question arises as to

whether, on such goods, the Appellant, as importer, is liable to

pay tax under the VAT Act.

15. As is clear from Section 13(1) of the VAT Act, all sales of

Schedule II and III goods have to suffer a levy of tax at each

point in the series of sales by a dealer liable to pay tax under

the said Act. This is subject, however, to Section 16, by which

once the goods have suffered tax, input tax credit is given at

every stage thereafter. This scheme applies generally down the

line to all Schedule II and III goods. However, when it comes to

tax on the sale of goods specified in Schedule IV, Item 3 of

which includes High Speed Diesel oil and light diesel oil, the

levy under the said Act is only at such point as the State

Government may, by notification, specify. This takes us to the

27

notification dated 4th May, 2006, which clearly states that when

it comes to motor spirit, High Speed Diesel oil and light diesel

oil, the levy is at the point of sale by oil companies to the

retailer or direct to the consumer. On a reading of the

aforesaid notification, it is clear that when a sale is effected by

the Appellant to BPCL and HPCL, there is no levy of any VAT

that is contemplated at this point. The VAT gets levied only at

the next point in the chain of sales, which is the sale from BPCL

and HPCL to their retailers and/or consumers. Thus, it is clear

that the second condition is not fulfilled as the importer of the

scheduled goods i.e. the Appellant is not at all liable to pay tax

under the VAT Act.

16. So far as the Condition (iii) is concerned, there being no

levy on the Appellant, the Appellant does not incur any tax

liability at the rates specified under Section 14 of the VAT Act.

17. So far as Condition (iv) is concerned, in any case, this

must be by virtue of sale of the very imported scheduled goods,

which means that the sale must be by the Appellant itself and

not by the other OMCs. This becomes clear from the second

28

part of this provision which reads:

“………. or sale of goods manufactured by consuming such imported scheduled goods………”

18. Further, Condition (v) must be that “his” i.e. the

Appellant’s tax liability under the VAT Act will then stand

reduced, and this is only to the extent of tax paid under the Act.

This condition is also not met inasmuch as the set off is person

specific and not goods specific, as is correctly contended by

Shri Ganesh, learned Senior Advocate, appearing on behalf of

the Revenue.

19. Thus, it will be seen that on a literal reading of Section

3(2) second proviso, the Appellant would not be entitled to

claim set off. However, Shri Datar relied strongly on the

judgment in Associated Cement Companies Ltd. v. State of

Bihar & Ors., (2004) 7 SCC 642. In this judgment, two

manufacturing units of the Appellant, post-bifurcation of the

State of Bihar, fell into the State of Jharkhand. Thanks to an

industrial policy to give incentives to existing units to encourage

additional production, the Appellant was exempted in terms of

29

the aforesaid policy from payment of sales tax on additional

production for the period in question. The Entry Tax Act, as it

then stood, was set out in the judgment and this Court held

that, despite the fact that sales tax on cement was exempted,

the Appellant was held to be a person who was liable to pay tax

as the question of exemption would arise only when there is a

liability to pay tax in the first place. The Appellant was liable to

pay tax but for the exemption, and since it paid tax on the

original production, apart from the additional production, it

would be entitled to set off of tax paid under the Entry Tax Act.

In our opinion, it is clear that this judgment would have no direct

application in the facts of the present case, inasmuch as the

aforesaid judgment related to exemption of sales tax on

production of additional cement in order that production of

cement be boosted in the State. The expression “liable to pay

tax” was held to apply because the question of exemption

would arise only if there is a liability to pay tax in the first place.

Cement was, at the relevant time, “scheduled” goods and,

therefore, sales tax was liable to be paid on such goods. It is

only on account of an exemption notification issued under

30

Section 7 of the Act, as it then stood, that additional production

of cement stood exempted from payment of sales tax. In the

present case, there is no exemption at all. The present is a

case where the importer under the second proviso must first be

liable to pay tax under the Act. We have already seen that the

Appellant is a registered dealer under Section 3(1) of the VAT

Act and would be a dealer liable to pay tax under the aforesaid

Act within the meaning of the enacting part of Section 3(2) of

the Entry Tax Act. However, it is clear that as importer of

scheduled goods, the Appellant must be liable to pay tax under

the VAT Act. As has already been found, the Appellant as an

importer of scheduled goods is not liable to pay tax as the levy

of tax is itself postponed when the Appellant sells the oil to

another OMC, and VAT is leviable only on the transaction

between the said OMC and its retailer or other customers. In

the ACC (supra) case, the levy on cement was always there,

being a scheduled item, an exception to which by way of

exemption was allowed only on additional production of

cement. It is also important to note that the expression “by

virtue of sale of imported scheduled goods or sale of goods

31

manufactured by consuming such imported scheduled goods

…….” was added later by way of amendment and was not

contained in Section 3(2) second proviso which was construed

in the ACC (supra) case. This condition has clearly not been

met in the present case as has been held by us hereinabove.

In any case, the effect of the aforesaid judgment has been

nullified by the addition of a third proviso to Section 3(2) by the

Bihar Finance Act, 2006, which specifically provides that

exempted goods will not be entitled to set off. For all these

reasons, we are of the view that this judgment does not take

the Appellant’s case very much further.

20. Shri Datar also heavily relied upon The State of Tamil

Nadu v. M.K. Kandaswami & Ors., (1975) 4 SCC 745, in

which this Court, while construing Section 7A of the Madras

General Sales Tax Act, referred with approval to a Kerala High

Court judgment to hold that a dealer selling goods may still be

liable to pay tax in circumstances in which no tax is payable

under the Act. We must remember that this Court was dealing

with a provision which was stated to be a charging as well as a

remedial provision, the main object being to plug leakage and

32

prevent evasion of tax. It is in this situation that the aforesaid

provision was given a purposive interpretation. In the present

case, Section 3(2) second proviso is neither a charging section

nor a prevention of evasion of tax section. It is a section which

gives a certain concession as to set off, provided its conditions

are fulfilled. This judgment, therefore, also does not avail the

Appellant.

21. Shri Datar also relied upon A.V. Fernandez v. The State

of Kerala, 1957 SCR 837, for the proposition that the gross

turnover of the dealer should be looked at for finding out

whether a dealer is liable to pay VAT and clearly all sums

payable, including sums by way of inter-State sales and

exports, are taken into account for calculating gross turnover

which would then show that the dealer would be liable to pay

tax. This case again need not detain us any further because

we are not concerned with dealers liable to pay tax, but with

importers of scheduled goods who are liable to pay tax in order

that Section 3(2) second proviso is attracted. We have already

held that in the enacting part of Section 3(2), the Appellant is

certainly a dealer liable to pay tax under the VAT Act, in that it is

33

a registered dealer falling within Section 3(1) of the said Act.

Therefore, any argument based on gross turnover is wholly

unnecessary to include the Appellant under Section 3(2) of the

Entry Tax Act.

22. Shri Datar then referred to State of Bihar & Ors. v. Bihar

Chamber of Commerce & Ors., (1996) 9 SCC 136, for the

proposition that the Objects and Reasons appended to the Bill

of the Entry Tax Act showed that it was with a view to make the

provision of the Bihar Finance Act more workable. From this it

can scarcely be held that this being the object, the second

proviso must be completely altered in order that it subserves

such object. We have already held that a literal reading of the

second proviso, which gives a concession by way of set off,

cannot possibly be held to be altered qua every material

condition, so that the Appellant be entitled to claim a set off.

Consequently, this judgment and other judgments cited by the

Appellant, such as Commissioner of Income Tax, Bangalore

v. J.H. Gotla, Yadagiri, (1985) 4 SCC 343, to buttress the plea

of purposive interpretation cannot be held to apply in the facts

and circumstances of this case.

34

23. Shri Datar’s next plea was that a literal reading of the

second proviso would lead to a situation where the same goods

would suffer different rates of tax and this would be

discriminatory. We are afraid that this plea also does not avail

the Appellant for the simple reason that there are two taxes

which are levied in the present case, one is VAT and the other

is Entry Tax. In one case, VAT is set off against the Entry Tax

and in another, VAT is not so set off. Any anomaly arising from

the aforesaid position would not lead to a charge of clear and

hostile discrimination.

24. When it comes to taxing statutes, the law laid down by

this Court is clear that Article 14 of the Constitution can be said

to be breached only when there is perversity or gross disparity

resulting in clear and hostile discrimination practiced by the

legislature, without any rational justification for the same. (See

The Twyford Tea Co. Ltd. & Anr. v. The State of Kerala &

Anr., (1970) 1 SCC 189 at paras 16 and 19; Ganga Sugar

Corporation Ltd. v. State of Uttar Pradesh & Ors., (1980) 1

SCC 223 at 236 and P.M. Ashwathanarayana Setty & Ors. v.

State of Karnataka & Ors., (1989) Supp. (1) SCC 696 at 724- 35

726).

25. We must also not forget that no assessee can claim set

off as a matter of right and the levy of Entry Tax cannot be

assailed as unconstitutional only because set off is not given.

(See Godrej & Boyce Mfg. Co. Pvt. Ltd. & Ors. v.

Commissioner of Sales Tax & Ors., (1992) 3 SCC 624 at para

9 and State of Karnataka v. M.K. Agro Tech Pvt. Ltd, C.A.

15049-15069 of 2017 decided on 22nd September, 2017, at para

31).

26. However, Shri Datar referred to observations contained in

Ayurveda Pharmacy & Anr. v. State of Tamil Nadu, (1989) 2

SCC 285, Aashirwad Films v. Union of India & Ors., (2007) 6

SCC 624, State of Uttar Pradesh & Ors. v. Deepak Fertilizers

and Petrochemical Corporation Ltd., (2007) 10 SCC 342 and

Union of India & Ors. v. N.S.Rathnam and Sons, (2015) 10

SCC 681. Each of these judgments concerned taxation rates

that were ex-facie arbitrary and/or discriminatory, in that the

very same tax was levied at different rates without any rational

justification for the same and were, thus, struck down as being

36

arbitrary and/or discriminatory. None of these judgments would

have any application to the facts of the present case, in which it

is clear that the plea of discrimination is qua a set off of one tax

against a separate and independent tax imposed. This fact

circumstance would be sufficient to distinguish the said

judgments from the facts of the present case.

27. Since we have found that the plea of discrimination must

fail on the aforesaid grounds, no question of reading down the

provisions would then arise.

28. However, when it comes to the levy of interest, the

impugned judgment dated 19th April, 2017, held that there can

be no levy of interest as there is no substantive statutory

provision for the same. The assessee succeeded on this point

and the State has not filed any appeal against the same.

Therefore, the finding qua interest, having become final, cannot

be interfered with by us.

29. However, Shri S. Ganesh, learned Senior Advocate

appearing for the Revenue, has argued before us that, as a

matter of restitution, interest must be granted in favour of the

37

Revenue for the period for which stay orders have been

obtained in writ petitions filed in 2014 and 2015. This Court has

held that, if a party ultimately succeeds, it must be put back in

the same position as if no such stay orders have been passed,

and for this purpose he referred to and relied upon State of

Rajasthan & Anr. v. J.K. Synthetics Limited & Anr., (2011)

12 SCC 518 at paras 18 and 23 and Nava Bharat Ferro Alloys

Limited v. Transmission Corporation of Andhra Pradesh

Limited & Anr., (2011) 1 SCC 216 at paras 16 to 27.

30. It will be noticed, on a reading of para 23 of Bharat Ferro

Alloys (supra), that ultimately restitution is not a matter of right,

but is a matter of discretion, and that hardships on both sides

must be looked at in order to find a pragmatic solution by way

of restitution. Given the fact that the State continued with the

grant of set off till the year 2014, and reopened assessments

beginning from 2008-09 based on an audit objection, we are of

the view that it would be highly inequitable at this juncture to

allow the State to charge interest, which would arise as a result

of stay orders being passed in the writ petitions. The principal

amount also is not something that the Appellant was able to

38

pass on to the ultimate consumer in the peculiar facts of this

case. Had the Appellant known, from the assessment year

2008-09, and had the Department raised an objection in that

very year, it would have arranged its affairs in such a manner as

to avail of set off under the Entry Tax Act, which it did after

2014, when the audit objections were raised for the first time.

On the facts of this case, therefore, we are not inclined to

exercise our discretion to grant restitutional interest to the

Revenue.

31. The matter, however, does not end here. Shri Datar

pointed out that after the audit objections; a show cause notice

dated 16th April, 2014 was issued by the authority, which was

replied to by letters dated 16th June, 2014 and 27th June, 2014,

in which the assessee repeatedly asked for time to make a

detailed objection on the merits of the case. Finally, by a letter

dated 22nd August, 2014, the assessee was able to muster

certain certificates for the assessment years in question given

by BPCL and HPCL to show that a large amount of the sales

made by them in turn to their retail consumers and though retail

outlets were outside the local area of Patna, and, therefore, not

39

exigible to Entry Tax at all. We find that, without asking for

further data and back up details, the Assistant Commissioner of

Commercial Taxes passed an assessment order immediately

thereafter, on 27th August, 2014, and issued demand notices on

the very same date. We are of the view that the Revenue

appeared to have been in a great hurry to issue the aforesaid

demand notices, and since we are dealing with OMCs who

have complete details of sales made for the years in question to

their retail customers and outlets outside the area of Patna, we

feel that Shri Datar is right in asking that we give an opportunity

to the Appellant to produce all relevant documentary material,

which would show that a large amount of the demand for these

years (of Rs.1,683.03 crores), would be liable to be done away

with as Entry Tax would not be leviable on these transactions at

all as the consumption, use or sale of petroleum products has

taken place outside the local area of Patna. Indeed, all these

sales must have suffered Entry Tax in the local area outside

Patna, where such retail sales were made, provided, of course,

that they were made within the State of Bihar. We are,

therefore, of the view that the Appellant will approach the

40

Appellate Tribunal with all relevant materials in this behalf, and

the Appellate Tribunal will render a finding as to how much of

the demand of Entry Tax for the assessment years in question

would have to be struck down, in that sales made by HPCL and

BPCL to their retail consumers and to others are made outside

the local area of Patna. We give the Appellants 12 weeks’ time

to approach the Appellate Tribunal with all details as aforesaid

and request the Appellate Tribunal to render findings as

required by this judgment, as expeditiously as possible

thereafter. The stay orders granted in the writ petitions, which

have been continued till date, will continue till the decision of

the Appellate Tribunal.

32. With these observations, the Civil Appeal and the Special

Leave Petitions are disposed of.

…………………………..J. (R.F. Nariman)

…………………………..J. (Sanjay Kishan Kaul)

New Delhi; November 14, 2017.

41

INDIAN OIL CORPORATION LTD. Vs THE STATE OF BIHAR

INDIAN OIL CORPORATION LTD. Vs THE STATE OF BIHAR