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.

19

(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.

20

(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.

21

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

22

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

24

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;

25

(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:

26

“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

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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

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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.

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