SBCSALES TAX REVISION NO.170/2007 - CTO, SPECIAL CIRCLE, UDAIPUR V/S M/S SOLKIT COSMETICS AND ORS. :
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IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
JODHPUR.
1. S.B. SALES TAX REVISION PETITION NO.170/2007
Commercial Taxes Officer, Special Circle, Udaipur.
versus
M/s Solkit Cosmetics, F-139, Road No.5, Mewar Industrial,
Madri, Udaipur.
2. S.B. SALES TAX REVISION PETITION NO.162/2007
Commercial Taxes Officer, Special Circle, Udaipur.
versus
M/s Fragrance Cosmetics Pvt. Ltd., Mewar Sheetgarh,
Sardarpura, Udaipur.
3. S.B. SALES TAX REVISION PETITION NO.163/2007
Commercial Taxes Officer, Special Circle, Udaipur.
versus
M/s Solkit Cosmetics, F-139, Road No.5, Mewar Industrial,
Madri, Udaipur
4. S.B. SALES TAX REVISION PETITION NO.171/2007
Commercial Taxes Officer, Special Circle, Udaipur.
versus
M/s Fragrance Cosmetics, Mewar Sheetgarh, Sardarpura,
Udaipur.
PRESENT
HON'BLE Dr.JUSTICE VINEET KOTHARI
Mr.V.K. Mathur with
Mr. Rishabh Sancheti, for the petitioner - Revenue
Mr.Dinesh Mehta, for the respondent - assessee
SBCSALES TAX REVISION NO.170/2007 - CTO, SPECIAL CIRCLE, UDAIPUR V/S M/S SOLKIT COSMETICS AND ORS. :
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DATE OF JUDGMENT : 17th November, 2008.
JUDGMENT
1. Following common question of law arises in the present four
revision petitions filed by the Revenue :
“Whether the Assessing Authority was justified in
imposing additional sales tax on the basis of assessable
value of the commodity “hair oil” sold by the assessee
manufacturer to the distributor M/s Bajaj Sevashram
Limited computed as per Section 4 of the Central
Excise Act, 1944 irrespective of actual sale
consideration charged by the assessee for sale of said
commodity?”
2. The appellate Authorities below held in favour of the assesseee
that the Assessing Authority could not impose such additional tax on
the assessee and unless sale consideration was shown to have been
charged by the assessee from its purchaser under an agreement, no
such additional tax could be imposed upon the respondent – assessee.
Upholding the contention of the assessee that imposition of Central
Excise Duty on the basis of assessable value computed as per Section
4 of the Central Excise Act was hypothetical sale consideration as far
as respondent – assessee was concerned and without burden of proof
which lied upon the Revenue to establish that the respondent –
assessee had collected anything beyond the sale consideration
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disclosed in the sale invoices, returns and books of accounts
maintained in the regular course of business, the Appellate
Authorities concurrently held that , the Assessing Authority could
not impose any such additional sales tax.
3. In the present revision petitions filed by the Revenue, the
learned counsel for the Revenue Mr. Vineet Mathur and Mr. Rishabh
Sancheti candidly submitted that as far as question of law is
concerned, with the latest decision of Hon’ble Supreme Court in the
case of State of Rajasthan V/s Rajasthan Chemist Association
reported in (2006) 6 SCC 773, the said question stands decided
against the Revenue and though the case involved before the Hon’ble
Supreme Court pertained to the Drug Price Control order, the
analogy and ratio of the said decision would cover the controversy in
hand. He further submitted that as far as excise duty component is
concerned, actual excise duty paid by the respondent – assessee was
already included in the taxable sale price in the hands of the
respondent – assessee.
4. Mr. Dinesh Mehta, learned counsel appearing for the
respondent – assessee on the other hand submitted that the
controversy stands covered by the aforesaid decision of Hon’ble
Supreme Court in the case of Rajasthan Chemist Association and also
the judgment of this Court in the case of Assistant Commissioner,
Anti Evasion, Commercial Taxes, Udaipur V/s M/s Vilas Udhyog
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reported in 2007 (18) Tax-update 184 in which similar question
though answered in a brief judgment, concludes this issue in favour
of the respondent – assessee.
5. The Hon’ble Supreme Court in the case of Rajasthan Chemist
Association (supra) while dealing with the validity of Section 4A
inserted in Rajasthan Sales Tax Act, 1994 empowering the State
Government to impose sales tax on the basis of maximum retail price
(MRP for short of commodity held that under Section 4A of the Act
for the taxable event that has occurred, the amount received or
receivable is assumed to be different from that which is neither
received nor receivable and that amount which neither flows from
the Control Order, nor which flows from the buyer to the seller under
the contact but is relatable to a transaction of sale by a retailer which
may not have come into existence. The Hon’ble Supreme Court said
in para 50 as under:
“……..Substitution of assumed price or the
assumed quantity in place of actual price/quantity
in a completed sale transaction, for the purpose of
levy of tax on the subject matter of tax results in
taking away from it the character of ‘sale of
goods” as envisaged under the Sales Tax (Sales
Tax Act).”
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6. Upholding the Division Bench decision of Rajasthan High
Court striking down Section 4A of the RST Act as ultra vires, the
Apex Court said in para 46 to 55 of the said judgment in Rajasthan
Chemist Association (supra) reported in 2006 STC (147) 542 (SC) as
under :
“46. Section 4-A of the Act which projects itself as an
exception to Section 4, creates a legal fiction in respect
of price of subject sale, on which rate of tax is to be
applied. But levy of tax remains single point levy in a
series of sales. Point of taxable sale remains the first
point sale i.e. From the manufacturer/ distributor or the
wholesaer to the retailer. The tax is to be charged or
turnover of the assessment year in aggregate. “Turnover”
is defined under Section 2(44) and “taxable turnover”
under Section 2(42) of the Act. For the taxable event
that has occurred, the amount received or receivable is
assumed to be different from that which is neither
received nor receivable and that amount which neither
flows from the Control Order, nor which flows from the
buyer to the seller under the contact but is relatable to a
transaction of sale by a retailer which may not have come
into existence. For the present, the price to which rate
of tax is sought to be applied to a sale by a wholesaler
to a retailer is neither the price agreed upon by the
parties to the contract of taxable sale to which charge
is attracted nor flows from the Control Order under
which also, it is the price of formulation before end
sale is to be determined within the prescribed limits.
47. The charging Section 4 stipulates that the tax
payable by a dealer under the Act shall be at single point
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in the series by sales by successive dealers, as may be
prescribed and shall be levied at such rates not exceeding
fifty per cent ion the taxable turnover, as may be notified
by the State Government in the Official Gazette. This
shows that there is no scope for multi-point levy of tax
and the tax is levied on the first point sale within the
State in a series of sales and tax is leviable at the rate
applied to aggregate of price received or receivable by
the dealer d on such sales.
48. Section 4-A does not become workable unless
read along with the definition of “turnover” and
“taxable turnover”.
49. The retail price of a formulation needs
determination under para 7 of the Order and the
Government is empowered by the order to fix the price
in accordance with para 7 of the Order to be charged by
a retailer. Where the maximum retail price is fixed as
provided under para 7 of the Control Order, para 19
provides for price that can be charged from a retailer by a
wholesaler, it reads as under:
“19. Price of formulations sold to be dealer :(1) A
manufacturer, distributor or wholesaler shall sell a
formulation to a retailer, unless otherwise
permitted under the provisions of this Order or any
order made thereunder, at a price equal to the retail
price, as specified by an order or notified by the
Government (excluding excise duty, if any), minus
sixteen per cent thereof in the case of scheduled
drugs.”
50. Applying the principles enunciated above, the
inevitable conclusion is that when the wholesaler sells
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any formulation to a retailer in bulk quantity, taxable
event of sale of goods takes place where the wholesaler
and retailers are the parties to the contract, the goods in
question are the formulations and the consideration is
one which is agreed to between the parties to that
transactions within the limits permissible by law. By
substituting the assumed quantity of goods or a price
which is not the subject-matter of that contract of
completed sale for the purpose of measuring tax, the
legislature assumes existence of contract of sale of
drugs by legal fiction which has not taken place and
which cannot be considered to be a sale in the manner
stated in the Sales Act, which alone can be the subject of
tax under Entry 54 in List II. Substitution of assumed
price or the assumed quantity in place of actual price/
quantity in a completed sale transaction, for the purpose
of levy of tax on the subject-matter of tax results in
taking away from it the character of “sale of goods” as
envisaged under the Sales Act (Sale of Goods Act)
51. Another distinguishing feature to be kept in mind
is that the central point of legislation under Entry 54 of
List II of the Seventh Schedule is “sale” in contrast with
the central point of legislation under Entry 84 of List I of
the Seventh Schedule i.e. “goods manufactured or
produced”. While basic nexus of levy in the former is
“sale of specified goods”, in the latter it is “goods
manufactured or produced in India”.
52 Even transaction of sale is independent and can be
subject to levy of tax and the component and the measure
which can make the tax levy effective must have nexus
with the taxable event.
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53. By devising a methodology in the matter of levy of
tax on sale of goods, law prohibits taxing of a transaction
which is not a completed sale and also confines sale of
goods to mean sale as defined under the Act. This
cannot be overridden by devising a measure of tax
which relates to an event which has not come into
existence when tax is ex hypothesi determined, much
less which can be said to be a completed sale and which
cannot be the subject of legislation providing tax on
“sale of goods” by transplanting a sum related to as
“likely price” to be charged for subsequent sale to be
taxed by the devise of measuring tax for the completed
transaction whch has become subject of tax.
54. It may be relevant to recall here that this Court in
Hotel Balaji case held that where a tax was levied as a
purchase tax and was confined to the purchase price paid
by the buyer, and was not chargeable at the price at
which the end produce was sold later, it had retained its
character as a tax on purchase.
55. If the legislation can provide for a measure of tax
on the subject of tax by substituting any notional value,
which at no point of time becomes part of or related to
subject of tax viz. sale of goods, then the fact that it is
related to MRP loses its significance altogether. If this is
permitted to be done, the legislation can provide for any
measure the purpose of applying the rate of tax, whether
it is founded on MRP or any other fixed value which the
legislature may provide will make little difference. It is
not contended by the appellant that even if the measure
is not relatable to MRP, it can substitute any value as a
measure of tax. Subject of tax is not the goods or goods
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sold, but a transaction of “sale of goods” as defined
under the Sales Tax.”
7. In view of aforesaid authoritative pronouncement of the
Hon’ble Apex Court, it can safely be concluded that the Assessing
Authority could not impose any additional t ax in the hands of the
respondent – assessee on the basis of hypothetical price or sale
consideration assuming it to be 50% of the MRP which is the
assessable value as computed for the purpose of Central Excise Act,
1944. There appears to be nothing brought on record by the
Assessing Authority to prove the case of under-billing or charging of
anything beyond the disclosed sale consideration in its returns or
invoices. It is doubtless that the burden of proof in this regard lies
upon the Revenue. Even if the difference between MRP and the sale
consideration shown by the assessee may appear to be huge, it can at
best give rise to the initiation of proceedings which the Assessing
Authority may initiate for discharging the aforesaid burden of proof
as it is a question of fact whether the assessee has charged something
extra beyond the disclosed sale consideration or not. Ex hypothesi
sale consideration cannot be increased to assessable value as
computed under Section 4 of the Central Excise Act for the purpose
of levy of sales tax. In view of the aforesaid pronouncement of the
Hon’ble Supreme Court, the appellate Authorities below cannot be
said to have committed any error in setting aside imposition of
additional tax upon the respondent – assessee.
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8. The present revision petitions filed by the Revenue are thus,
found to be devoid of merit and the same are accordingly, dismissed.
No order as to costs.
(Dr.VINEET KOTHARI)J.
Item No.38-41
Ss/-