Revenue Cannot Treat Sale Price As 'Tax Inclusive' Without Proof: Gujarat High Court Quashes ₹25.53 Crore Penalty On Coca-Cola

The Gujarat High Court, while quashing the penalty of Rs. 25.53 Cr. on Hindustan Coca-Cola, stated that the amount of tax could not have been bifurcated by the revenue simply because the sales had been inclusive of tax. The bench found that there is no evidence on record to show that the assessee had collected any amount by way of tax from its distributors, retailers or customers, as the sales invoice shows the 'Nil' tax in the sales tax column along with the fact that there was an endorsement on the sales invoice that the sales taxes are exempted from payment of tax. Justices Bhargav D. Karia and Pranav Trivedi stated that the only ground on which the penalty was levied under section 46 read with section 56(1) of the Sales Tax Act was that the price while fixed by the respondent-assessee was inclusive of tax which was required to be bifurcated and thereby alleging that the respondent-assessee had collected the tax in spite of availing exemption would not stand. In this case, the assessee/Hindustan Coca-Cola had obtained a sales tax exemption certificate under section 49(2) of the Sales Tax Act and availed sales tax exemption till 24.11.2003 on the sale of manufactured products at its plant situated at Goblej, District Kaira. The assessee was availing the exemption from payment of sales tax under Entry 69 of section 49(2) of the Sales Tax Act for a period of six years. The Revenue has issued the show-cause notice by making an assumption that the sale price fixed by Hindustan Coca-Cola for its product was inclusive of the sales tax amount, though the sale of the goods was exempted from payment of sales tax. The Sales Tax Officer imposed a penalty of Rs. 25.53 cr. on Hindustan Coca-Cola under section 46(1)(i) of the Gujarat Sales Tax Act, 1969. The assessee preferred First Appeals before the Deputy Commissioner of Commercial Tax, which were dismissed. Consequently, orders of penalty were also upheld in the First Appeals. The Deputy Commissioner dismissed the appeals filed by the assessee after considering the Books of Accounts maintained by the assessee under two different account systems: one under the USGAAP [Generally Accepted Accounting Principles in the USA] and the other under IGAAP [Generally Accepted Accounting Principles in India]. Being aggrieved, the assessee preferred Appeals before the Tribunal, which were allowed. The revenue argued that merely because in Books of Accounts, assessee has reversed the entries pertaining to the sales tax payable account, Deffered Sales Tax Asset account and sales tax expenses account which were created in USGAAP, the assessee could not have been stated to have not collected sales tax from the end consumers though the exemption on payment of sales tax was available under section 49 (2) of the Sales Tax Act. Hindustan Coca-Cola submitted that in the Books of Accounts maintained by the assessee under the IGAAP, no amount of sales tax was accounted for, and the entries made under USGAAP Accounting System were reversed by the assessee in the accounts prepared under IGAAP, which was relevant for the purpose of assessment under the Sales Tax Act. It was further argued that when they have not shown separately any amount of sales tax on the exempted sales, the price charged by them cannot be said to be inclusive of sales tax, as no tax was collected by the assessee separately, as no separate charges were collected from the buyers either by way of tax or by way of any other charge. The bench agreed with the Tribunal that the amount of tax could not have been bifurcated by the Revenue simply because the sales had been inclusive of tax. The bench further agreed with the reasoning given by the Tribunal that the Assessing Officer and the Appellate Authority had committed an error in appreciation of the evidence on record resulting into wrong finding that the assessee had collected some amount by way of tax from the distributors and retailers. The bench held that the Hindustan Coca-Cola/assessee had not collected any amount by way of tax and therefore, the provision of section 56 of the Sales Tax Act could not be attracted. In view of the above, the bench dismissed the appeals and quashed the penalty of Rs. 25.53 crores. Case Title: State of Gujarat v. Hindustan Coca-Cola Beverages Pvt. Ltd. Case Number: R/TAX APPEAL NO. 2177 of 2010 Counsel for Appellant/State: Utkarsh Sharma, AGP Counsel for Respondent/Assessee: Kunal Nanavati Click Here To Read/Download The Order Citation : 2025 LiveLaw (Guj) 178

Revenue Cannot Treat Sale Price As 'Tax Inclusive' Without Proof: Gujarat High Court Quashes ₹25.53 Crore Penalty On Coca-Cola

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