The statement “inclusive of all taxes” does not mean the assessee admitted charging Sales tax: SC

A market retail price stating that it is inclusive of all taxes could be the starting point, but would not prove and establish that the sales-tax has been collected, the Bench said.

The Supreme Court in Deputy Commissioner of Commercial Taxes (Vigilance) Versus M/s Hindustan Lever Limited, has observed that the statement on the packaged product ‘inclusive of all taxes’, means all taxes which were leviable, were already included in the price mentioned and it should not be constructed as an admission that the assessee had charged sales tax.

Division Bench of the Apex Court comprising of Justices Dipak Misra and N.V. Ramana dismissed with costs an appeal by Sales Tax Department against Brook Bond India Ltd.

BACKGROUND

Noticing that sale of tea packets by the Brooke Bond Company from the Dharwad unit which had the benefit of exemption and the units manufacturing tea outside Dharwad unit which did not have the benefit of exemption were similarly priced, the intelligence officer of the Sales Tax department concluded that the dealer had added the tax component to the sale price of Dharwad tea though not under the nomenclature of tax or cess. Thereafter, the Authority declared that the company was not entitled to the benefit of exemption, and a series of assessment order were passed.

On Appeal by the company, The Sales Tax Appellate Tribunal held that though the company had considered the local tax element in the price fixed, but it cannot be stated that the company has collected the local taxes as such from the consumers in view of the fact that in the invoice against KST and CST, it is specifically left blank in respect of Dharwad tea; and accordingly accepted the stand put forth by the assessee. The High Court confirmed the findings of the Tribunal. These findings was assailed by the Sales Tax Authority before the Apex Court.

INCLUSIVE OF ALL TAXES DOES NOT MEAN, ASSESSEE ADMITTED CHARGING SALES TAX

The Court observed “The statement on the packaged product inclusive of all taxes, means all taxes which were leviable, were already included in the price mentioned. It should not be constructed as an admission that the respondent had chargedsales tax. The respondent could not have deviated or ignored the statutory requirement by making a declaration contrary to the statutory rules. The consequences of not obeying and violating the statutory rules would have been severe.”

The Court further observed: “An assessee is entitled to carry on and conduct business, fix the maximum retail price of its products. In the present case in spite of the multiple units both exempted and non-exempted, the respondent had adopted and followed uniform market price throughout India. The respondent is entitled and can fix a uniform price meant for whole of India. The uniform market price does not differ in spite of differences in sales-tax payable at the end point, i.e., at the point of sale. This is a matter of business policy and cannot be taken exception to. The respondent has also explained that uniform market retail price at all India level ensures that the goods from one State do not flow to the other State, thereby distorting sales. It avoids and prevents shortages of goods in lower tax area. Uniform pricing cannot be a ground to hold that the respondent was charging sales tax on a sale price of the goods manufactured in the exempt unit. Cost of production in different units of the respondent assessee can vary. Cost of production has various components and is computed with reference to revenue expenditure, rate of return on the capital expenditure, etc. These are complex commercial and business considerations which cannot be decided with reference to a single factor, i.e., the uniform market retail price. A market retail price stating that it is inclusive of all taxes could be the starting point, but would not prove and establish that the sales-tax has been collected.”

The Court also said: “we do not think, sale consideration received should be bifurcated and divided on the basis of any assumption that the sale price received must have included the tax. This fiction has no application in the present case. There is neither such principle nor any precept in law.”

Read the Judgment here.