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CASE NO.:

Appeal (civil) 6619 of 2001

PETITIONER:

Indian Oil Corporation Ltd.

RESPONDENT:

State of Assam & Others

DATE OF JUDGMENT: 27/11/2006

BENCH:

ASHOK BHAN,ALTAMAS KABIR & DALVEER BHANDARI

JUDGMENT:

J U D G M E N T

DALVEER BHANDARI, J.

This appeal is directed against the judgment dated

3.5.2001 passed by the High Court of Assam, Nagaland,

Meghalaya, Manipur, Tripura, Mizoram and Arunachal

Pradesh, in Writ Appeal No.36 of 1999. The appellant

Indian Oil Corporation Ltd. is a limited company

incorporated under the Companies Act, 1956 and a

registered dealer under the Assam General Sales Tax Act,

1993 (hereinafter referred to as "the Act"). The appellant

company has been engaged in the business of sale and

supply of petroleum products in the country including

the State of Assam.

The appellant company has been purchasing

various petroleum products from Bongaigaon Refinery &

Petrochemicals Ltd. (hereinafter referred to as the "the

BRPL") on payment of sales tax as per the provisions of

the Act. On the recommendation of the Oil Prices

Committee set up by the Government of India, Resolution

dated 16.12.1977 was adopted by the Government which

required a dealer to sell its products at the prices fixed by

the Central Government and the prices so fixed by the

Central Government included surcharge to be collected

from the buyers and deposited to the 'Oil Pool Account'.

The appellant company - a dealer, therefore, had no

alternative but to sell the products at the prices so fixed

inclusive of surcharge and transfer the surcharge to the

said 'Oil Pool Account'. The appellant company was

entitled to retain only the basic price, the sales tax paid

at the time of purchase of the products in Assam from

the BRPL and the profit margin specified by the Central

Government. According to the appellant, the amount of

surcharge collected and remitted to the 'Oil Pool Account'

did not form part of the turnover of the appellant and the

said amount of surcharge was immediately remitted to

the 'Oil Pool Account' by way of pool account settlement.

According to the appellant, under Section 8 of the

Act, tax was levied in respect of the goods specified in

Schedule II at the first point of sale within the State.

Items 63 to 73 of Schedule II enumerate various

petroleum products. As per Explanation 1 to Section

8(1)(a) of the Act read with Rule 12 of the Assam General

Sales Tax Rules, 1993 (hereinafter referred to as "the

Rules"), if the resale price of a dealer exceeded 40% of the

purchase price, the resale was deemed to be first point

sale within the State. At this stage, in order to properly

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appreciate the issues involved in the case, we deem it

appropriate to set out Section 8(1)(a) of the Act, Rule 12

of the Rules and Section 2(34) of the Act as under:

"Section 8. Charge of Tax and Rates \026

(1) The tax leviable under section 7 for

any year shall be charged on the taxable

turnover during such year-

(a) in respect of goods specified in

Schedule II, at the first point of sale

within the State, at the rate or rates

specified in that Schedule;

Explanation I : Where a person sells a

substantial part of the goods

manufactured by him or imported by him

to another person for sale under the

brand name or such other person or for

resale as distribution or selling agent or

for resale after repacking or subjecting

the goods to any other process not

amounting to manufacture and the price

charged on resale exceeds the sale price

by more than such percentage as may be

prescribed in respect of such goods or

class of goods, the resale by such other

person shall, subject to rules if any,

framed in this behalf, be deemed to be at

the first point of sale within the State;

x x x "

The relevant portion of Rule 12 of the Rules reads

as under:

"Rule 12 (1). Where a person after

purchasing goods covered by Schedule II

under clause (a) of sub-section (1) of section 8

sells such goods in such manner as mentioned

in the Explanation to the aforesaid clause and

if the price charged on such re-sale exceeds

forty percentum of the original sale or

purchase price, in respect of such goods or

class of goods the resale of such goods by such

person shall be deemed as first point of sale

within the State and the rates of tax shall be

as specified in Schedule II for such items.

x x x "

Section 2(34)(d) of the Act defines the "sale price" as

under:

"2(34) "Sale Price" means\027

(d) in respect of a sale under any other sub-

clause of clause (33), the amount received

or receivable by a dealer as valuable

consideration for the sale of goods

including any sum charged, whether

stated separately or not for anything done

by the dealer in respect of the goods at

the time of or before delivery thereof or

undertaken to be done after the delivery

whether under the contract of sale or

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under a separate contract but excluding-

(i) the cost of outward freight, delivery

or installation or interest when such

cost of interest is separately

charged, subject to such conditions

and restrictions as may be

prescribed, and

(ii) any sum allowed as a cash discount

according to ordinary trade practice:

PROVIDED that in a case where there is

no bill of sale or the sale bill is, in the

opinion of the assessing authority, for an

amount substantially lower than the

market price of the goods, the valuable

consideration receivable by the dealer

shall be taken to be the market price

determined in the prescribed manner.

Explanation I. Any tax, cess or duty

which is liable to be paid in respect of

any goods before the buyer can obtain

delivery and possession of such goods

and all costs, expenses and charges

incurred before the goods are put in a

deliverable state shall, notwithstanding

any agreement, covenant or

understanding that such tax, cess, duty,

costs, expenses or other charges be born

or paid by the buyer or any other person,

be included in the sale price.

x x x "

The difference between the "purchase price" and the

"sale price" received/retained by the appellant was much

less than 40%; however, if the 'surcharge' was included

in the "sale price" the difference became more than 40%.

According to the appellant, in the impugned

judgment, the High Court ought to have directed that the

appellant would be liable to pay the sales tax only on

differential amount, that is to say, the difference between

the amount paid by it to the BRPL and the amount

collected by it from the customers through its dealers.

The appellant company had prepared a chart and

submitted before the High Court, which showed the

purchase price and the sale price of various products

dealt by the appellant company and the amount of

surcharge to be collected by the appellant company on

behalf of the Central Government. The chart prepared,

submitted and relied upon by the appellant company is

set out as under:

Products

Purchase

Price Ex.

REF

Price

Sales

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Price

w.e.f.

1.3.94

Amount to

be

surrendered

to Pool A/c

Sale

Price up

on 1.3.94

Amount to

be

surrendered

to Pool A/c

ATF

3245.38

10886.71

7463.56

10886.71

7463.56

HSD

2552.66

6311.70

3620.20

5561.70

3123.99

MS

4263.76

15480.22

10990.56

14480.22

10155.54

FC

1967.33

5008.75

2901.24

5008.75

2901.24

SKO

2287.00

2212.54

Nil

2212.54

Nil

LPG

3420.00

5860.75

680.00

5156.55

680.00

The appellant company, for instance, had submitted

that on Aviation Turbine Fuel, the appellant paid

Rs.3245.38 per KL to the BRPL as sale price and

collected Rs.10,886.71 per KL from its customers.

However, out of Rs.10886.71, the appellant retained only

Rs.3423.15 per KL as valuable consideration for sale of

ATF and the remaining amount of Rs.7463.56 was

remitted to the 'Oil Pool Account'. The State had levied

Sales Tax on the entire amount of Rs.10,886.71 without

giving adjustment of Rs.3245.38 paid for the same goods

to the BRPL on which tax was already paid. According to

the appellant, the respondents were bound to give

adjustment of the amount of sales tax paid to the BRPL

at the time of purchase of petroleum products and can at

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the most levy sales tax on the differential amount of

Rs.7463.56. According to the appellant, in the impugned

judgment, the High Court completely ignored and

overlooked this aspect of the matter though specifically

pleaded and argued.

The grievance of the appellant was that the

Revenue, subsequent to the impugned order of the High

Court, had passed ex parte assessment orders and raised

demand of Rs.303.98 crores retrospectively from the

years 1994-95 to 1997-98 and levied tax on the entire

amount collected by the appellant from its customers

without giving any adjustment of the sales tax paid by

the appellant to the BRPL on which tax had already been

levied treating the same as first sale under Section 8(1) of

the Act and also levied huge amount of Rs.158.12 crores

by way of interest.

According to the appellant, the question which

arose for consideration was \026 whether the "sale price"

was the consideration receivable by the dealer which was

fixed by the Government of India or the amount the

dealer was required to collect by way of consideration

plus amount payable to the 'Oil Pool Account'. The other

question which, according to the appellant, arose for

consideration was \026 if the 'first point of sale' is deemed to

be the sale of the appellant (IOC) by virtue of Explanation

1 to Section 8 of the Act, it cannot be taxed in the hands

of the BRPL because Explanation 1 to Section 8 does not

contemplate 'first point sale' in the hands of two dealers,

it only contemplated shifting of 'first point of sale'. A

question would also arise as to whether non-adjustment

of taxes paid by the appellant while purchasing the goods

from the BRPL at the point of first sale in Assam, when

the second sale by the appellant of the same goods in

Assam was treated to be the first sale because of the

deeming provision in Explanation 1 to Section 8(1)(a) of

the Act and the tax was charged on the same goods

would not amount to double taxation.

The appellant company reiterated that it had to sell

its products at the prices fixed by the Government of

India and while fixing such prices, an amount on account

of 'surcharge' had been included which was to be

collected as 'surcharge' and had to be deposited with the

'Oil Pool Account'. Under the Administered Price

Mechanism, oil companies were obliged to charge a

uniform sales tax price within the State irrespective of

first sale of the taxable goods or resale of tax paid goods.

Any under-recovery or over-recovery on account of the

different incidence of tax on sale of taxable/tax paid

goods had to be adjusted through the 'Oil Pool Account'

by appropriate claim/surrender respectively. The State

Surcharge Scheme for a particular State was formulated

by the Oil Co-ordination Committee by considering

various taxes leviable in that State. While doing so, any

over/under-recovery which arose on account of

composite billing, where inter oil company exemption was

not available, was also adjusted to work out the net

amount to be charged to the consumers of the State by

way of State Surcharge. The appellant submitted that

during the years 1994-95 to 1997-98, it had paid

Rs.44.16 crores by way of sales tax to the BRPL in

respect of the same transactions in question.

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The Senior Superintendent of Taxes, respondent

no.3, on 7.2.1996, asked the appellant company about

details of the "purchase" and "sale price" of various

products dealt with by the appellant company and was of

the view that since the "sale price" of the appellant

company is more than 40% of the purchase price, as per

the Explanation to Section 8(1)(a) of the Assam General

Sales Tax Act, 1993 read with Rule 12 of the Assam

General Sales Tax Rules, 1993, the second sale was to be

treated as the first sale and the appellant company was

liable to pay tax on the second sale considering it to be

the first sale in the State of Assam.

The appellant company pointed out to the Senior

Superintendent of Taxes, respondent no.3, that the "sale

price" of the appellant company included an amount of

'surcharge' collected on behalf of the Central Government

and in that view of the matter the "sale price" for the

purpose of the Act should be determined after reducing

the amount of 'surcharge' collected by the appellant

company on behalf of the Central Government which had

to be contributed to the 'Oil Pool Account'.

The Senior Superintendent of Taxes, on 17.2.1996,

directed the appellant company to produce the accounts

and records relating to purchase and sale of the BRPL

products from 1.7.1993 up to date on 18.2.1996. The

information as required was submitted by the appellant

company.

The appellant company was served with another

notice dated 28.3.1996 by the Senior Superintendent of

Taxes directing the appellant company to show cause

against initiation of penal action on the ground that the

appellant company was liable to pay tax on the sale of

products purchased from the BRPL being selling agent as

per Section 8(1)(a) of the Act read with Rule 12 of the

Rules, but the appellant company allegedly suppressed

the liability by not paying the taxes on such sale. The

appellant company was also directed to clear the

payment of taxes on sale of products from the BRPL and

disposed within the State of Assam for the period from

1.7.1993. The appellant filed a writ petition in the High

Court challenging the aforesaid notice dated 28.3.1996

whereby the demand was made of payment of tax inter

alia on the ground that the notice was without

jurisdiction since no tax was payable by the appellant

inasmuch as the difference between the purchase price

and the "sale price" received/retained by the appellant

was much less than 40% so as to attract the tax liability.

The learned Single Judge vide judgment dated 2.11.1998

dismissed the writ petition holding that the amount of

'surcharge' collected by the appellant company even

though passed on to the 'Oil Pool Account' had to be

included in the "sale price" as defined under sub-section

(34) of Section 2 of the Act.

The appellant aggrieved by the said judgment of the

learned Single Judge filed a writ appeal before the

Division Bench of the High Court. The Division Bench,

vide judgment dated 3.5.2001, dismissed the writ appeal

inter alia holding that the 'surcharge' collected by the

appellant on behalf of the Central Government and

contributed to the 'Oil Pool Account' was not statutory

collection but was collected under the executive

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instructions and cannot be excluded while calculating

the "sale price". It was held that the sale by the

appellant company was to be treated as first sale within

the meaning of Section 8(1)(a) of the Act read with Rule

12 of the Rules since the resale price exceeded 40% of the

purchase price.

The appellant aggrieved by the impugned judgment

has preferred this appeal before this Court.

The appellant company, though reiterated all the

grounds, challenged before the High Court but during the

course of arguments Mr. G.E. Vahanvati, the learned

Solicitor General laid emphasis on the following

submissions:

a) That, according to the provisions of the Act,

particularly sub-section 1 of Section 8 read

with Explanations 1 & 2 did not envisage

double taxation;

b) That, the appellant on purchase of petroleum

products from the BRPL had already paid sales

tax construing the same as the first point of

sale in the State. The question of levying tax

on the very same goods again in the State in

the hands of IOC cannot arise because

Explanation 1 merely contemplated shifting of

first point of sale in the State on the happening

of certain contingencies stipulated therein but

did not contemplate double or multipoint

taxation by levying tax in the hands of two

dealers in the State in respect of sale of the

very same goods.

c) According to Mr. Vahanvati, the High Court, in

the impugned judgment, ought to have held

that the sales tax would be leviable only on the

difference of the resale price and purchase

price since under Section 8(1) of the Act, tax

was levied at the point of first sale. The

appellant on purchase of goods from the BRPL

had paid sales tax and as such the sales tax

would be leviable on the difference of the price

otherwise it would amount to double taxation

not envisaged by the Scheme of the Act.

Mr. Vahanvati, to buttress his submissions had

placed reliance on the judgment of this Court in M/s

Advance Bricks Company v. Assessing Authority,

Rohtak & Another [1987 (Supp) SCC 650]. In this

case, the appellant was a registered dealer under the

Haryana General Sales Tax Act, 1973. The appellant's

case was that it had purchased sun-dried bricks from a

registered dealer on payment of sales tax and that

amount represented the sale price of such tax-paid

bricks and subsequently burnt and sold the same bricks

at a higher price. It was held that the appellant was

liable to pay tax on such burnt bricks. The question

arose whether the appellant was entitled to set-off the

sales tax already paid to the registered dealer when they

purchased the sun-dried bricks. The appellant's claim

was rejected by all authorities including the High Court.

Ultimately, this Court held that the appellant had paid

sales tax to a registered dealer at the time of purchase of

sun-dried bricks and the amount of tax then paid should

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be given credit and balance should be recovered.

The learned Solicitor General submitted that on the

same analogy, the appellant company in the instant case

should be directed to pay the sales tax on the difference

of amount between the purchase price and resale price.

This would be in consonance with the scheme of the Act.

In pursuance to the show-cause notice issued by

this Court, counter affidavit was filed on behalf of the

respondents by the Extra Assistant Commissioner,

Government of Assam. In the said counter affidavit, it

was alleged that in the instant case, the appellant

company had purchased petroleum products from the

BRPL and sold the same through its various dealers to

the consumers and had also collected sales tax from the

consumers on the entire sales. The entire collection of

sales tax was done as per the provisions of the Act.

However, instead of depositing the entire collected sales

tax with the State government, the appellant had

misappropriated it and contrary to the statutory

provisions had not deposited the sales tax with the State

Government.

Mr. C. A. Sundram, the learned Senior Counsel

appearing for the respondents, submitted that the

definition of "sale price" includes every amount received

by the appellant company from the buyers as

consideration for the sale of the goods. As per the sub-

clause (d) of Section 2(34), the amount received or

receivable by the dealer as the valuation of the

consideration in the sale of goods including any sum

charged whether stated separately or not or anything

done in respect of the goods at the time of or before

delivery comes within the definition of the "sale price".

Mr. Sundram stated that bare reading of Section

8(1)(a) of the Act and Rule 12(1) of the Rules makes it

abundantly clear that the provisions of the Act stipulate

in no unambiguous term that the levy of tax was on the

second sale, treating the same to be the first sale, if the

difference of the original purchase price and the resale

price was more than 40%.

It was further submitted by Mr. Sundram that it

was unfair to suggest that contribution to the 'Oil Pool

Account' should not be taken into account for

determining the sale price, when the appellant itself had

collected sales tax from the purchasers on sale price

which was inclusive of the purported surcharge towards

the Central 'Oil Pool Account'. In the counter affidavit,

para 'C' has mentioned that the invoice issued by the

appellant clearly revealed that the appellant had collected

sales tax on the total assessable value which was

inclusive of the 'Oil Pool Account' contribution. Mr.

Sundram further submitted that there was no

justification in not depositing the sales tax amount

collected by the appellant from the consumers and

misappropriating the same.

We have heard the learned counsel for the parties at

length and examined the pleadings. In our considered

view, a conjoint reading of Section 8(1) of the Act and

Explanations I & II clearly lead to the conclusion that the

second point of sale was shifted as first point of sale if

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the resale price of a dealer exceeded 40% of the purchase

price. Admittedly, resale price in the instant case

exceeded 40% of the purchase price, therefore, the resale

price was deemed to be the first point sale.

According to the scheme of the Act, particularly

sub-section (1) of Section 8 did not envisage double

taxation in the same State. In the instant case, the

appellant company had paid sales tax on purchase of

petroleum products from the BRPL. In that event,

according to the scheme of the Act, the sales tax would

be leviable only on the difference of the resale price and

purchase price since under sub-section (1) of Section 8 of

the Act, tax is levied at the first point sale. The appellant

company had purchased goods from the BRPL and

admittedly paid sales tax on the said purchase.

According to the clear construction of the provisions of

the Act, the appellant was now under an obligation to

pay sales tax only on the difference amount between

purchase price and the entire sale price. Directing the

appellant company to pay sales tax on the entire amount

resold would amount to double taxation.

In the counter affidavit, it was clearly alleged that

the appellant company had collected sales tax from the

consumers through various dealers on the entire resale

price. However, instead of appellant company depositing

the entire collected sales tax with the respondent State

government had misappropriated it. According to the

respondents it was a clear case of unjust enrichment and

the appellant company cannot retain the excess amount

collected by it.

In the additional affidavit filed by Mr. Ajay Sinha,

Deputy Manager (Finance) on September 21, 2006 stated

that the company had not collected any amount by way

of sales in their invoices and sale made by them out of

the purchases made from the BRPL. In case what is

stated in the counter affidavit is correct then the

appellant company cannot be permitted to retain the

amount collected towards sales tax from the consumers

on the entire sales. The amount, if any, collected had to

be deposited with the State government. It is not

possible for this Court to resolve this factual controversy

whether in fact the appellant company had collected

sales tax on the entire amount from the consumers. In

view of the conflicting averments in the counter affidavit

and the additional affidavit, we deem it appropriate to

remit this matter to the Senior Superintendent of Taxes,

Gauhati Unit 'A' for ascertaining the fact whether the

appellant company had in fact collected sales tax on the

entire sales as alleged by the respondents in the counter

affidavit. If necessary, the said Senior Superintendent of

Taxes may give opportunity to the parties to submit

relevant documents in order to ascertain the said fact. In

order to avoid any further delay in the matter, we direct

the Senior Superintendent of Taxes to decide this

controversy as expeditiously as possible and in any event

within three months from the date of the receipt of this

order.

In case, the Senior Superintendent of Taxes arrives

at a definite conclusion that the appellant company had

in fact collected sales tax on the entire sales, then the

appellant company would deposit the entire sales tax

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amount collected from the consumers with the

respondent-State within four weeks' of the order passed

by the Senior Superintendent of Taxes along with 9%

interest from the date of collecting the amount towards

sales tax till payment. If the amount, as directed, is not

paid by the appellant company within the stipulated

period, the same would be recovered as the arrears of

land revenue by the respondent State.

This appeal is disposed of according to the

aforementioned terms indicated in the preceding

paragraphs. In the facts and circumstances of the case,

we direct the parties to bear their own costs.