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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.