Oil Corporation Ltd. Vs. State of Assam & Ors  Insc 872 (27 November 2006)
Bhan,Altamas Kabir & Dalveer Bhandari Dalveer Bhandari, J.
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.
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'.
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.
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.
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 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:
8. Charge of Tax and Rates (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;
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:
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:
"Sale Price" means (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 under a separate contract
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
sum allowed as a cash discount according to ordinary trade practice:
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.
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%.
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
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:
Purchase Price Ex. REF Price Sales 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.
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
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.
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.
to the appellant, the question which arose for consideration was 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 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.
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.
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.
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.
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'.
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.
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
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.
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 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.
appellant aggrieved by the impugned judgment has preferred this appeal before
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:
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;
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
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.
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.
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
be given credit and balance should be recovered.
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.
would be in consonance with the scheme of the Act.
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.
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.
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".
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%.
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
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 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.
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.
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.
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.
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.
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 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
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.