Supreme Court clarifies ‘Sale Price’ under Rajasthan Sales Tax Act: Universal Cylinders Ltd. vs. Commercial Taxes Officer (23 February 2018)

Introduction

Date of the Judgment: 23 February 2018. Citation: (2018) INSC 146. Judges: Madan B. Lokur J. and Deepak Gupta J. The judgment was authored by Deepak Gupta J. Can a seller be taxed on a provisional price when the final price is later reduced by a government authority? The Supreme Court of India addressed this question in a case concerning the calculation of sales tax on LPG cylinders. The core issue was whether the ‘sale price’ and ‘turnover’ should be based on the initial provisional price or the final price fixed by the Ministry of Petroleum and Natural Gas (MoP & NG). The bench comprised of Justice Madan B. Lokur and Justice Deepak Gupta, with the opinion authored by Justice Deepak Gupta.

Case Background

M/s. Universal Cylinders Limited (the appellant) manufactured cylinders for storing Liquefied Petroleum Gas (LPG). The entire production was supplied to government-owned companies like Indian Oil Corporation Ltd. (IOC), Bharat Petroleum Corporation Ltd., and Hindustan Petroleum Corporation Ltd. The Ministry of Petroleum and Natural Gas (MoP & NG) determined the cost of these cylinders under a pricing policy.

On 04 May 2000, IOC placed an order for 73,380 LPG cylinders, to be delivered by 31 August 2000. The order specified a provisional price of Rs. 682 per cylinder, noting that the final price would be as per the approval of MoP & NG after 01 July 1999. The appellant supplied the cylinders, charging Rs. 682 per cylinder plus sales tax.

On 31 October 2000, IOC informed the appellant that the provisional price was revised to Rs. 645 per cylinder, effective from 01 July 1999. The oil companies then deducted the excess amount of Rs. 37 per cylinder and the corresponding sales tax from the payments due to the appellant. The appellant then sought a refund of the sales tax paid on the excess amount of Rs. 37, arguing that this amount should not be included in their total turnover.

Timeline:

Course of Proceedings

The Assessing Officer rejected the appellant’s claim, stating there was no provision for reducing or refunding tax once paid. The officer also noted that the arrangement between the appellant and the oil companies was a private agreement. The Deputy Commissioner of Appeals partly allowed the appeals, but the Tax Board reversed this decision, siding with the Revenue. The High Court dismissed the appellant’s revision petitions, leading to the present appeals before the Supreme Court.

Legal Framework

The Supreme Court examined the following provisions of the Rajasthan Sales Tax Act, 1994:

• Section 2(39): Defines “sale price” as “the amount paid or payable to a dealer as consideration for the sale less any sum allowed by way of any kind of discount or rebate according to the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof.”
• Section 2(44): Defines “turnover” as “the aggregate amount received or receivable by a dealer for sales as referred to in clause (38) including the purchase price of the goods which are subject to purchase tax under section 11 of the Act; Explanation: Tax charged or collected and shown separately in the sale bill/cash memorandum or in the accounts shall not form part of turnover.”

These definitions are crucial for determining the taxable amount under the Rajasthan Sales Tax Act, 1994. The ‘sale price’ is the actual consideration for the sale, less any discounts, while ‘turnover’ is the total amount received or receivable by the dealer from such sales. The explanation to Section 2(44) clarifies that tax collected separately does not form part of the turnover.

Arguments

Appellant’s Arguments:

• The appellant argued that they had paid tax on the provisional price of Rs. 682 per cylinder.
• After the price was reduced to Rs. 645 per cylinder, they were only entitled to receive Rs. 645.
• The oil companies had already taken a refund of the excess amount of Rs. 37.
• Therefore, the tax paid on the excess amount should be refunded to the appellant.
• The amount of Rs. 37 should not be counted in the total turnover.
• The appellant relied on the definition of ‘sale price’ under Section 2(39) of the Rajasthan Sales Tax Act, 1994, arguing that the actual sale price was Rs. 645, not Rs. 682.

Respondent’s (Revenue) Arguments:

• The Revenue contended that there was no provision under the Rajasthan Sales Tax Act, 1994, to reduce or refund tax once it had been paid.
• The arrangement between the appellant and the oil companies was a private agreement and the sales tax department had nothing to do with it.
• The High Court held that since the words ‘paid’, ‘payable’, ‘amount received’ and ‘or receivable’ have been used in the aforesaid two sections, the assessee was entitled to receive the amount of Rs.682/­ per cylinder and if he has given any discount, he cannot claim refund of the same.
• The goods were delivered at Rs.682/­ per cylinder and this amount was collected and therefore, no amount should be refunded.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the appellant was entitled to a refund of the sales tax paid on the excess amount of Rs. 37 per cylinder, given that the final price was reduced by the MoP & NG.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court followed the ratio in IFB Industries Limited v. State of Kerala (2012) 4 SCC 618, which held that trade discounts should be excluded from the sale price if they are a regular practice in the trade and the purchaser has only paid the discounted amount.
• The Court followed the ratio in ONGC v. State of Gujarat 2014 SCC Online Guj 15385, wherein the Gujarat High Court held that discounts do not form part of the sale price.
• The Court followed the ratio in Gail India Ltd. v. State of M.P. (2014) 72 VST 161, wherein the Madhya Pradesh High Court held that the actual price received by the assessee should be considered as the sale price and not the provisional price.
• The Supreme Court distinguished the case of MRF Ltd. v. Collector of Central Excise, Madras (1997) 5 SCC 104, stating that it was related to excise law and not sales tax.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following:

• The definition of ‘sale price’ under Section 2(39) of the Rajasthan Sales Tax Act, 1994, which allows for deductions of discounts and rebates.
• The fact that the price was initially provisional and subject to review by the MoP & NG.
• The fact that the appellant was legally obligated to refund the excess amount to the oil companies.
• The fact that the price fixation was not within the control of the assessee or the oil companies.
• The principle that the actual amount received or receivable should be the basis for calculating turnover and sales tax.

The court’s reasoning was based on the interpretation of the term ‘sale price’ as defined in the Rajasthan Sales Tax Act, 1994. The court emphasized that the sale price should reflect the actual amount received by the seller, and not a provisional amount. The court also highlighted that the price was not in the control of the assessee and was fixed by the Ministry of Petroleum and Natural Gas (MoP & NG). The court noted that the assessee was legally bound to refund the excess amount to the oil companies.

The court rejected the argument that the initial price of Rs. 682 was the final sale price, stating that the price was provisional and subject to review. The court also rejected the argument that the agreement between the assessee and the oil companies was a private agreement, stating that the price was fixed by the MoP & NG.

The court relied on the judgments of the Gujarat High Court in ONGC v. State of Gujarat 2014 SCC Online Guj 15385 and the Madhya Pradesh High Court in Gail India Ltd. v. State of M.P. (2014) 72 VST 161, which held that discounts and rebates should not form part of the sale price. The court also relied on its own judgment in IFB Industries Limited v. State of Kerala (2012) 4 SCC 618, which held that trade discounts should be excluded from the sale price if they are a regular practice in the trade.

The court distinguished the case of MRF Ltd. v. Collector of Central Excise, Madras (1997) 5 SCC 104, stating that it was related to excise law and not sales tax.

The Supreme Court concluded that the appellant was entitled to a refund of the sales tax paid on the excess amount of Rs. 37 per cylinder. The court held that the sale price was Rs. 645 per cylinder and not Rs. 682 per cylinder. The court directed that the assessee shall be refunded the amount of sales tax paid on the excess amount. The court also directed that the assessee shall be entitled to interest at the rate of 9% per annum on the amount payable to it from the date of the order of the Deputy Commissioner till payment of the amount.

“In the instant case, when the orders were placed with the assessee, the price was not finalized by the MoP & NG. There was a clear cut stipulation in the purchase order that the price of Rs.682/­ is only a provisional price subject to review and it was clearly understood by the parties that the final price applicable after 01.07.1999 will be the price as approved by the MoP & NG.”

“Therefore, though the assessee may have received Rs.682/­ per cylinder, it was under a legal obligation only to receive that price which was fixed by the MoP & NG.”

“In view of the above discussion, we allow the appeals, set aside the judgment of the High Court and direct that the assessee shall be refunded the amount of sales tax paid on the excess amount.”

Key Takeaways

• The ‘sale price’ under the Rajasthan Sales Tax Act, 1994, is the actual amount received or receivable by the dealer after considering discounts or rebates.
• When a price is initially provisional and later revised by a government authority, the final price should be used for calculating sales tax.
• Sellers are entitled to a refund of sales tax paid on excess amounts when the final price is reduced by a government authority.
• The actual amount received or receivable by the assessee is the basis for calculating turnover and sales tax.

Directions

The Supreme Court directed that:

• The assessee shall be refunded the amount of sales tax paid on the excess amount.
• The assessee shall be entitled to interest at the rate of 9% per annum on the amount payable from the date of the order of the Deputy Commissioner till the date of payment.

Development of Law

The ratio decidendi of this case is that the ‘sale price’ under the Rajasthan Sales Tax Act, 1994, is the actual amount received or receivable by the dealer after considering discounts or rebates. This judgment clarifies that when a price is initially provisional and later revised by a government authority, the final price should be used for calculating sales tax. This is a reaffirmation of the principle that the tax should be levied on the actual consideration received by the seller.

Conclusion

The Supreme Court allowed the appeals, setting aside the High Court’s judgment. The court held that the appellant was entitled to a refund of the sales tax paid on the excess amount of Rs. 37 per cylinder. The court clarified that the ‘sale price’ should be the actual amount received or receivable by the dealer, and not a provisional price. This decision ensures that sales tax is calculated on the actual transaction value, providing clarity and fairness in tax administration.