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24th February, 2018

Universal Cylinders Ltd Vs The Commercial Tax Officer – Supreme Court 23rd February, 2018

Facts :
Universal Cylinders Ltd (UCL) the assessee manufactured and sold LPG cylinders to IOC, BPCL & HPCL.  The sale price was initially provisional and fixed at Rs. 682 from 01.07.99. On 31.10.2000, IOC revised the provisional price downward to Rs.645 applicable from 01.07.1999.   Consequently, the oil companies deducted by adjustment the excess amount paid of Rs.37 per cylinder and the proportionate sales tax thereon from subsequent payments to UCL.

Based final price and the recovery of the price and  corresponding sales tax, the assessee approached the assessing authority for refund excess sales tax on Rs.37/.

This refund claim was rejected by the Assessing Officer (AO) saying "there is no provision under the Act for reducing or refunding the amount of tax once the amount of tax has been paid. The  AO also observed that the arrangement between the assessee and oil companies was a private one and sales tax department had nothing to do with this.

The assessee's appeals was partly allowed by the Deputy Commissioner of Appeals. However,  on appeal by the Revenue,  the Tax Board, allowed the Revenue appeal.  The High Court dismissed the revision applications filed by the assessee.

The Law :
There are two expressions defined in Rajasthan Sales Tax Act, 1944 (the Act) which are relevant in this context. They are "sale price" and "turnover" defined in Section 2(39) and Section 2(44) respectively in the Act.

Section 2(39) of the Rajasthan Sales Tax Act, 1994, reads :

“2(39) “sale price” means 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) reads :

“2(44) “turnover” means 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.”

Ruling by the High Court :
The High Court held that the words ‘paid’, ‘payable’, ‘amount received’ and ‘or receivable’ have been used.  The cylinders were delivered at Rs 682 and also collected. So the High Court held that the assessee  thereafter cannot claim that the cylinder was priced at Rs.645.  The High Court after referring to the SC judgment in IFB Industries Ltd. ((2012) 4 SCC 618), held that both the provisional price and the final price are controlled by the PPAC.

TQ Comments : The High Court seems to missed the point that the Rs 682 was a provisional price to be finalised later. Also the High Court has appearently stopped the clock at the point of time when cylinders were delivered. Thereby rendering the subsequent revision of price, recovery  of price difference and sales tax thereof by oil companies as irrelevant to assess i.e. determining taxable value and tax.

Citations relied upon by the Assessee
1.    Hon'ble SC judgement in IFB Industries Limited v. State of Kerala1 - (2012) 4 SCC 618
2.    Hon'ble Gujarat High Court judgement in ONGC v. State of Gujarat - 2 2014 SCC Online Guj 15385 (Tax Appeal No. 50 of 2014)
3.    Madhya Pradesh High Court judgement in Gail India Ltd. v. State of M.P.3. -(2014) 72, VST 161

Ruling by the Hon'ble Supreme Court :
Definition of "sale price" allows deduction of discounts allowed in the normal trade

The Hon'ble Supreme observed that the definition of  “sale price” clearly indicates that any discount or rebate in accordance with the normal practice prevailing in the trade shall be deducted and shall not be included in the sale price.

Price at the time of delivery was not final. Assessee was to only receive price finalised by MoP & NG
The Apex Court also observed that when the orders were placed the price was not final. It was clear that the price of Rs.682 was only provisional and the final final price will be the price as approved by the Ministry of Petroleum & Natural Gas (MoP & NG).  Therefore the  assessee was under a legal obligation only to receive that price which was finally fixed by MoP & NG.

Price could have been higher. In which case the assessee would have to collect and pay the additional amount as sales tax
This final price determined by MoP & NG could also have been higher than Rs.682. In which case the assessee would have had to collect and deposit the sales tax on the excess amount. Smilarly, if the price is reduced, the assessee couldn't charge the higher price and is therefore bound to refund the excess amount collected and is therefore legally entitled to get refund of the tax paid on the excess amount.

The excess amount has been refunded to the oil companies.
The assessee had to refund the amount of Rs.37/per cylinder to the oil companies. Therefore, what it has actually received is only Rs.645/per cylinder. The assessee supplied LPG to the oil companies on the basis of provisional price and final bill invoice was issued after the price was settled by the PPAC and credit note or debit note
was issued.

The Supreme Court judgement in MRF Ltd. v. Collector of Central Excise, Madras is not relevant as it relates to a central excise case
The Supreme Court rejected the respondent contention that the judgment in the case of MRF Ltd. v. Collector of Central Excise, Madras - 4 (1997) 5 SCC 104 had no relevance to as it was a central excise case where the excise duty gets attracted at the time of removal from the factory.


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  1. Whether A Judicial Member is a must for Advance Ruling Authority
  2. Classification under GST 

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