Discounts and Rebates not part of ‘Sale Price’ | Refund of tax paid on excess amount

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The Supreme Court’s latest judgement in Universal Cylinders Limited vs. Commercial Taxes Officer interpreted Section 2(39) of the Rajasthan Sales Tax Act, 1994, which defines ‘sale price’.

In the judgement it is noted that under section 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.

The Supreme Court followed the judgement in IFB Industries Limited v. State of Kerala1, where the issue was with regard to the definition of ‘turnover’.

The Supreme Court held that to take the benefit of trade discount and to make it eligible for exemption, all that the assessee is required to prove was that the purchaser had paid only the sum originally charged less the discount and that this should be a regular practice in the trade.

In the judgement in Universal Cylinders Limited vs. Commercial Taxes Officer, the Supreme Court direct that the assessee shall be refunded the amount of sales tax paid on the excess amount.

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). 2431 OF 2018
(@SLP (C) NO(S).23659 OF 2015)
M/s. Universal Cylinders Limited …. Appellant(s)
Versus
The Commercial Taxes Officer … Respondent(s)
With
CIVIL APPEAL NO(S). 2432 OF 2018
(@SLP (C) NO(S).23664 OF 2015)
CIVIL APPEAL NO(S). 2433 OF 2018
(@SLP (C) NO(S).23667 OF 2015)
CIVIL APPEAL NO(S). 2434 OF 2018
(@SLP (C) NO(S).23668 OF 2015)

J U D G M E N T

Deepak Gupta J.

1. Leave granted.

2. Since a common question of law arises in these appeals,
they are being disposed of by this common judgment. Briefly
stated the facts are that the appellantassessee
manufactures cylinders for storage of Liquefied Petroleum Gas (LPG). At the
relevant time, the entire production was for supply to
Government owned companies viz. M/s. Indian Oil
Corporation Ltd.(for short ‘the IOC’), M/s Bharat Petroleum
Corporation Ltd., and M/s Hindustan Petroleum Corporation
Ltd.. It is not disputed that the cost of the cylinders was
determined by the Ministry of Petroleum and Natural Gas (for
short ‘the MoP & NG’) under the pricing policy.

3. On 04.05.2000, the IOC placed an order for supply of
73380 numbers of 14.2 Kg. LPG cylinders which was to be
made by 31.08.2000. Clause 3 of the supply order reads as
follows:

“You can charge a provisional price of Rs.
682.00 for 14.2 Kg cylinders. Pricing formula is
under review by the Government and the final
prices applicable after 01.07.99 will be only as
per approval of MOP & NG.”

4. The appellantassessee
supplied the cylinders and
charged the amount of Rs. 682/per
cylinder and also
charged sales tax on the same in accordance with law. Similar
supply orders were placed by the other companies also.

5. On 31.10.2000, the IOC sent a letter to the appellant
that after review of the prices, the price of 14.2 Kg. cylinders
has been again provisionally revised to Rs.645/with
effect
from 01.07.1999. Relevant portion of the letter reads thus :“
Pending finalization of the report and the short
time available to recover the cost due to the
proposed cylinder tender, Industry has decided
to revise the provisional basic price of 14.2 Kg
cylinder to Rs. 645/with
effect from
01.07.1999. Accordingly we will be recovering
the differential amounts from your bills. Final
adjustments would be made later on after
finalization of the cylinder price.”

6. Thereafter, the oil companies deducted/adjusted the
excess payment of Rs.37/and
proportionate sales tax
thereon from the payments due to the assessee. Thereafter
the assessee approached the Assessing Authority for refund of
the sales tax paid on the excess sale amount i.e. Rs.37/.

The
case of the assessee was that he had paid tax on the
provisional price of Rs.682/per
cylinder. After the price had
been reduced to Rs.645/,
he was only entitled to Rs.645/.

The oil companies had taken refund of the amount of Rs.37/and,
therefore the tax paid on the excess amount be refunded
to him. The assessee also urged that this amount of Rs.37
should not be counted in its total turnover.

7. The Assessing Officer rejected the claim of the assessee
on the ground that there is no provision under the Act for
reducing or refunding the amount of tax once the amount of
tax has been paid. It was also observed that the arrangement
of the assessee with the oil companies was in the nature of a
private agreement and the sales tax department had nothing
to do with this. The appeals filed by the assessee against the
assessment order before the Deputy Commissioner of Appeals
were partly allowed. Thereafter, the RespondentRevenue
approached the Tax Board, which allowed the appeals of the
Revenue. Being aggrieved, the assessee approached the High
Court by filing revision petitions, which were dismissed.
Hence, the present appeals.

8. To appreciate the rival contentions of the parties, we
may make reference to Section 2(39) of the Rajasthan Sales
Tax Act, 1994, which defines ‘sale price’ as under:

“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.”

9. Reference may also be made to Section 2(44) of the
Rajasthan Sales Tax Act, 1994 which defines ‘turnover’ as
under:

“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.”

10. 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 and
the price of the cylinder cannot be said to be Rs.645/per
cylinder. The High Court also held that the goods were
delivered at Rs.682/per
cylinder and this amount was
collected and therefore, no amount should be refunded.

11. We have heard learned counsel for the parties and a
number of decisions have been cited.

12. In IFB Industries Limited v. State of Kerala1, the
issue was with regard to the definition of ‘turnover’. This
court held that to take the benefit of trade discount and to
make it eligible for exemption, all that the assessee is required
to prove was that the purchaser had paid only the sum
originally charged less the discount and that this should be a
regular practice in the trade.

1 (2012) 4 SCC 618

13. Reliance has also been placed on the judgment of the
Gujarat High Court in ONGC v. State of Gujarat2, wherein
in similar circumstances, it was held that the discount does
not form part of the sale price. A similar view was taken by
the Madhya Pradesh High Court in Gail India Ltd. v. State
of M.P.3. The facts of this case were that the petitioner
company GAIL, a Public Sector Undertaking, was doing
business of supply of various petroleum products including
LPG. The price of LPG and kerosene was regulated and
controlled by the Public Planning and Analysis Cell (PPAC).
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 High Court after referring to the judgment
of this Court in IFB Industries Ltd. (supra), held that both
the provisional price and the final price are controlled by the
PPAC. The change in sale price is due to the direction by the
PPAC and is not within the control of the assessee. It held
2 2014 SCC Online Guj 15385 (Tax Appeal No. 50 of 2014)
3 (2014) 72, VST 161
that even though the credit note may have been issued on the
basis of the provisional price, the price to be taken into
consideration for calculating the turnover and the sale price
must be the actual price received by the assessee.

14. Learned counsel for the respondent has relied upon a
judgment of this Court in the case of MRF Ltd. v. Collector
of Central Excise, Madras4. We are of the opinion that this
judgment has no relevance to this case since it is a judgment
arising out of the Excise Act where the tax is attracted the
moment the goods are removed from the factory gate.
15. In our view, a bare reading of Section 2(39) of the
Rajasthan Sales Tax Act, which defines “sale price” clearly
indicates that it is the price which is either paid or payable to
a dealer as consideration for the sale. The definition itself
makes it clear that any sum by way of any discount or rebate
according to the practice normally prevailing in the trade shall
be deducted and shall not be included in the sale price. The

4 (1997) 5 SCC 104.

definition of ‘turnover’ means the aggregate amount received
or receivable by a dealer.

16. 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.
This price could have been higher than Rs.682/per cylinder,in which event the assessee would have had to collect and
deposit with the Rajasthan Sales Tax Department sales tax on
the excess amount. However, since the price of the cylinder
has been reduced, the assessee cannot charge more than the
price fixed, is bound to refund the excess amount collected
and is therefore legally entitled to get refund of the tax paid
on the excess amount.

17. We may also note that it is undisputed that 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. What was legally receivable by it was
the amount to be finally fixed by the MoP & NG i.e. Rs. 645/per
cylinder. In the supply order only a provisional price was
fixed. We have also taken into consideration the fact that the
price fixation is not in the hands of the assessee. It is not
even in the hands of the oil companies. The price is fixed by
the MoP & NG and in such an eventuality, the amount
actually payable is the amount to be fixed by the MoP & NG
and that is also the amount which the assessee is legally
entitled to receive.

18. 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. The order of the Deputy Commissioner is
restored. 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.

19. Pending applications, if any, shall also stand
disposed of.

………………………..J.
(Madan B. Lokur)

…………………………J.
(Deepak Gupta)

New Delhi
February 23, 2018