The Gujarat High Court (Ahmedabad Bench) saved Hindustan Coca-Cola Beverages (respondent) from the wrongful levy of tax, and quashed the penalty of Rs. 25.53 crore imposed on the soft drink manufacturer, while reiterating that “sales tax” being an indirect tax, the purchaser has to pay the same. However, when no tax is levied, the purchaser does not pay the same.
The Court deprecated the assumption drawn by the Revenue authorities that the sale price was “tax inclusive” in the absence of any concrete evidence of tax collection. At the same time, the Court clarified that a mere assumption that the respondent had collected any amount by way of tax from its distributors, retailers, or customers shall not form any basis for the tax department to bifurcate the sale price.
The Court found that there was no agreement regarding payment of sales tax on the sale of the product in question made by the respondent to the distributors and no sales tax was ever paid to the respondent by any such distributors, retailers, or customers. Further, the respondent has not collected tax even after the expiry of the period of exemption.
Reference was made to the accounts maintained in accordance with the IGAAP system, which is relevant for assessment under the provisions of the Sales Tax Act, and the Court noted that no amount was shown to have been collected by the respondent. Accordingly, the amount of tax could not have been bifurcated by the Revenue simply because the sales had been inclusive of tax.
The Division Bench comprising Justice Bhargav D. Karia and Justice Pranav Trivedi observed that the respondent was bifurcating its sale price by showing separately the sales tax component embedded therein as sales tax payable, which was later on transferred to sales tax incentive and deferred sales tax account to be spread over overlooking period as per the agreement between the respondent and the Government to run the plant at Kaira District.
However, the Bench found that the respondent had already clarified that such entries were passed in the account only under USGAAP, and later, such entries were reversed in the Books of Accounts maintained in IGAAP, which otherwise could have been deleted. But, in order to maintain an audit trail, such entries were reversed, and the entire amount of sale consideration was shown as gross sale without any bifurcation between the sale price and the amount of sales tax payable by the respondent.
The Bench therefore quashes the penalty levied under Section 46 read with Section 56(1) of the Sales Tax Act, and dismissed the appeal in favour of the respondent (soft drink manufacturer).
Briefly, in this case, the respondent, i.e., Hindustan Coca-Cola Beverages, engaged in the manufacture and sale of soft drinks and packaged drinking water, had obtained a sales tax exemption certificate under Section 49(2) of the Gujarat Sales Tax Act. This exemption was valid for six years, and the company enjoyed the benefit till 24 November 2003, availing total sales tax exemption worth over Rs. 49.54 crores on its products. After the expiry of the exemption period, the company began paying sales tax.
However, the Sales Tax Officer issued a show-cause notice, alleging that the company had collected tax on exempted goods by fixing the sale price inclusive of tax, even though it was not required to pay any sales tax. Additionally, the Sales Tax Officer imposed a penalty of Rs. 25.53 crores, stating that the books of accounts maintained under both the USGAAP and Indian GAAP (IGAAP) reflected entries related to sales tax.
The matter reached the VAT Tribunal, which found that there was no direct or indirect evidence showing that any amount was collected by way of tax. The Tribunal noted that the invoices issued by the respondent clearly indicated “Nil” against the tax column. Opining that the same pricing of the goods during the exemption period and later on would be no basis to hold that the respondent had collected any amount by way of tax, the Tribunal set aside the penalty imposed under Sections 46 and 56 of the Sales Tax Act.
Case Relied On:
Deputy Commissioner of Commercial Taxes (Vigilance) vs. Hindustan Liver Limited (2016) 13 SCC 28
Appearances:
Advocate Utkarsh Sharma, for the Appellant/ Revenue
Advocate Kunal Nanavati, for the Respondent/ Taxpayer
