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Sales Tax Review |
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July 2003 |
Tax Digest
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| 25.
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Whether sales by unregistered dealers against Form H to
CSD/INC are eligible for concessional rate of tax?
Held ... Yes
The appellant had effected sales of mosquito nets
against Form H to Canteen Stores Dept. (CSD) and Indian Naval Canteen
(INC) while it was still an unregistered dealer. The STO levied tax at 13%
whereas the appellant claimed that the benefit of concessional rate of tax
of 1% as per Notification entry 1 of Group H was available. According to
the appellant, the words used in the Notfn. entry, "the selling registered
dealer shall not collect separately collect tax" do not prohibit URDs from
claiming the benefit. Whenever such a prohibition was intended, it was
always expressly provided in the Notfn. entry. The impugned words only
stipulated that when sales were effected by registered dealers, they
should not collect tax separately. Such a stipulation was not necessary
for unregistered dealers since they could not collect tax anyway. The
Tribunal referred to Entry 1 in Group H and on a plain reading of the same
agreed with the contentions put forth by the appellant. The Tribunal also
referred to Notfn. Entry 2 of Group H which exempted purchases by CSD and
INC from person/Government who which was not a registered dealer and
concluded that sales to CSD/INC during the URD period were also entitled
to concessional rate of tax against Form H.
(Arun Sales – S.A. No. 1133 of 2000 dt. 5-4-2003. The
decision has been given by Mr. N.C. Wadgaye, Member, Bench I. Mr. Pravin Doshi,
C.A. appeared for the appellant.)
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| 26. |
Whether remission on the basis of "out of pocket"
theory can be given even after the introduction of sec. 43A?
Held ... Yes
In the assessment for 1997-98, interest u/s 36(3)(b)
had been levied at Rs. 27,291. In the assessment for 1996-97, the
appellant had been granted refund of Rs. 84,298 on 28-2-2001 and interest
u/s 43A was granted for 18 months. The appellant prayed for full remission
on the ground of "out of pocket theory" as the sum was lying with the
Department for 46 months whereas interest had been granted at 1% p.m. for
18 months only. Department relied on S.A. No. 569 of 1997 dt. 25-8-2000 to
contend that the "out of pocket theory" was no more valid since interest
u/s 43A had already been granted as provided by law. However, Tribunal
distinguished the decision relied upon by the Department since in that
case no undertaking had been given that no remission had been claimed on
the basis of "out of pocket" theory on the refund for the earlier year
whereas in the present case an undertaking had been given to that effect.
Considering the fact that if interest was calculated for the balance
period of 28 months even at 1% p.m., it would work out to more than the
interest levied. Hence, Tribunal granted full remission by relying on Amar
Tube Traders – S.A. No. 1535 of 1999 dt. 21-10-2000.
(Harish Sales Organisation – S.A. 2205 of 2001 dt.
30-4-2003. The decision has been given by Mrs. S. A. Basu, Member,
Bench IV (Nagpur Camp). Mr. R.S. Paliwal, C. A. appeared for the
appellant.)
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| 27.
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Whether Vicco Vajradanti Toothpaste and Vicco Turmeric
Cream were medicines but were excluded from the ambit of Sch. Entry C-I-24
in the light of exclusion clauses?
Held ... Yes
The Commissioner had held vide DDQs dated 31-7-1976,
4-5-1983, 29-3-1984, 19-10-1984, 21-1-1985 and 11-3-1985 that Vicco
Vajradanti and Vicco Turmeric cream were medicines within the ambit of Sch.
Entry C-I-24. The said entry was amended w.e.f. 11-8-1988 to exclude,
inter alia, medicated goods and products capable of being used as
toothpastes, tooth powders, cosmetics, toilet articles and soaps.
Accordingly, on 31-5-1989, an application for determining the rate of tax
thereon was made to the Commissioner. The Commissioner had held vide DDQ –
1189/Adm-5/146/B- 8 dt. 29-4-1996 that the impugned products were
medicines but were excluded from the scope of the entry by the special
exclusion clauses.
Before the Tribunal, the appellant contended that Vicco
Vajradanti was manufactured under an Ayurvedic licence u/s 33 of the Drugs
and Cosmetics Act and contained natural herbs having established
therapeutic value for treating disorders of gums and teeth like tooth
decay, pyorrhea, swollen gums and other periodontal disorders. As regards
Vicco Turmeric, the appellant claimed that it was made from extract of
turmeric blended with pure sandalwood oil with a base of vanishing cream
consisting of Amla and Kesar as prescribed in Charak Samhita, a textbook
of Ayurveda. The appellant placed on record certificates from Food and
Drug Administration, affidavits of doctors, dentists, shopkeepers,
consumers and relied on the various earlier DDQs and judicial
pronouncements in favour of the appellant to contend that despite the said
amendment in the entry, the impugned products continued to fall within the
parameters of the entry 24(1). The appellant also put forth contentions
that if a medicine per se were to be excluded from the entry, it
would be unconstitutional. Further, merely because the goods were used for
other purposes, the character of the goods would not change – 111 STC
319 (M.P.). The appellant also assailed the DDQ on the ground that
while provisions of Drugs and Cosmetics Act were not given due importance
on the ground that BST Act had an independent standing, the judgement of
the Bombay High Court in the context of the provisions of Bombay Municipal
Act in respect of Octroi was taken into account.
The Department representative contended that while
interpreting an entry in sales tax legislation, words used in the entries
must be construed not in a technical sense nor from the scientific point
of view but as understood in common parlance in the trade by the dealer
and the consumer. The appellant had advertised and sold the product as
herbal toothpaste in the export market and in the local markets the
product was clubbed by the trade with other toothpastes of its kind. Vicco
Turmeric was a cosmetic cream as evident from the certificates and
statements given by the chemists and consumers, which evidence had not
been rebutted by the appellant. Claims of therapeutic value were also made
by other toothpastes like Colgate, etc. Vicco Turmeric also had a
moisturizing effect and imparted a glow to the skin as mentioned on the
carton. Thus, predominant use was as toothpaste and cream, which
incidentally had ayurvedic ingredients having medicinal values It was
further contended that though the mode in which a person may choose to
advertise a product could not be decisive in determining its real nature,
the same was required to be considered along with relevant factors as held
in 59 STC 242 (Bom.) and 104 STC 164 (S.C.). In 22 STC 169,
the Bombay High Court, in the appellant’s own case had held that they were
toilet articles after applying the test whether the article was used or
was capable of being used for cleaning or grooming one’s person (i.e.,
toiletry). Ever since the product was held as a Toilet article, the
procedure of manufacturing the product remained as a Toilet article, the
procedure of manufacturing the product remained unchanged till date and
the nature, character and utility of the product remained the same. The
said decision had since been confirmed by the Apex Court in Sarin Chemical
Laboratory AIR 1971 S.C. 65 and Prakash Trading Co. AIR 1973 S.C.
960. The D.R. also relied on
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Parke Davis (India) Ltd. 16 MTJ 70 wherein
Listerine Mouthwash was held to be a toilet article adjuvant to
toothpaste.
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ICPA Health Products 39 MTJ 384 wherein
Thermoseal was held to be a toothpaste, albeit a medicated one, although
it was meant to be used by persons with sensitive teeth and
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V.C. Ramalingam & Sons 118 STC 383 (TNTST)
confirmed in 127 STC 383 (Mad) wherein Vicco Vajradanti and Vicco
Turmeric Cream were held as medicines but were excluded since they were
products capable of being used as toothpastes and cosmetics
respectively.
The decisions in United Trading Agency 104 STC 182 (Kar.)
and V.V. Kamath & Sons 111 STC 44 (Ker.) were also distinguished on
the ground that they were based on Schedule entries in respective States
sales tax laws which were materially different from the entry under the
BST Act. The D.R. also contended that the decision in Annapurna Carbon
Inds. Co. 37 STC 378 (S.C.), wherein the theory of predominant use had
been applied, would also not come to the aid of the appellant as Vicco
Vajradanti was predominantly used for brushing or cleaning teeth and Vicco
Turmeric was commonly used as a moisturizing cream although they may have
medicinal value.
The Tribunal referred to the various judicial / quasi
judicial pronouncements cited above and the structure of the relevant
entries at the relevant time, the ingredients of the products, the
certificates given by the FDA, the meaning and scope of the term, "Toilet"
as enunciated in 22 STC 169 and Prakash Trading Co. cited supra and
took the view that Vicco Vajradanti, used for cleaning teeth, would not
cease to be a tooth paste even if it had medicinal properties. The
argument of unconstitutionality was also rejected as the vires had already
been confirmed in 127 STC 382 (Mad.) The Karnataka and Kerala
decisions cited supra had also been distinguished by the BHC since even if
the products have medicinal properties, it is to be seen how the impugned
products are understood in the trade. The Tribunal also did not find any
material difference in the terms, ‘but not including’, ‘but excluding’
which would be of any help to the appellant’s case. Tribunal also found
support for their view from 127 STC 382 (Mad.) and no realistic
conclusive evidence was found to prove that the products were not capable
of being used as toothpaste / cosmetic. The evidence led by the appellant,
at best, showed that the impugned products contain medicinal properties
and it was being treated as a medicine only by some persons. The plea that
if two interpretations were possible one in favour of the appellant ought
to be followed was also not found acceptable as once medicinal
preparations were excluded from the parent entry by virtue of being
capable of being used as toothpaste/cosmetic, there was no alternative but
to exclude them from the parent entry. The DDQs in favour of the appellant
in the past were also found to be given in the context of the entries
prevailing at the relevant time. The Tribunal also agreed with the
Department’s contentions that every kind / brand of toothpaste claimed to
fight dental disorders. Vicco Turmeric was also advertised as giving a
moisturizing effect and a glow to the skin like any other vanishing cream.
The dominant purposes of the impugned products were for cleansing
teeth or softness of the skin and although they had medicinal properties
and were found to be used by some persons as medicinal preparations, they
were capable of being used as toothpaste / vanishing cream and hence were
excluded from the parent entry by virtue of clause (c). Accordingly, Vicco
Vajradanti was held to be covered by Sch. Entry C-II-36 and Vicco Turmeric
by Sch. Entry C-II-86.
The Commissioner had given prospective effect to the
DDQ w.e.f. 1-5-1992, which date coincided with the recast of Notfn. entry
214. However, the Tribunal found the following circumstances in favour of
the appellant for extending the date of prospective effect:
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The product had been held as medicine from time to
time in various DDQs in the light of relevant entries.
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Even during the relevant period, similar product like
Stolin paste manufactured by Group Pharmaceuticals P. Ltd. had been
covered by Sch. C-I-24 by specifically observing in DDQ No. 1190/Adm –
5/58/ B- 17 dt. 20-6-1990, that it did not come under any of the
categories which had been excluded from the parent entry since it was
sold under medical prescription.
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The BHC had, in the appellant’s own case in an Excise
matter, held that the impugned products were medicines.
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The Karnataka, Kerala and M.P High Courts had held
the impugned products were medicines.
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The exclusion clauses had subsequently been removed.
Hence, the appellant’s tax liability for the period,
1-5-1992 to 30-4-1996 was also protected.
(Vicco Products (Bombay) Ltd. – App. No. 88 of 1996 dt.
19-4-2003. The decision has been given by Mr. G. D. Parekh, Member, Bench I.
Mr. P. V. Surte, Advocate, appeared for the appellant.)
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| 28. |
Whether, on the facts of the case, freight formed part of
sale price within the meaning of sec. 2(29) of the BST Act?
Held ... No
As the Tribunal was confronted with two contrary decisions
(S.A. Nos. 935 to 937 of 1993 dt. 9-7-1995 and S.A. No. 1553 of 1993 dt.
11-4-1997) on the same set of facts in the case of the same appellant, the
issue whether freight formed part of sale price under the given situation, was
referred to the Larger Bench and the following 4 questions were framed:
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Whether sale could be said to be legally completed at the
factory gate and accordingly freight was a post sale expense not forming
part of sale price?
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Whether appellant’s claim of inter- State sales was
justified when with the same terms and conditions, the appellant was
claiming sales as having been completed at the factory gates?
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Whether appellant was justified in claiming that the
transport agreement was done not on its own but on behalf of the
buyers/wholesaler when in fact (i) none of the buyers had actually taken
delivery at the factory gates and invariably door delivery was given (ii)
the buyers had no independence or say in selecting the transporter and the
terms and conditions of transportation?
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Whether the documents produced by the appellant were make
believe instruments prepared by the appellant in connivance with the
buyers/wholesalers and as such was there a need to reject these instruments,
not accept them at their face value, and to go beyond them to ascertain the
truth?
The appellant preferred a Rectification Application
requesting that Question No. 2 be deleted as it never arose and the CST
assessment was not an issue before the Tribunal.
Before the Tribunal, the appellant submitted that it was
engaged in the manufacture of biscuits and confectionaries, which were
distributed through a network of wholesale dealers, with whom a contract was
entered into, which stipulated that delivery of goods would take place at the
factory gate, ownership would be transferred ex works and the company would
thereafter not be liable for any loss or damage in transit. Payment for the
goods supplied and the actual freight incurred would be made by demand draft.
Actual freight from the factory gate to the destination was to be paid
initially by the appellant on behalf of the wholesaler and then be reimbursed
by the wholesaler to the appellant. To give effect to these terms and to
ensure prompt and timely delivery, the company had appointed a transport
contractor with whom an Agreement was entered into. The Agreement, inter
alia, provided for payment of compensation to the buyer in the event of
loss, shortage or damage. The appellant heavily relied on Hindustan Sugar
Mills Ltd. 43 STC 13 (S.C.). The appellant also clarified that the mode of
calculation of freight recoverable from individual buyers was given at the
bottom of the invoice – freight was charged by the transport contractor on
volume basis (Kerosene tins being the standard measure) The procedure had been
adopted by mutual agreement out of commercial expediency and was not at the
unilateral dictates of the appellant since such an approach was not possible
in today’s competitive world. The appellant also contended that the fact that
freight was initially paid by the appellant and thereafter was reimbursed by
the buyers was not material in deciding the issue at hand.
The Department Representative (D.R.) pointed that a
reference application had been filed by the Department and was pending as on
date and should be heard before deciding the present appeal. Accordingly the
same was heard and was decided separately. Further, the DR informed that the
appellant had already started paying tax on freight following the later
judgement dt. 11-4-1997 and the issue was largely of academic significance.
The difference in ‘sale price’ as defined under the BST and CST Acts was also
highlighted. According to the DR, freight was permissible as a deduction from
sale price under the CST Act but not under the BST Act. The DR also pleaded
that the principles laid down in McDowell’s case 59 STC 277 (S.C.) be
applied in the present case since it was a case of tax evasion through an
arrangement entered into with a view to defeat the provisions of law. The
Agreements with the buyers were an eye-wash and a camouflage to come out of
the clutches of law. The conduct of the parties was a true indicator of the
nature of the transaction, conditions of the contract notwithstanding.
Although the contract stated that delivery took place at the factory gate, it
was, in fact, made at the buyer’s premises. The contract with the transporter
was entered into by the appellant independently in its individual capacity and
not on behalf of the buyers. Damaged stock, if any, was to be disposed of by
the appellant’s representative. The consignee was at liberty to refuse to take
delivery of goods if the same were delivered after 30 days, a fact which
proved that property in goods passed to the buyer at his premises and not at
the factory gate. Although the buyer was purportedly the owner of the goods,
he could not insure the goods – the responsibility of insurance was cast on
the transporter. As per the Agreement, the transporter was responsible for
trans-shipment and thus the goods were not earmarked for individual customers
at the factory gate but were ascertained at the purchaser’s premises. Reliance
was placed on a host of judgements including Pankaj Traders – S.A. No. 1675 of
1992 dt. 12-12-1993 and the judgement dt. 9-7-1995 in the appellant’s own
case, which had been given after taking into account all the relevant factors
like agreement with transporter, the real nature of the transaction, etc. and
not just the terms of the contract. The DR also sought to distinguish
Hindustan Sugar Mills cited supra on the ground that it was given in the
context of the Rajasthan Act where freight was specifically excluded.
The Tribunal agreed with the appellant’s contention that
Question No. 2 was not a point at issue as it pertained to CST assessment,
which was not the subject matter of appeal before the Tribunal. Hence,
Question No. 2 was deleted and the rectification application was allowed. The
Tribunal made a comparative analysis of the definition of ‘sale price’ under
the BST and CST Acts and concluded that in case of CST Act, freight charged
separately even if incurred at the time of sale price while under the BST Act,
the cost of freight, even if it was charged separately, would form part of
sale price if the same had been incurred at the time of or before the delivery
thereof. As regards the question of applicability of McDowells’ case, the
Tribunal held that there was no satisfactory material on record to hold that
the real intention of the parties was at variance with that incorporated in
the Agreement. Besides, the terms and conditions printed in the Sales Invoice
also provided that the conditions specified in the contract were supreme and
would prevail over the conditions listed in the Sales Invoice. As per the
Agreement, the arrangement of transportation was entered into on behalf of the
wholesaler although the wholesaler was not a direct party to the agreement.
Accordingly, the transfer of property took place no sooner than the delivery
was taken at the factory gate. As regards the possibility of trans-shipment,
the Tribunal opined that it was a mere hypothesis and from that no inference
could be drawn that the goods were ascertained for actual delivery at the
purchaser’s premises although they were loaded at the appellant’s factory.
The Tribunal also proceeded to distinguish, inter alia,
Haldyn Glass Works P. Ltd. – S.A. No. 1278/1279 of 1993 dt. 12-12-1997 and
Pankaj Traders cited supra on the ground that in those cases, freight and
other incidental expenses had been incurred before the delivery/transfer of
property had taken place. The Tribunal applied the ratio of the decisions in
Bangalore Soft Drinks P. Ltd. 117 STC 413 (S.C.) and accordingly held
that on the facts and circumstances of the case, the Agreements entered into
between the appellant and the wholesalers, and the appellant and the transport
company, the sales invoices, etc., freight was initially incurred by the
appellant on behalf of the wholesalers and the same was reimbursed separately.
Such reimbursement of freight would not form part of sale price under the BST
Act.
(Parle Products Ltd. – App. No. 153 of 1998 and Rect. Appln.
No. 68 of 2001 dated 31-5-2003. The decision has been given by the Larger
Bench of the Tribunal comprising of Shri G. D. Parekh, President, Shri B. M.
Siraskar, Member and Shri P. R. Nagrale, Member. Shri V. P. Patkar, Advocate
along with Shri R. V. Patel, Advocate appeared for the appellant.)
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