Discounts and Rebates would not form part of ‘Sale Price’: Supreme Court

Source:     Feb 26, 2018

In M/s. Universal Cylinders Limited v. Commercial Tax Officer, a two-judge bench of the Supreme Court last day ruled that the ‘sale price’ does not include normal trade practices like discount or rebates under the Rajasthan Sales Tax Act, 1994.

The assessee in the instant case is engaged in the business of manufacturing cylinders for storage of Liquefied Petroleum Gas (LOG). The Assessee Company supplied these cylinders to Government-owned companies such as Indian Oil Corporation (IOC), M/s Bharat Petroleum Corporation Ltd and M/s Hindustan Petroleum Corporation Ltd.

During the year the Assessee Company placed an order for supply of 73380 numbers of 14.2 Kg cylinders to IOC and the Assessee supplied the cylinders and charged the amount of Rs.682 per cylinder and also charged sale tax on the same amount. Thereafter, IOC informed the Assessee by letter that after reviewing of the prices, the price of 14.2 Kg cylinders has been again provisionally revised to Rs.645 and the oil companies deducted 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 the refund of the sales tax paid on the excess sale amount at Rs.37. the authority rejected the claim of the Assessee by holding that there is no provision under the Act for reducing the amount of tax once has been paid and also observed that the arrangement of the Assessee with the oil companies was in the nature of a private agreement, hence the claim of the Assessee on refund cannot be granted.

On appeal, the High Court also refused to accept the contention of the Assessee and passed an order denying the benefit. Aggrieved by the order of the High Court, the Assessee approached the apex Court on further appeal.

While allowing the appeal filed by the Assessee Company, the Supreme Court Justice Madan B. Lokur and Justice Deepak Gupta held that “Section 2(39) of the Rajasthan Sales Tax Act, which defines “sales 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 Court further observed that “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 and NG. This price could have been higher than Rs.682 per cylinder, in which event the Assessee would have to collect and deposit with the Rajasthan 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 the refund of the tax paid on the excess amount”.