SC on Refund of Excess Amount of Sales Tax on Price Variation

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February 26, 2018

Case name: M/s. Universal Cylinders Limited v. The Commercial Taxes Officer

Date of Judgment: February 23, 2018

In the instant case, the Supreme Court has opined that an Assessee shall be entitled to refund of excess amount of sale tax paid in the event the price of the item gets reduced later.

In the case, the Appellants were manufactures of cylinders for storage of LPG. At the relevant time, the supply of LPG by the Appellants’ company was for Government owned companies like Bharat Petroleum, Indian Oil Company etc. In 2000, the appellant ­assesse supplied   the   cylinders   to IOC and charged   the   amount   of   Rs.   682/ per cylinder and also charged sales tax on the same.

Later, 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 1.07.1999 and accordingly deducted the excess   payment   of   Rs.37/­   and   proportionate   sales   tax thereon from the payments due to the assesse.

The assesse approached the Assessing Authority for refund of the sales tax paid on the excess sale amount i.e. Rs. 37/-­.  The case   of   the   assesse   was   that   he   had   paid   tax   on   the provisional price of Rs.682/per cylinder. Thus, after the price had been reduced to Rs.645/ he was only entitled to Rs. 645/. The Assessing Officer rejected the claim of the assesse on the ground that there is no provision under the Act for reducing or refunding the amount of tax once the amount has been paid.

Being aggrieved, the assesse approached the High Court, however the assessee’s plea was dismissed and subsequently, the Appellant Assesse approached the Supreme Court.

Bench’s Verdict

The Two-Judge Bench of the Supreme Court in the case directed the Respondent to refund the Appellant assessee the amount of sales tax paid on the excess amount in view of the following findings:

  • That 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. Thus, 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.
  • With reference to the facts in the present case, the Supreme Court remarked that when the orders were placed with the assessee, the price was not finalized by the Ministry of Petroleum. 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 July 1, 1999 will be the price as approved by the Ministry pf Petroleum.
  • The Bench opined that 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 Ministry of Petroleum.
  • In view of the aforesaid, the Supreme Court held that since the price of the cylinder had been reduced the assessee could not charge more than the fixed price and was bound to refund the excess amount collected and hence was entitled to get a refund of the tax paid on the excess amount.

The entire case can be accessed here.