Deputy Commissioner of Commercial Taxes (Vigilance) Vs. M/s Hindustan Lever Limited [Supreme Court of India, 30-06-2016]

Karnataka Sales Tax Act, 1957 – Uniform Market Retail Price – A market retail price stating that it is inclusive of all taxes could be the starting point, but would not prove and establish that the sales-tax has been collected.



(Dipak Misra) and (N.V. Ramana) JJ.

June 30, 2016


Deputy Commissioner of Commercial Taxes (Vigilance) …Appellant(s)


M/s Hindustan Lever Limited …Respondent(s)


Dipak Misra, J.

In the present appeal, by special leave, the appellant has called in question the legal acceptability of the order dated 25.01.2007 passed by the Division Bench of the High Court of Karnataka at Bangalore in STRP No. 62 of 2004 whereby the Division Bench has dismissed the Special Revision Petition preferred by the appellant-department and affirmed the order dated 27.12.2003 passed by the Special Bench constituting five members of the Karnataka Appellate Tribunal, Bangalore (for short, “the tribunal”) constituted under the

Karnataka Sales Tax Act, 1957

(for short, “KST Act”).

2. Requisite facts to be exposited for adjudication of this appeal are that Brooke Bond India Limited established its factory at Dharwad in the State of Karnataka and the said factory was engaged in manufacture of blended packet tea. With the passage of time, Brooke Bond India Limited was amalgamated with the respondent-company with effect from 21.03.1997. There is no dispute over the fact that the respondent-company registered under the Companies Act is a dealer under the KST Act. The dealer was granted sales tax exemption benefit for five years from the date of commencement of production in accordance with exemption eligibility certificate issued by the Government of Karnataka as per the package of incentive granted vide Government Order dated 27.09.1990 and sales tax exemption notification dated 19.06.1991 to which we shall advert to at a later stage.

3. When the matter stood thus, the Assistant Commissioner of Commercial Taxes (Intelligence), Kolar visited the premises of the respondent-assessee on 20th December, 1996. During the course of physical inspection the authority noticed that there was contravention of the conditions laid down under Explanation III(e) to the notification dated 19.06.1991. It was noticed by the said authority that sale of tea packets by the respondent-company from the Dharwad unit which had the benefit of exemption and the units manufacturing tea outside Dharwad unit which did not have the benefit of exemption were similarly priced. Two invoices – one from Dharwad unit and one from non-Dharwad unit – were taken note of and found that the ultimate sale price in both cases is Rs. 118 (the non-Dharwad tea had a sales tax component of Rs. 12.27, whereas the Dharwad tea had no sales tax component). Based on the said material as well as material evincible from the price circulars of the respondent-company found in the office, the intelligence officer arrived at the conclusion that the dealer had added the tax component to the sale price of Dharwad tea though not under the nomenclature of tax or cess. Hence, it was concluded that the respondent company was not entitled to the benefit of exemption, for Explanation III(e) to the notification dated 19.06.1991 had been violated.

4. As the facts would further unravel, on the basis of the aforesaid finding of fact of the inspecting authority, a series of assessment orders dated 15.06.1998, 31.01.1999, 22.02.2000 and 01.07.2000 were passed wherein, inter alia, the claim of exemption on the turnovers of Dharwad tea based on notifications dated 27.09.1990 and 19.06.1991 came to be rejected. The assessment orders were assailed before the appellate authority and vide orders dated 25.02.1999, 07.03.2001 and 23.03.2001 the appellate authority upheld the view of the assessing authority by rejecting the claim of exemption advanced by the assessee on the ground that there was collection of tax by considering the tax component in determination of sale price, though the same was not distinctly shown as tax and collected as such. The orders passed by the appellate authority were challenged before the tribunal which thought it appropriate to constitute a Special Bench and, accordingly, five members of the tribunal took up the matter. The tribunal after hearing learned counsel for the parties came to hold that though the company had considered the local tax element in the price fixed, but it cannot be stated that the company has collected the local taxes as such from the consumers in view of the fact that in the invoice against KST and CST, it is specifically left blank in respect of Dharwad tea; and accordingly accepted the stand put forth by the assessee-respondent. The said order was challenged before the High Court in revision petition.

5. The High Court to appreciate the controversy framed the following three questions of law:-

“(1) Whether the consideration of sales tax in fixing the price of the goods and sale of such goods along with identical goods on which taxes are collected along with the price has not resulted in an implied collection of tax in respect of such sales tax exempted goods?

(2) Whether the assessee who produces identical products, one which is exempt from sales tax and one which sales tax is payable, both being priced on par and sold off the same shelf, could not lead to the presumption that there is a deemed collection and inclusion of sales tax in the price fixed?

(3) Whether the legend ‘inclusive of taxes’ found on the packets of Dharwad and non-Dharwad tea, the distinction as such being lost on the consumer, whether it cannot be said that taxes are inclined and collected on the tax exempted tea.”

6. The High Court, after hearing the learned counsel for the parties and analysing the material on record, dissecting the relevant provisions of the KST Act and the notification for exemption came to hold as under:-

“30. Learned Advocate General invites our attention with regard to the price being the same with regard to Dharwad tea and non-Dharwad tea. Same is reflected in the books of accounts. The Company is governed by the Standards of Weights and Measures Act, 1976 and Rules. Rule 6 read with Rule 2(r) of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 requires that the sale price of the package commodity shall be printed on the packages strictly in the following form:

“Maximum (or Max) Retail Price Rs….. … incl. of all taxes.” or “MRP Rs. … INCL. OF ALL TAXES”

31. Much of arguments were advanced before us that in the light of inclusive rate of tax, there is nothing but collection in the case on hand. The Tribunal in its order would say that so long as the buyer has not agreed to pay tax, and so long as the bill would show that the company is exempted from tax, there can be no inference of tax collection. Tribunal, in our view, is right in noticing that mere mentioning of MRP does not by itself a proof of any collection of tax in terms of sales tax laws. We are in agreement with the finding of the Tribunal.

32. In fact, in Annexure-F there is a clear mention of exemption of tax in terms of the note at the end of the invoice itself. Therefore, the buyer is told in unmistakable terms that what is being paid as sale price and not as sales tax.

33. The Tribunal, in our view, has considered not only the facts of the case but also all the case laws as applicable, and thereafter has come to a right conclusion in holding against the State. We are in agreement with the findings of the Tribunal.”

On the basis of the aforesaid analysis, the High Court concurred with the opinion expressed by the tribunal.

7. We have heard Mr. Basava Prabhu S. Patil, learned senior counsel along with Mr. V.N. Raghupathy for the appellant and Mr. Harish N. Salve and Mr. Arvind P. Datar, learned senior counsel for the respondent.

8. The present litigation has a history. Be it stated, this is the third round of litigation. In the first round, the State of Karnataka had availed the plea that the Government Order dated 27.07.1990, pursuant to which the Exemption Notification dated 19.06.1991 was issued, was itself not gazetted. The controversy travelled to this Court in