Nilesh Agencies vs State of Karnataka

Dilip B. Bhosale, J.—Heard Mr. G. Sarangan, learned Senior Advocate for the appellants and Mr. Vedamurthy, learned High Court Government Pleader for the respondents. This group of writ appeals is directed against the order dated 4-12-2012 passed by learned Single Judge disposing of a batch of writ petitions bearing W.P. No. 13294 of 2007 and connected petitions. The writ petitions were filed against the separate orders, all dated 10-5-2007, passed by the Commissioner of Commercial Taxes, Bangalore, whereby the applications, filed by the appellants/petitioners, in Form 51 of the Karnataka Sales Tax Rules, 1957, u/s 18-AA(4) of the Karnataka Sales Tax Act, 1957 (for short, ''the Act'') seeking revision of the taxes erroneously paid by them on their purchase of ''Gutkha'', were rejected.

The appellants are registered dealers and they are engaged in sale and purchase of Gutkha. They claim refund of the taxes, which, according to them, were erroneously paid for the period of 1996-1997 to 2000-2001 contending that they did not pass on the burden of tax on to the consumers. The appellants are the second dealers. There is no dispute that at the relevant time levy of tax on Gutkha was a single point levy. It is not the case of the appellants that sales tax was erroneously collected from the first dealers but their case is that they had erroneously paid the tax on the sale of Gutkha to the first dealer, and therefore, they are entitled for refund of the tax as provided for under sub-section (4) of Section 18-AA of the Act.

2.1. The Commissioner of Income Tax, however, rejected the claim of refund for the reasons recorded in the order. For our purpose, the following observations made by the Commissioner are relevant, which read thus:

"16. The Additional Commissioner of Commercial Taxes and the Joint Commissioner of Commercial Tax explained that as the tax was single point tax, the applicant was prohibited by Section 18(1)(b) from collecting any amount as tax or by way of tax from the purchasers of goods and precisely for that reason the applicants have neither collected any amount separately as tax or shown it to be so, either in the sale bills or in the books of account, but that does not mean that the applicant had not passed on the burden of tax to the consumers/customers. They further contended that if it were to be held that the applicants have not passed on the tax burden to their purchasers merely because the applicants have not shown the tax amount on the sale bills or accounted for it in their books of account, which they could not have done lawfully, then it would lead to unjust enrichment as envisaged by the Supreme Court in Mafatlal Industries Ltd. and Others Vs. Union of India (UOI) and Others, .

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The Senior Officers pointed out that, in this case, it is not the consumers of ''Gutkha'' who are seeking refunds, but the applicants who are the second dealers and that the second dealers though have not collected any amount separately as tax from consumers, the consumers were made aware that the price they were paying was inclusive of all taxes as indicated by the MRP printed on the sachets which declare that it is inclusive of all taxes. In support of this argument, the JCCT produced three sachets of ''Gutkha'', one of the sachets being that of ''Star Gutkha'' manufactured by Ghodwath Pan Masala Products (India) Private Limited, another of Manikchand RMD Brand marketed by Mehta Agencies and Mehta Associates, and a third of Pan Parag Brand, which have been marked as Exhibits A, B and C and on which, against the MRP the words "inclusive of all taxes" are found.

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The applicant was not aggrieved by the imposition of tax upon ''Gutkha'' when the assessments were made and he had paid the tax to the first dealer, but sought refund only after the Supreme Court held in the Kothari Products Ltd. Vs. Govt. of A.P., , that states cannot impose tax on ''Gutkha'' as it was a tobacco product. So the presumption should be that being a prudent businessman, having paid the tax to the Government he had passed on the burden of the tax upon the customers and woke upto make a claim only when the Supreme Court made the order in the Kothari Product''s case. The words "Inclusive of all taxes" printed next to MRP on the sachets of ''Gutkha'' sold by the applicant go to show that he had in fact passed on the burden of tax to the ultimate consumers in the usual course of business. Therefore, hold that the applicant in this case has not borne the burden of tax and that he had, in the absence of clear proof to the contrary, passed on the burden of tax to the ultimate consumers or customers and therefore, the applicant is not eligible to get refund of the tax amount claimed by him in Form 51 of the Rules. Hence, all the five applications considered in this order are rejected".

(emphasis supplied)

The learned Single Judge while dealing with the writ petitions, noticed the observations and findings of fact recorded by the Commissioner and as a matter of fact, reproduced paragraph 27 in the order, and based on those observations held that the appellants/petitioners had passed on the tax burden onto the customers and that it cannot be said to be erroneous. This is a clear finding of fact recorded by the Commissioner and confirmed by the learned Single Judge in the impugned order. We find that there is sufficient material on record, as reflected in the above quoted observations made by the Commissioner, to sustain those findings.

The preposition of law that a dealer, like the appellants, are entitled for refund as contemplated by Section 18-AA(4), only if it is established that they did not pass on the burden of tax to the customer, is not in dispute. In other words, the application for refund can be allowed only when it is established that the dealer has not passed on the burden of tax to the customer. It is not in dispute that on the sachets of Gutkhas, the price, printed was "inclusive of all taxes". In view thereof, the Commissioner has rightly observed that it is impossible to presume that in the business, like the one of the appellants, a prudent businessmen would not collect the tax from the customers when they sell sachets of Gutkhas.

Learned Senior Advocate appearing for the appellants, vehemently submitted that though it was repeatedly submitted before the Commissioner that the appellants did not collect any tax the Commissioner wrongly drew presumption against the appellants. He also submitted that the appellants sold sachets of Gutkhas to customers for the price less than what was printed on the sachets. In our opinion, that by itself would not mean that the appellants did not collect tax from the customers on the sale of sachets. It can at the most be inferred that the appellants reduced the margin of their profit on the sale of Gutkhas. That apart, though such submission was made, there is nothing on record to show that in fact, sachets were sold by the appellants for the lesser price. Such factual matrix, in our opinion, cannot be examined in writ appeals and on this ground also, the submissions deserve to be rejected outright. Even the reliance placed on the judgment of the Gujarat High Court in Subhash Iron and Steel Rolling Industries Vs. The State of Gujarat, , also is of no avail to the appellants, since the observations made in the said judgment in respect of the words "inclusive of tax" were considered and interpreted in the light of the facts and circumstances of that case. In the circumstances, we are not inclined to interfere, in the intra-Court appeal, with the order passed by the learned Single Judge. Hence, the appeals are dismissed summarily.