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Judgment
Rajive Bhalla, J.—The petitioner,, an association of petroleum dealers, in the State of Haryana, prays for, issuance of a writ of mandamus declaring Explanation (v) to section - 2(1)(zg) of the Haryana Value Added Tax Act, 2003 (hereinafter referred to as "the Act") ultra vires of the Constitution of India, being violative of article 246 read with entry 54 of List II of the Seventh Schedule appended to the Constitution of India, and for issuance of a writ of certiorari quashing section 2 of the Notification No. Leg. 22/2011 dated September 29, 2011 (annexure P2), whereby the Act had been amended, vide Amending Act No. 17 of 2011. The petitioner also prays that a direction may be issued to respondents Nos. 3 to 5 not to charge value added tax (hereinafter referred to as "the VAT") in excess of the actual sale price for which goods are being sold by members of the petitioner-association. The petitioner''s grievance briefly put, is that the State Legislature is not empowered to charge tax on any other amount except the actual sale price agreed between the oil companies and the retail outlets. The Explanation introduced by way of an amendment is beyond legislative competence in view of entry 54 of List II of the Seventh Schedule, appended to the Constitution of India. By enacting that tax shall be levied on the price at which petrol products are sold to consumers, the amendment includes the commission payable to retail dealers, for sale of petroleum products.
The counsel for the petitioner submits that the State of Haryana has issued Notification No. Leg. 22/2011, dated September 29, 2011, amending section 2(1)(zg) of the Act, modifying the definition of "sale price" by adding Explanation (v). The effect of the amendment is that petroleum companies would be collecting tax not on the actual price of sale made by them to dealers but upon the expected final sale price of such products, to consumers thereby including the commission payable to a dealer.
It is further contended that entry 54 empowers a State to levy tax on "sale" or "purchase" of goods subject to provisions of entry 92A of List I which in turn deals with matters relating to tax on sale or purchase of goods in the course of inter-State trade or commerce. While calculating tax liability u/s 2(1)(u) of the Act, an assessee is required to calculate his gross turnover, i.e., the aggregate of the sale prices received or receivable in respect of any goods sold. Section 2(1)(u) of the Act, reads as follows:
(u) ''gross turnover'' when used in relation to any dealer means the aggregate of the sale prices received or receivable in respect of any goods sold, whether as principal, agent or in any other capacity, by such dealer and includes the value of goods exported out of the State or disposed of otherwise than by sale;
Explanation:
(i) The aggregate of prices of goods in respect of transactions of forward contracts, in which goods are actually not delivered, shall not be included in the gross turnover.
(ii) Any amount received of receivable or paid or payable on account of variation, escalation or de-escalation in the price of any goods sold previously to any person but not exactly determinable at that time, shall, subject to such conditions and restrictions, as may be prescribed, be included in, or excluded from, the gross turnover, as the case may be, in the manner prescribed.
(iii) Any amount collected by the dealer by way of tax shall not be included in the gross turnover and where no tax is shown to have been charged separately, it shall be excluded from the taxable turnover (denoted by "ITO'') taxable at a particular rate of tax in per cent (denoted by ''r'') by applying the following formula:
Illustration-If ITO is 220 and r is 10 (per cent), tax will be 20.
An assessee is also entitled to certain deductions in terms of section 6 as provided u/s 2(1)(zn) of the Act, which reads as follows:
(zn) "taxable turnover'' means that part of the gross turnover which is left after making deductions therefrom in accordance with the provisions of section 6; plus purchase value of goods liable to tax under sub-section (3) of section 3.
It is contended that a conjoint reading of the aforesaid provisions reveals that tax is to be levied on the actual sale or purchase of goods at the time of sale. In the absence of any constitutional or statutory provision that permits levy of sales tax on notional or artificial price which is unrelated to the actual sale price settled between the parties, VAT cannot be levied in terms of the impugned amendment. It is further contended that after incorporating Explanation (v) in section 2 of the Act, tax is now being levied on a notional price, to be calculated equivalent to the price offered by each retail outlet by including the commission of a dealer as part of the sale price.
The counsel for the petitioner also submits that while interpreting the expression "sales of goods" the honourable Supreme Court has held in The State of Madras Vs. Gannon Dunkerley and Co., (Madras) Ltd., , that it shall be assigned the meaning set out in the Sale of Goods Act, 1930. Section 4(1) of the Sale of Goods Act, 1930, defines a contract of sale of goods to mean a seller transferring or agreeing to transfer property in goods to the buyer for a price, i.e., the money consideration for the sale of goods. The impugned amendment by including commission paid to the retail outlets in the sale price is ultra vires of entry 54 of List II as words used in entry 54 of List II of the Seventh Schedule appended to the Constitution of India as the amendment seeks to bring to tax something which is not part of the sale price of the goods. The counsel for the petitioner also places further reliance upon a judgment in State of Gujarat Vs. Ramanlal Sankalchand and Co., . It is further submitted that by way of the impugned amendment the State of Haryana has sought to levy tax on "profits of seller", a power not conferred upon the State of Haryana as it falls within the sole purview of the Union Government. The State of Haryana is only empowered to tax goods on the price fixed for sale between the oil companies and the retail outlets and not on a notional price which is not charged or recovered from a customer.
It is further submitted that in practice, the effect of this amendment is that members of the petitioner-association, though entitled to input-tax credit on such tax have excess tax in their hands. The output tax liability is lower on account of evaporation loss leading to tax being carried forward on a regular basis. The excess being carried forward has become perpetual as section 20 of the Act does not permit refund confining it to inter-State sale of goods or export out of the country. In case of the petitioner, as the excess tax has been paid on each and every consignment purchased, the gap is increasing every day and its funds are blocked as they are not likely to be adjusted.
The counsel for the petitioner further submits that if goods are purchased by a registered dealer from another registered dealer against a tax invoice, the said amount is treated as "input-tax credit" in the hands of the purchasers who can set off this amount while computing its final sales tax liability referred to as "output tax" and in case of any over-flow, pay the remainder to the State. In case of petroleum products, retail outlets pay tax on the purchase of goods to Government-run petroleum companies, namely, Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited. The goods are sold to consumers after adding the margin/commission paid to retail outlets. The additional tax, if any, is paid by the dealers in the treasury after claiming necessary deductions under the Act.
It is further urged that a controversy arose with respect to evaporation of oil during transit, handling and sale of petroleum products relating to input-tax credit. The respondents issued a clarificdtion that if evaporation loss is within limits, it would be allowed and there would be no adverse impact on the input-tax credit in terms of section 8 of the Act read with Schedule E. On the basis of this clarification assessments were framed and tax paid at the time of purchase of goods was regularly set off against output tax liability of members of the petitioner-association and remaining tax was deposited.
The counsel for the State of Haryana submits that the impugned amendment is legal and valid as it falls within the expression of the words "sale or purchase" of goods used in entry 54 of List II of the Seventh Schedule, appended to the Constitution of India. The amendment of section 2(zg) of sub-section (1) by adding Explanation (v) was made in order to streamline collection of VAT. Furthermore, petroleum dealers are not entitled to claim input-tax credit in respect of shortage of loss of petrol and diesel due to evaporation because input tax is to be recovered on account of shortage of evaporation as per entry 5 of Schedule E of the Principal Act as it falls within the meaning of the words "disposed of otherwise than by sale". It is further submitted that an agreement, annexure Rl, appended with reply, between oil companies and petrol outlets, fixes the sale price of petrol and diesel while making sale to the consumer. A perusal of agreement, annexure Rl, makes it abundantly clear that "sale price" as defined u/s 2(1)(zg) of Act, is in conformity with the definition of "sale" as provided under the Sale of Goods Act, 1930. The judgment in State of Gujarat Vs. Ramanlal Sankalchand and Co., relied by the petitioner while declaring certain provisions of the Bombay Sales Tax Act, 1953, ultra vires, does not apply to the present case as money consideration in the present transactions are well defined. The other judgment relied upon by the petitioner, pertaining to levy of tax on maximum retail price, did not find favour with the court, as in the present case, there is no question of levying tax on maximum retail price as retail price is determined by oil companies being a highly regulated commodity. It is also contended that as petroleum products are highly regulated commodities and are sold at a specific price to consumers, fixed by the oil companies, the sale price for petroleum products charged by retailers from consumers is part of an agreement and, therefore, the State is justified in levying the tax as per the sale price. It is further submitted that sale price of petrol and diesel is fixed by oil companies on the actual value and not on any notional or artificial value as alleged by the petitioner and, therefore, section 2(1)(zg) of the Act was amended to bring the definition of "sale" in conformity with business practices of oil companies and dealers.
We have heard counsel for the parties, perused the paper book as well as the relevant provisions.
The controversy, in the present case, relates to legislative competence to enact Explanation (v) to section 2(1)(zg) of the Act which provide that sale price in relation to sale of petrol and diesel by a retail outlet, shall be equal to the price at which the retail outlet sells petrol and diesel to its consumers. The amended section 2(1)(zg) of the Act including Explanation (v) read as follows:
(1)(zg) ''sale price'' means the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed at the time of sale as cash or trade discount according to the practice, normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof and the expression ''purchase price'' shall be construed accordingly.
Explanation:
(i) to (iv)...
(v) The amount received or receivable by oil companies for the sale of diesel and petrol to the retail outlets in the State shall be deemed to be equivalent to the price on which the retail outlets sell these commodities to the consumer.
The expression "sale price" is defined u/s 2(1)(zg) of the Act as the amount payable to a dealer as consideration for the sale of any goods excluding cash trade discount but including any sum charged for anything done by the dealer in respect of goods at the time or before the delivery thereof. Explanation (v) seeks to expand this definition and explain that "sale price" in the case of sale of diesel and petrol between oil companies and a retail outlet shall be the price at which a retail outlet sells petrol and diesel to the consumer. The controversy, in essence, is that prior to the amendment assessments were framed and tax was paid on the basis of price of petrol and diesel determined at the time of delivery to the retail outlet whereas by the amended provision, Explanation (v) has altered the definition of sale price of diesel and petrol as it has to be calculated as the price offered to consumers thereby including margin/commission received by retail outlets from oil companies.
At this stage, it would be appropriate to clarify that oil companies sell petrol and diesel to retail outlets for further sale to individual retail consumers. The outlets are paid commission based on the value of sale of petrol and diesel. The effect of the amendment is that tax would be paid by including the commission paid on petrol and diesel sold to retail outlet. The petitioner lays challenge to this amendment primarily on a plea that such an amendment is beyond legislative competence of the State of Haryana as entry 54 of List II of the Seventh Schedule to the Constitution of India empowers State Legislature to impose tax on sale or purchase of goods and as commission paid to petrol dealers is not part of the sale price determined between an oil company and a retail outlet the amendment is beyond the legislative power of the State of Haryana and should, therefore, be held to be ultra vires of the Constitution of India. Per contra, the respondents allege that the amending provisions do not suffer from any irregularity as to be rendered ultra vires.
So far as the question of legislative competence of the State of Haryana in enacting Amending Act No. 17 of 2011, inter alia, introducing Explanation (v) to section 2(1)(zg) of the Haryana Value Added Tax Act, 2003 vide notification No. LEG-22/2011 dated September 29, 2011 (annexure P2) is concerned, entry 54 of List II of the Seventh Schedule to the Constitution of India, reads as follows:
Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I.
Entry 54 empowers the State Legislature to impose tax on sale or purchase of goods. There are two restrictions envisaged on such power, i.e., sale of purchase of newspapers and subject to entry 92A which deals with sale or purchase in the course of inter-State trade or commerce and reads as follows:
92A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce.
A plain reading of entries 54 and 92A reveals that the amendment does not envisage a tax on newspapers or on sale or purchase in the course of inter-State trade or commerce and is, therefore, well within legislative competence of the State. The Haryana Value Added Tax Act, 2003 (hereinafter referred to as, "the principal Act") is a legislation enacted under entry 54 of List II and as we are unable to discern any legal disability or impediment that would enable us to hold that the amendment is beyond competence of the State legislation, reject the aforesaid contention.
The mere fact that by way of this amendment a change has been brought out in the contours of "sale price", by specific reference to petrol and diesel the factum of sale or purchase neither gets coloured nor is it affected by this amendment. The price at which petroleum products are sold is fixed by oil companies wherein dealers have absolutely no role to play. By way of the questioned amendment, tax has been levied on the retail price chargeable at the time of sale of petrol/diesel by the oil companies to the consumers. The prices of petroleum products are fixed between the oil companies and petrol outlets by way of an agreement wherein price of sale to the ultimate consumers is pre-determined. Sequelly, the sale price chargeable from the dealers does not fall foul of the definition of "sale" as is provided under the Sale of Goods Act, 1930. Money consideration in transactions involved in the present case is well-defined and is not dependent upon vagaries of market forces, as is true of other commodities. There is no application of maximum or minimum price because no variations in sale price of petrol/diesel is contemplated as petrol/diesel are highly regulated commodities and their sale price from oil companies to dealers and then from dealers to consumers is part of the agreement between the oil companies and the dealers. In short, dealers have no control much less any role in fixing the sale price. It thus follows that the tax element chargeable by the oil companies would be deposited by themselves with the State exchequer and dealers would be saved from this duty. The retail outlets are not entitled to any value addition on their own level in the sale price already fixed by the oil companies as per the agreement between the two. The petitioner-association has not been burdened in any way rather, in fact, it has been relieved from the task of payment of tax on the value added component of petrol and diesel at the time of sale. The tax levied on the retail sale price of the products is collected by the oil companies, whereafter it is deposited by those oil companies with the State exchequer. In real sense, this amendment streamlines the VAT collection process and rather makes for easier adjustment of tax deposited.
The petitioner-association has raised a plea that motor spirit and highspeed diesel sold by the companies to them gets evaporated during storage, transit and sale of such products and thus these products to such an extent are not subjected to sale and sequelly the retail outlets are not able to get credit of input tax for loss in quantity of petrol/diesel because of evaporation, resulting in ever increasing gap between the input tax paid and credit taken thereof.
The argument has no merit. It is a conceded fact that Ministry of Petroleum had allowed such losses to the extent of 0.6 per cent. in case of motor spirit and 0.2 per cent. in case of high speed diesel. Vide separate instructions issued in this behalf to the assessing authorities, they were asked to ensure that the VAT payable at the hands of dealers, on this account, does not remain unassessed. The assessing authorities were further asked to ensure that the quantification of VAT on the basis of quantity of motor-spirit and high speed diesel sold during the assessment years finds a special mention in the assessment order. However, so far as gap regarding evaporation losses is concerned, in term of clause (ii) of entry 5 of Schedule E such liability of input tax shall be nil because petrol/diesel gets disposed of by way of loss in evaporation. This provision for ready reference is reproduced as below:
Thus, this clause clearly obviates accounting for purposes of taking of input-tax credit since any quantity of shortage claimed is taken care of vide this clause. The petitioner''s apprehension on this count is clearly unfounded as dealers are given full claim of input-tax credit. The shortage on account of evaporation is taken care of by this clause.
It may not be out of place to mention that on March 21, 2013, another circular has been issued by the Excise and Taxation Department, Haryana, for compliance of all assessing officers, inter alia, regarding treatment of evaporation loss and stock loss in respect of motor spirit and high speed diesel. Following paragraphs from the said circular are worthy of notice here and thus are reproduced as below:
Further, an issue relating to evaporation loss in petrol and diesel was also discussed in the guidelines referred to above. It is accepted by the oil marketing companies that when petrol and diesel pass from the companies to the petrol pumps for onward sale to the consumers there occurs a certain loss due to evaporation. So what should be the treatment under the Haryana VAT Act towards these losses'' for the purpose of input tax and output tax? Since ''output tax'' is a tax levied on the sale of goods effected by a dealer in the State during a tax period, so in the given case when there is no sale of the evaporated goods which are lost, there could be computed no liability towards output tax of petrol pumps on this count.
Now the question is how to give benefit of input tax on that evaporated petrol and diesel which is not sold but lost in evaporation. As per the scheme of input-tax credit under the Haryana VAT input tax is credited to a registered dealer on purchase of goods which a dealer is authorised to purchase for re-sale and this input tax is adjusted and given set-off towards output tax liability on sale of these purchased goods. Further/the input-tax credit is subject to the restrictions and conditions provided in the Schedule E. But in the given circumstances when the goods in question are evaporated and lost but not actually sold, so no output tax liability is attracted. Hence there arises no reason to allow input-tax credit on the purchase of these evaporated goods. So at the time of framing of assessment the assessing authority is required to ensure that this aspect is examined in totality, both in quantity and value terms. The assessing authority should give his analysis and remarks and pass a well reasoned order while disallowing/reversing input-tax credits.
So far as the contention of the petitioner-association that VAT is levied even on the commission payable to the dealers is concerned, it also has no merit. By now, it has become abundantly clear that petrol/diesel are highly regulated items, sale price of which from the oil companies to the dealers and from dealers to the ultimate consumers is fixed and entire price structure is part of the agreement where prices cannot be varied by the dealers. Commission to these dealers is disbursed by oil companies as per the agreement executed between them. Neither the price structure nor the taxation regime gets affected by the quantum of commission disbursed to the dealers because gross turnover in terms of section 2(1)(u) after certain deductions in terms of section 6 is computed to arrive at a figure of taxable turnover in terms of section 2(1)(zn). Thus, there is no case of payment of tax on the amount of commission paid to the dealers by the oil companies.
The plea regarding notional or artificial sale value or price of the diesel/petrol on which pursuant to the Explanation, tax is levied, is also incorrect. Rather, the levy of tax is on the sale price of petrol/diesel price whereof is fixed by oil companies and is declared and pre-determined by oil companies and VAT is charged on the said actual value and not on the notional/artificial value.
The amendment brought about in the term "sale price" vide the impugned notification is in conformity with term "sale" as is understood in the Sale of Goods Act, 1930. The evaporation loss is fully taken care of by the provisions of the principal Act. The petrol outlets/dealers receive the commission as per quantity of petrol/diesel sold which aspect is also duly taken care of in the procedure for arriving at input as also output-tax credit.
By way of passing reference, it may be mentioned that similar amendment introduced in Delhi VAT Act, 2004 as also in Punjab VAT Act, 2005 much earlier than the present amendment has stood the test of time and is operational. Consequently, there being no merit in the petition, the same is dismissed.