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Andhra Agencies v. State Of Andhra Pradesh .
Factual and Procedural Background
Several assessees, all liquor distributors of brands manufactured by M/s Shaw Wallace & Co. Ltd. and M/s Vinadale Distilleries (P) Ltd., were assessed under the Andhra Pradesh General Sales Tax Act, 1957. Under the legislation, sales tax is payable at the first and last points of sale, while intermediate dealers are taxed only on their “differential turnover”—the margin between their purchase price and resale price.
During revisional proceedings initiated by the Commissioner or Deputy Commissioner of Sales Tax for various assessment years, the authorities discovered periodical credit notes (annual or quarterly discounts) issued by the manufacturers to the distributors. Those credit-note values had not been included by the distributors in their taxable turnover. Revision orders added these amounts and raised additional tax demands.
The assessees challenged the revision orders before the Sales Tax Appellate Tribunal and then the Andhra Pradesh High Court, contending that tax on the full invoice value had already been paid by the first sellers (manufacturers). The High Court dismissed their revisions and appeals. The present appeal is against that dismissal.
Legal Issues Presented
- Whether the value represented by credit notes/discounts issued by manufacturers should form part of the taxable turnover of intermediate dealers under the Andhra Pradesh General Sales Tax Act, 1957.
- Whether the absence of a personal hearing in the revisional proceedings vitiated the orders passed by the tax authorities.
- What documentary proof is required to establish the amount on which the first sellers actually paid tax, thereby determining the correct differential turnover of the assessees.
Arguments of the Parties
Appellants' Arguments
- The wholesalers (manufacturers) had already paid tax on the entire sale consideration before issuing credit notes; therefore, no additional tax could be demanded from the intermediate dealers.
- They were not granted a personal hearing during the revisional proceedings, rendering those orders procedurally defective.
Revenue's Arguments
- When manufacturers returned part of the sale price through credit notes, the returned amount still embodied a proportionate part of the tax originally collected; accordingly, the distributors’ purchase price was effectively reduced, increasing their differential turnover.
- The conclusions of the assessing and revisional authorities, affirmed by the High Court, were correct and should be upheld.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court used a numerical illustration to crystallise the dispute. If the manufacturer’s taxable sale price was Rs 100 and the distributor resold at Rs 110, the intermediate dealer’s differential turnover should be Rs 10. The Department, however, sought to compute tax on Rs 20 by deducting the discounted price (Rs 90) from the resale price. This would be incorrect if tax had in fact been paid on the full Rs 100 by the manufacturer.
The Court noted two procedural deficiencies: (i) the assessees were denied a personal hearing, an omission the Court found “clearly unsustainable,” and (ii) the assessees had not produced their full books of accounts, allegedly because the documents were under seizure. Nevertheless, some purchase bills indicating tax on the higher amount had been produced but not considered.
Because the substantive outcome depends on verifying the quantum on which the first sellers actually paid tax, the Court directed that the assessees be given an opportunity to produce their books and supporting documents before the competent Deputy Commissioner (Commercial Taxes). That authority must then determine—with reference to those documents—whether tax was paid on the higher or lower figure and assess the differential turnover accordingly.
Holding and Implications
DISPOSED OF. The matter is remitted to the Deputy Commissioner (CT), Secunderabad. The assessees must appear on 4 November 2008 and produce evidence showing the amount on which the first sellers paid tax. If they establish that tax was paid on the full invoice value, their liability will be limited to the true differential turnover; otherwise, the Department’s revised computation will stand.
The decision grants a fresh factual determination without setting a new legal precedent, but it underscores the necessity of according a personal hearing and of verifying documentary evidence before finalising turnover adjustments.
Dr. Arijit Pasayat, J.— Leave granted.
2. The challenge in this appeal is to the judgment of the Division Bench of the Andhra Pradesh High Court dismissing the revision petitions and special appeals filed by several assessees under Section 22(1) (so far as the revisions are concerned) and Section 23(1) (so far as the appeals are concerned) of the Andhra Pradesh General Sales Tax, 1957 (in short “the Act”).
3. The basic issues involved are the same. For different assessment years, orders were passed by exercising revisional power by the Commissioner of Sales Tax. In some cases the Deputy Commissioner exercised revisional power. The issue involved was whether the value representing the credit notes issued by the manufacturers to the distributors was to be included in the taxable turnover. All the assessees involved were carrying business in liquor as distributors of the brands manufactured by M/s Shaw Wallace & Co. Ltd. and M/s Vinadale Distilleries (P) Ltd., Hyderabad.
4. For the relevant assessment years, sales tax was leviable on the first and last sale of the total sales effected. At the same time, as per the proviso to Schedule VI, the intermediate dealers are taxable on the differential turnover i.e the intermediate dealers are entitled to exclusion of the turnover which had already suffered tax. The assessees in question are intermediate dealers which are liable to tax only on the differential turnover i.e after excluding the turnover which had already suffered tax.
5. It is the case of the assessees that they used to purchase various brands of liquor from the two manufacturers who are the first sellers and who are liable to be taxed on the total turnover insofar as their sales are concerned. After the sales were effected by the dealers in question they declared the differential turnover i.e the difference between the purchase price and the sales price which was subjected to tax by the assessing officer. However, it came to light that the assessees had received periodical credit notes representing the discount i.e either annual discount or quarterly discount from the manufacturers. It was the stand of the Revenue that they were not taken into account while making assessment though they were entered in the books of accounts. These facts came to light subsequently when the task force of the Department verified the books of accounts of the above two manufacturers. Therefore, revisional proceedings were initiated to include the amounts in question in the taxable turnover in respect of the amounts representing the value covered by the credit notes. In some cases the Commissioner passed revisional orders because according to him while revising the assessment, the Deputy Commissioner had not taken the correct figures.
6. The assessees' stand before the authorities as well as the High Court was that the first seller had collected tax on the total turnover representing the sales price from the respective dealers and the first seller manufacturers claimed reduction/rebate in their turnover representing the credit notes and obtained reduction/rebate of the tax from the Department. Therefore, such amounts should not have been treated as a part of the taxable turnover in the hands of the dealers who are the subsequent sellers. The stand of the Revenue was that when the manufacturer returned a part of the sale consideration under the credit notes, the returned amount under the credit notes included a part of the tax that was already collected since the tax collected was an inseparable part of the sale consideration. The High Court was of the view that the basic question was whether value of the credit notes goes to reduce the purchase turnover of the dealers or not. The High Court found that the Revenue's stand was correct.
7. In support of the appeal learned counsel for the appellant submitted that the wholeseller had paid tax on the whole amount before adjustment of the credit notes. Therefore, the Revenue was not justified in levying further demand.
8. Learned counsel for the Revenue on the other hand supported the judgments of the authorities and the High Court.
9. The basic issue can be better appreciated by way of an illustration. Hypothetically, taking the sale price to be Rs 100, the tax to be paid by the selling dealers has to be on 100. He may collect 90, after giving discount. If the sale price of the intermediate seller is 110 his liability to pay tax shall be on 10 i.e 110 − 100. The Department's stand is that it should be on 20 i.e 110 − 90. This stand will not be correct if the first seller had paid tax on 100. Therefore, it has to be verified as to what was the amount on which tax was paid on the illustrative figures given above by the selling dealer.
10. The stand of the assessees before the Tribunal and the High Court was that they were not given personal hearing and only on consideration of their objections, the orders were passed by the authorities. The Tribunal and the High Court held that since objections were considered, there was no need for giving personal hearing. Such conclusion is clearly unsustainable.
11. It is conceded that the books of accounts were not produced before the authorities. Additionally, there was no document produced to show that the selling dealer had paid tax at 100 i.e the illustrative figure given above. It appears that certain documents relating to the purchases by the assessees i.e sale bills and memos of the selling dealers were produced to show as to the amount on which the tax was paid by the selling dealers. These apparently were not considered because of the fact that the books of accounts were not produced by the assessees. The stand of the assessees is that because the documents were seized by certain taxing authorities, they could not be produced. It is stated by learned counsel for the assessees that if given the opportunity, they shall produce the documents.
12. The Sixth Schedule as substituted by Act 22 of 1995 with effect from 1-4-1995 relates to goods in respect of which the tax is leviable under Section 5. The relevant provision reads as follows:
“Provided that for the purpose of liquor at any point of sale other than the first point of sale and the last point of sale, the turnover of the goods liable to tax shall be arrived at by deducting the turnover of such goods on which tax has been levied at the immediately preceding point of sale.
Provided further in respect of goods other than liquor mentioned in this Schedule, tax to be paid at any point of sale other than first point of sale, shall be determined after deducting the tax levied on the turnover of such goods at the immediately preceding point of sale by a registered dealer from the tax leviable on the turnover of the same goods at the point of sale by selling dealer.”
13. As the adjudication of the basic issue involved depends upon the amount on which tax has been paid by the selling dealer, it would be appropriate to permit the assessees to produce the books of accounts for adjudication before the Deputy Commissioner concerned. In the instant case it is the Deputy Commissioner (CT), Secunderabad. The assessees shall appear before the said authority on 4-11-2008 without further notice. They shall produce evidence to show that the tax has been paid by the selling dealer on the illustrative figure of 100 given in the illustrative figure (sic illustration). The said authority shall verify the correctness of the claim with reference to the documents to be produced. If it is established, tax shall be payable on 10 of the illustration. Otherwise, the Revenue's stand shall stand established.
14. The appeal is accordingly disposed of.
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