1. Dispute regarding the legality of sales tax on royalty and extraction charges for forest produce and the subsequent claim for refund of taxes paid. (Para 1 , 2 )
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1998 Supreme(SC) 756
1998(6) Supreme 209
Supreme Court of India
(From Andhra Pradesh High Court)
S.P. Bharucha & K. Venkataswami, JJ.
Bhadrachalam Paperboards Ltd. & Anr. -Appellants
versus
Government of Andhra Pradesh & Ors. -Respondents
Civil Appeal No. 4418 of 1993
Decided on 4-8-1998
Counsel for the Parties :
For the Appellants : Shri Narain & Sandeep Narain, Advocates.
For the Respondents : K. Ram Kumar, Santinarayan, Y. Subba Rao and G. Prabhakar, Advocates.
Important Points
Important Point
Where goods purchased was consumed for own manufacture refund of sales tax collected cannot be refused on ground liability was passed on to customers.
Where goods purchased was consumed for own manufacture refund of sales tax collected cannot be refused on ground liability was passed on to customers.
Subject
Taxation Law - Sales Tax
Act Referred
Headnote
Andhra Pradesh State General Sales Tax Act-Refund-Appellant purchased bamboo and hardwood from Government forest-Appellant reimbursed sales tax liability to Forest department-Supply by Government of bamboo not exigible to tax-Tax collected and paid under mistaken impression-Refund claim -Cannot be denied on ground appellant passed on liability to customers-Appellant consumed goods for its own manufacture-Appellant entitled to refund. (Paras 3 to 9)
Legal Category Hierarchy
Table of Contents
2. Whether the manufacturer is presumed to have passed the tax burden to consumers, thereby disentitling them to a refund of illegally collected sales tax. (Para 5 , 6 , 7 )
3. The presumption of passing tax burden to consumers is inapplicable when the manufacturer reimbursed the seller's tax liability and consumed the goods for manufacturing. (Para 9 )
4. Refund of illegally collected sales tax is permissible if the taxpayer consumed the goods for manufacturing and did not pass the tax burden to consumers. (Para 9 )
5. Appeal allowed; refund granted for the period commencing three years prior to the date of filing the Writ Petition. (Para 9 , 10 )
6. When is a manufacturer entitled to a refund of sales tax paid on forest produce?
A manufacturer is entitled to a refund if the supply of goods from the government forest is not exigible to tax and the manufacturer did not pass the tax burden to consumers. (Para 2 , 9 )
7. Does the presumption that a manufacturer passed the tax burden to consumers always apply to refund claims?
No. The presumption does not apply if the manufacturer reimbursed a tax liability that was legally on the seller and consumed the goods for their own manufacturing processes. (Para 9 )
8. What is the time limit for claiming a refund of illegally collected sales tax via a Writ Petition?
The refund is granted for the period commencing three years prior to the date of filing the Writ Petition. (Para 9 )
Judgment
K. Venkataswami, J.-The appellants moved the High Court of Andhra Pradesh under Article 226 of the Constitution of India for the issuance of a Writ of Mandamus to declare the action of the respondents in demanding and collecting sales tax from them on the royalty and extraction charges paid for the supply of bamboo and hardwood to them from the forest for the period 1978-79 onwards as illegal, null and void and for a consequential relief of refund of the taxes so collected from them.
2. The admitted facts are that the appellants entered into an agreement on 27.3.1978 with the State Government for supply of bamboo and hardwood from the Government forest on certain terms and conditions. The Sales Tax Department demanded and collected sales tax upon the value of the bamboo and hardwood removed by the appellants from the forest. Under the State Sales Tax Act, during the relevant period the commodity (bamboo and hardwood) was exigible to tax at the first sale and as such the Forest Department, who was a dealer, was liable to pay the sales tax. However, under the agreement mentioned above, the appellants undertook to reimburse the Forest Department the amount of sales tax payable on the supply of bamboo and hardwood. Both the appellants and the Revenue were under a mistaken impression that the supply of bamboo and hardwood from the Government forest under an agreement was exigible to tax. This Court in State of Orissa & Ors. v. Titaghur Paper Mills Co. Ltd. & Anr. etc.1 held that such supply of bamboo from the Government forest was not exigible to tax. It was on that basis the appellants moved the High Court for the relief set out above.
3. The High Court by the judgment under appeal held that no sales tax was payable by the appellants on the royalty and extraction charges payable by them under the Agreement entered into with the State for supply of bamboo and hardwood with effect from 1.11.85. However, the High Court declined to grant the refund of sales tax already collected for the period 27.3.78 to 31.10.85. The High Court, for denying the refund, was of the view that the manufacturer (appellants) is presumed to have passed on the burden of tax to the consumer unless there are clear allegations and proof to the contrary. In the absence of such allegations and proof, the appellants must be deemed to have passed on the burden of tax to the consumers, which would disentitle them from seeking refund of the sales tax already paid.
4. Aggrieved by the judgment of the High Court denying the relief of refund, the present appeal has been filed by the appellants.
5. The learned counsel appearing for the appellants submitted that the High Court was not right in presuming that the appellants must have passed on the burden of tax to the consumers. He invited our attention to the case of the respondents advanced before the High Court. The High Court has observed thus :-
“He (the Government Pleader) submits that in the case of this petitioner the demand is not upon the petitioner but upon the Forest Department as seller of the goods. He submits that according to the definition of the dealer, the Forest Department is also a dealer. He submits that both bamboo and hardwood are placed in the First Schedule to the A.P. General Sales Tax Act which means that the tax is payable at the point of first sale in the State.”
6. In the light of the above case of the Revenue as put forward before the High Court, it is the contention of the learned counsel for the appellants that the question of passing on the tax burden to the consumers would not arise in this case. According to the learned counsel, in view of the above stand taken by the Revenue before the High Court the relief of refund ought to have been allowed.
7. Mr. K. Ram Kumar, learned counsel appearing for the respondents, placing reliance on the judgment of this Court in Mafatlal Industries Ltd. & Ors. v. Union of India & Ors.2 submitted that unless the appellants moved the appropriate for
