MRP of a packaged product stating that it is inclusive of all taxes, cannot establish the collection of sales tax over the product

Supreme Court: While deciding an appeal regarding tax collection in the face of an exemption provided by the Government, the Division Bench comprising of Dipak Misra and N. V. Ramana JJ., held that the respondent-industry in entitled to carry on business and fix a Maximum Retail Price (MRP) for its products, however, following a uniform pricing through out the country can not be a ground to hold collection of sales tax on a sales price of the good manufactured. The Court further observed that MRP of a packaged product stating that it is inclusive of all taxes would not solely establish the collection of sales tax.

The instant case, which was the third round of litigation before the Court regarding the same G.O. dated 27.09.1990 by the Government of Karnataka, via which the respondent industry had earned sales tax exemption for its Dharwad unit for five years.The products of the exempted and non-exempted unit were priced uniformly, as the industry followed uniform pricing throughout the country. The uniform pricing of exempted and non- exempted products came into the notice of the Assistant Commissioner of Commercial Taxes who came to a conclusion that the similar pricing of products of the exempted and non-exempted units amounted to collection of sales tax on the packaged product (tea in the instant case) sold by exempted unit, which according to the Government Order formed an exception under the Sales Tax Exemption policy and hence the industry (Brook Bond India Ltd.) was not entitled for any exemption.

The Court held that the MRP is a statutory declaration required as per Rules framed under the Standards of Weights and Measures Act, 1976. A market retail price stating “inclusive of all taxes”, would not prove and establish the collection of sales-tax on the produce of a tax exempted unit. The Court further stated that a uniform market price throughout the country is a matter of business policy and it is followed to prevent distortion of sale of the product from one State to another. Perusing the findings of  the Karnataka Appellate Tribunal, the High Court, and as well as the invoices, price circulars and books of accounts presented, the Court held that the respondent had not passed on the tax liability and assumption that the phrase “inclusive of all taxes” includes the collection of sales tax is a fiction that cannot be applied in the instant case, as there exists no such principle in law. The appeal was dismissed with costs assessed at Rs. 1 Lakh. [Deputy Commissioner of Commercial Taxes v. M/s Hindustan Lever Limited, 2016 SCC OnLine SC 646 , decided on 30.06.2016]

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