GUEST COLUMN

 

LEVY OF SALES TAX ON THE COMPONENT OF THE SERVICE TAX

 

R Ganesan, ex-Tax Head - HPCL

 

I read with interest the recent decision of the Maharashtra Sales Tax Tribunal in the case of M/s Royal Court vs State of Maharashtra 2017-VIL-09-TRB in the context of a dispute on the inclusion of service tax collected by the dealer separately in the invoices, in the turnover for the levy of sales tax under the composition scheme. The Tribunal has held that the same was not includible in the light of its earlier decision in the case of Sujata Painters vs State of Maharashtra 2015-VIL-06-MSTT and Circular No 6T of 2015 dt 14-05-2015 issued by the Commissioner of Sales Tax .Tribunal has also referred to the definition of the term “sales price”, Explanations of which specifically provides for inclusion of excise duty and customs duties, but does not refer to service tax.

 

While the law is well settled now that the circular issued by the tax administration is binding on the assessing authorities, the issue with respect to inclusion or exclusion of tax under another legislation, in the value for taxation has always been an area of judicial divergence, resulting in tax piggyback (tax on tax in addition to tax on the transaction) of the levies of Centre, State and Local authorities.

 

The issue as to whether one type of tax/statutory levy will form part of the taxable value (consideration) for payment of another type of tax/levy came up for consideration before the Kerala High Court in the case of Deputy Commissioner of sales tax vs Canara Workshop Limited 1994-VIL-12-KER. In the context of a dispute as to whether the Kerala General Sales Tax (KGST) levied under Section 5(1) will form part of the turnover for the levy of Turnover Tax under Section 5(2A) was considered by the High Court. Even though there was an earlier ruling of the Bombay High Court in the case of Bata India Ltd 1983-VIL-01-BOM, wherein it was held that where the Act had a provision enabling the dealer (assessee) to collect the tax from the buyer and such tax collected and shown separately in the invoices shall not be considered as price/value for levy of tax, the Kerala High Court had extensively analysed the principles enunciated in various decisions of the Supreme Court, viz.,

 

-George Oaks Pvt Ltd vs State of Madras 1961-VIL-04-SC

-State of Kerala vs Ramaswamy Iyer & Sons 1966-VIL-04-SC

-Joint Commercial Tax Officer vs Spencer & Co 1975-VIL-11-SC

-Central Wines vs Special Commercial Tax Officer 1987-VIL-05-SC

 

and held that it is only in those cases where any tax is collected by the assessee from the other person pursuant to powers conferred by the statute ( or where the Act provides for collection and payment by the assessee of the tax levied on the other person , say , the Tax Collection provisions under the Income tax Act) or where the tax is collected from the purchaser on behalf of the Government, then the tax collected shall not form part of the turnover(consideration). On the contrary if the levy is upon the assessee and he is enabled to pass on the levy to the other party to the transaction, (say Section 11D of the Central Excise Act or the forfeiture provisions under the sales tax laws, prohibiting collection in excess of the tax payable) , such tax will form part of the consideration for the levy. In other words the test to be applied is as to whether the tax or levy is enabled to be passed on or whether the levy itself is upon the person from whom the tax is collected by the assessee. If the collection from the other party to the transaction is a levy by the Government on the other person, then it should be excluded from the consideration in the hands of the assessee.

 

When the charging Section for service tax was initially making the levy on the service provider, since in respect of transport contract services when the same was levied on the service receiver by way of Rules /Notifications the same was challenged in the case of Lahu Bharthi Udyog (eventually struck down by the Supreme Court ) Section 68 of Finance Act 1994 was amended wef 16-10-1998 to provide that the levy for some notified services can be on the service receiver. Irrespective thereof, since Section 73A of Finance Act 1994 provides for deposit of service taxes collected, it lends credence to the proposition that the levy on the service provider is enabled to be passed on. Applying the principles stated above service tax may enter the computation of turnover, unless specifically excluded by Rules.

 

Also the proposition of absence of specific provisions for inclusion like excise duties and customs duties in the definition of “sale price” may not be relevant since these specific provisions in the Explanation part of the definition of sale price were made to overcome the decision of Bombay High Court in the case of Gujarat Export Corporation vs State of Maharashtra 1990-VIL-03-BOM where it was held that custom duty paid by the buyer of non-duty paid goods , shall not form part of the “sale price”. Service tax was introduced much later in 1994 and hence would not have been dealt with in the definition of “sale price”. It may be hoped that the creases are ironed out with the GST.

 

 

The views are personal views of the writer. Author can be reached at ganesanr1011@gmail.com