DEPUTY COMMISSIONER OF  COMMERCIAL TAXES (VIGILANCE) versus M/S HINDUSTAN LEVER LIMITED
[2016] 5 S.C.R. 635, Supreme Court of India, 2016
Outcome: Dismissed (Dismissed)
Segment: Ratio
[2016] 5 S.C.R. 635 
DEPUTY COMMISSIONER OF 
COMMERCIAL TAXES (VIGILANCE) 
v. 
MIS HINDUSTAN LEVER LIMITED 
(Civil Appeal No. 656 of2008) 
JUNE 30, 2016 
(DIPAK MISRA AND N.V. RAMANA, JJ.J 
Karnataka Sales Tax Act, 1957 - Exemption from sales tax -
To one of the 111anufacturing units of the assessee-Company - Under 
Exe111ption Notification dated 19. 6.1991 - Revenue noticed that 
maxi111um retail price of a product fro111 the unit which had the benefit 
exemption and also from other unit which did not have benefit of 
exemption were the sa111e - Revenue therefore concluded that the 
exempted unit had added the tax co111ponent to the sale price which 
was violative of condition under Explanation III (e) of the 
Notification and hence the assessee-company was not entitled to 
tax exemption - Revenue, therefore, rejected claim of exe111ption by 
the assessee - Appellate auhority upheld the view of assessing 
authority - Appellate Tribunal as well as High Court held that the 
assessees were liable to tax exemption - On appeal, held: Assessee 
is entitled to fix unifor111 price meant for whole of India - Uniform 
market price does not differ in spite of differences in sales-tax 
payable at the end point - A market retail price stating that it is 
inclusive of all taxes could be a starting point and would not prove 
collection of sales tax - Also state111ent on the packaged product 
'inclusive of all taxes' is a statutory requirement under Standards of 
Weights and Measures Act,
and should not be construed as an 
admission for having charges sales tax - The documents on record 
show that the assessee had not collected any sales tax - Appeal of 
Revenue liable to be dismissed - Cost of Rupees one lakh imposed 
- Standards of Weights and Measures (Packaged Commodities) 
Rules, 1977 - r.2 - Standards of Weights and Measures Act, 1976. 
Dismissing the appeal, the Court 
HELD: 1. An assessee is entitled to carry on and conduct 
business, fix the maximum retail price of its products. In the 
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SUPREME COURT REPORTS 
[2016] 5 S.C.R. 
present case in spite of the multiple units both exempted and 
non-exempted, the respondent had adopted and followed uniform 
market price throughout India. The respondent is entitled and 
can fix a uniform price meant for whole of India. The uniform 
market price does not differ in spite of differences in sales-tax 
payable at the end point, i.e., at the point of sale. This is a matter 
of business policy and cannot be taken exception to. (Para 
20)[(649-G-H] 
2. Rule 2 of the Standards of Weights and Measures 
(Packaged Commodities) Rules, 1977, framed under the 
erstwhile Standards of Weights and Measures Act, 1976, 
stipulated that the maximum sale price should be inclusive of all 
taxes. This was the statutory requirement binding on the 
respondent, who was selling packaged product. The statement 
on the packaged product inclusive of all taxes, means all taxes 
which were leviable, were already included in the price mentioned. 
It should not be constructed as an admission that the respondent 
had charged sales tax. The respondent could not have deviated 
or ignored the statutory requirement by making a declaration 
contrary to the statutory rules. (Para 17)(648-B-D] 
3. It has been highlighted that 3,50,000 invoices relating 
to the said product manufactured and sold from the Dhaward unit 
were placed on record. Apart from this the assessee-respondent 
had also placed 1200 price circulars issued, which
showed that 
the assessee respondent had not collected sales tax. The books 
of account corroborate the trade price circular and invoices. The 
entire sale proceeds or consideration was shown as receipt and 
the amount was not bifurcated into sale price and tax collected. 
[Para 19)(649-E-F] 
4. The respondent has also explained that uniform market 
retail price at all India level ensures that the goods from one 
State do not flow to the other State, thereby distorting sales. It 
avoids and prevents shortages of goods in lower tax area. Uniform 
pricing cannot be a ground to hold that the respondent was 
charging sales tax on a sale price of the goods manufactured in 
the exempt unit. Cost of production in different units of the 
respondent assessee can vary. Cost of production has various 
components and is computed with reference to revenue
DEPUTY COMMISSIONER OF COMMERCIAL TAXES 
(VIGILANCE) v. MIS HINDUSTAN LEVER LTD. 
expenditure, rate of return on the capital expenditure, etc. These 
are complex commercial and business considerations which 
cannot be decided with reference to a single factor, i.e., the 
uniform market retail price. A market retail price stating that it 
is inclusive of all taxes could be the starting point, but would not 
prove and establish that the sales-tax has been collected. [Para 
20][649-H; 650-B-C] 
5. In a given case the tax component may form a part of 
the sale price and cannot be treated as a separate component. In 
the present case when the respondent was not liable to pay tax 
and had not passed on the tax liability, sale consideration received 
should not be bifurcated and divided on the basis of any assumption 
that the sale price received must have included the tax. This 
fiction has no application in the present case. There is neither 
such principle nor any precept in law. In any case the finding of 
fact is to the contrary. [Paras 22, 23][652-E-G] 
State of Karnataka v. Mis C. Venkatagiriah and Brothers 
1994 Supp (2) SCC 572;Amrit Banaspati Co. Ltd. and 
another v. State of Punjab and another (1992) 2 SCC 
411 : 1992 (2) SCR 13; T. Stanes & Co. Ltd. v. State of 
T.N. and another (2005) 9 sec 308 - distinguished. 
Lipton India Ltd. and another v. State of Karnataka 
and others (1996) 10 sec 710 : 1996 (7) 
Suppl. SCR 299; Delhi Cloth and General Mills Co. Ltd. 
v.
Co111111issioner of Sales Tax, Indore (1971) 2 SCC 
559- referred to. 
Case Law Reference 
1996 (7) Suppl. SCR 299 
referred to 
Paras 
1994 Supp (2) sec 572 
distinguished Para 10 
(2005) 9 sec 30s 
distinguished Para 10 
(1971) 2 sec 559 
referred to 
Para 11 
1992 (2) SCR 13 
distinguished Para 12 
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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 656 of 
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2008. 
From the Judgment and Order dated 25.01.2007 of the High Court 
of Karnataka at Bangalore in S. T. R. P. No. 62/2004. 
Basavaprabhu S. Patil, Sr. Adv., V. N. Raghupathy, Chinmay 
Deshpande,Anirudh Sanganeria,Amjid Maqbool,Advs. fortheAppellant. 
Harish N. Salve, Arv ind P. Datar, Sr. Advs., Ravinder Narain, 
Ajay Aggarwal, Ms. Mallika Joshi, Rajan Narain, Advs. for the 
Respondent. 
The Judgment of the Court was delivered by 
DIPAK MISRA, J. I. In the present appeal, by special leave, 
the appellant has called in question the legal acceptability of the order 
dated 25.01.2007 passed by the Division Bench of the High Court of 
Kamataka at Bangalore in STRP No. 62 of2004 whereby the Division 
Bench has dismissed the Special Revision Petition preferred by the 
appellant-department and affirmed the order dated 27.12.2003 passed 
by the Special Bench constituting five members of the Karnataka 
Appellate Tribunal, Bangalore (for short, "the tribunal") constituted under 
the Kamataka Sales Tax Act, 1957 (for short, "KST Act"). 
2. Requisite facts to be exposited for adjudication of this appeal 
are that Brooke Bond India Limited established its factory at Dharwad 
in the State of Karnataka and the said factory was engaged in 
manufacture of blended packet tea. With the passage of time, Brooke 
Bond India Limited was amalgamated with the
respondent-company 
with effect from 21.03 .1997. There is no dispute over the fact that the 
respondent-company registered under the Companies Act is a dealer 
under the KST Act. The dealer was granted sales tax exemption benefit 
for five years from the date of commencement of production in 
accordance with exemption eligibility certificate issued by the Government 
ofKamataka as perthe package of incentive granted vide Government 
Order dated 27.09.1990 and sales tax exemption notification dated 
19.06.1991 to which we shall advert to at a later stage. 
3. When the matter stood thus, the Assistant Commissioner of 
Commercial Taxes (Intelligence), Kolar visited the premises of the 
respondent-assessee on 20'h December, 1996. During the course of 
physical inspection the authority noticed that there wa's contravention of
DEPUTY COMMISSIONER OF COMMERCIAL TAXES 
(VIGILANCE) v. MIS HINDUSTAN LEVER LTD. [DIPAK MISRA, J.] 
the conditions laid down under Explanation Ill( e) to the notification dated 
19.06.1991. It was noticed by the said authority that sale of tea packets 
by the respondent-company from the Dharwad unit which had the benefit 
of exemption and the units manufacturing tea outside Dharwad unit which 
did not have the benefit of exemption were similarly priced. Two invoices 
- one from Dharwad unit and one from non-Dharwad unit- were taken 
note of and found that the ultimate sale price in both cases is Rs. 118 
(the non-Dharwad tea had a sales tax component of Rs. 12.27, whereas 
the Dharwad tea had no sales tax component). Based on the said material 
as well as material evincible from the price circulars of the respondent-
company found in the office, the intelligence officer arrived at the 
conclusion that the dealer had added the tax component to the sale price 
ofDharwad tea though not under the nomenclature of tax or cess. Hence, 
it was concluded that the respondent company was not entitled to the 
benefit of exemption, for Explanation III(e) to the notification dated 
19.06.1991 had been violated. 
4. As the facts would further unravel; on the basis of the aforesaid 
finding of fact of the inspecting authority, a series ofassessment orders 
dated 15.06.1998, 31.01.1999, 22.02.2000 and 01.07.2000 were passed 
wherein, inter alia, the claim of exemption on the turnovers
ofDharwad 
tea based on notifications dated 27.09.1990 and 19.06.1991 came to be 
rejected. The assessment orders were assailed before the appellate 
authority and vi de orders dated 25 .02.1999, 07 .03.2001 and 23 .03.2001 
the appellate authority upheld the view of the assessing authority by 
rejecting the claim of exemption advanced by the assessee on the ground 
that there was collection of tax by considering the tax component in 
determination of sale price, though the same was not distinctly shown as 
tax and collected as such. The orders passed by the appellate authority 
were challenged before the tribunal which thought it appropriate to 
constitute a Special Bench and, accordingly, five members of the tribunal 
took up the matter. The tribunal after hearing learned counsel for the 
parties came to hold that though the company had considered the local 
tax element in the price fixed, but it cannot be stated that the company 
has collected the local taxes as such from the consumers in view of the 
factthat in the invoice against KST and CST, it is specifically left blank 
in respect ofDharwad tea; and accordingly accepted the stand put forth 
by the assessee-respondent. The said order was challenged before the 
High Court in revision petition. 
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5. The High Court to appreciate the controversy framed the 
following three questions oflaw:-
"( I) Whether the consideration of sales tax in fixing the 
price of the goods and sale of such goods along with identical 
goods on which taxes are collected along with the price 
B 
has not resulted in an implied collection of tax in respect of 
such sales tax exempted goods? 
(2) Whether the assessee who produces identical products, 
one which is exempt from sales tax and one which sales 
tax is payable, both being priced on par and sold off the 
c 
same shelf, could not lead to the presumption that there is a 
deemed collection and inclusion of sales tax in the price 
fixed? 
(3) Whether the legend 'inclusive of taxes' found on the 
packets ofDharwad and non-Dharwad tea, the distinction 
o 
as such being lost on the consumer, whether it cannot be 
said that taxes are inclined and collected on the tax exempted 
tea." 
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6. The High Court, after hearing the learned counsel for the parties 
and analysing the material on record, dissecting the relevant provisions 
of the KST Act and the notification for exemption came to hold as under:-
"30. Learned Advocate General invites our attention with 
regard to the price being the same with regard to Dharwad 
tea and non-Dharwad tea. Same is reflected in the books 
of accounts. The Company is governed by the Standards 
of Weights and Measures Act, 1976 and Rules. Rule 6 
read with
Rule 2(r) of the Standards of Weights and 
Measures (Packaged Commodities) Rules, 1977 requires 
that the sale price of the package commodity shall be printed 
on the packages strictly in the following form: 
"Maximum (or Max) Retail Price Rs ..... 
... incl. of all taxes." 
or 
"MRP Rs .... INCL. OF ALL TAXES"
DEPUTY COMMISSIONER OF COMMERCIAL TAXES 
(VIGILANCE) v. MIS HINDUSTAN LEVER LTD. [DIPAK MISRA, J.] 
3 I. Much of arguments were advanced before us that in 
the light ofinclusive rate of tax, there is nothing but collection 
in the case on hand. The Tribunal in its order would say 
that so long as the buyer has not agreed to pay tax, and so 
long as the bill would show that the company is exempted 
from tax, there can be no inference of tax· collection. 
Tribunal, in our view, is right in noticing that mere mentioning 
ofMRP does not by itself a proofofany collection of tax in 
terms of sales tax laws. We are in agreement with the finding 
of the Tribunal. 
32. In fact, in Annexure-F there is a clear mention of 
exemption of tax in terms of the note at the end of the 
invoice itself. Therefore, the buyer is told in unmistakable 
terms that what is being paid as sale price and not as sales 
tax. 
33. The Tribunal, in our view, has considered not only the 
facts of the case but also all the case laws as applicable, 
and thereafter has come to a right conclusion in holding 
against the State. We are in agreement with the findings of 
the Tribunal." 
On the basis of the aforesaid analysis, the High Court concurred 
with the opinion expressed by the tribunal. 
7. We have heard Mr. Basava Prabhu S. Patil, learned senior 
counsel along with Mr. V.N. Raghupathy for the appellant and Mr. Harish 
N. Salve and Mr. Arvind P. Datar, learned senior counsel for the 
respondent. 
8. The
present litigation has a history. Be it stated, this is the third 
round oflitigation. In the first round, the State ofKarnataka had availed 
the plea thatthe Government Order dated 27 .07 .1990, pursuant to which 
the Exemption Notification dated 19.06.1991 was issued, was itself not 
gazetted. The controversy travelled to this Court in Lipton India Ltd. 
and another v. State of Karnataka and otl1ers1• In the said case, the 
Court has held that:-
"7. The administration of the State ofKarnataka represented 
by its Chief Secretary, does not find the said officer guilty 
1 (1996) 10sec110 
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of gross negligence. The Chief Secretary does not find it 
unpardonable that the statement was made on oath on behalf 
of the State Government in a pending proceeding before 
the High Court. We cannot agree. Whether the Chief 
Secretary thinks it necessary to take action against the said 
officer or not is not our concern. Our concern is that the 
State Government made a statement on oath before the 
High Court that was incorrect and the judgment of the High 
Court accepts and proceeds upon the basis of that statement. 
The High Court's judgment must, therefore, be set aside 
and the matter remanded to the High Court to be heard and 
decided afresh. 
8. We must caution the High Court at Karnataka, having 
regard to what we have stated above, that it should be very 
vigilant in accepting as correct a statement, even though it 
be made on oath, on behalf of the State Government. It is 
unfortunate that we should have to say this of a State 
Government, but the record before us leaves us no option. 
9. The learned counsel for the State Government now 
submits that we should not make .this general observation 
in respect of affidavits filed on behalf of the State 
Government. As we have already stated, we have done so 
because the Chief Secretary of the State ofKarnataka does 
not seem particularly troubled by the fact that a statement 
was made on oath on behalf of the State Government before 
the High Court
which was not correct. He does not even 
think that the said officer was grossly negligent in making 
the statement that the said government order was not 
gazetted only on the basis of going through the Gazettes for 
the succeeding three months. We must assume that other 
officers of the State Government will be encouraged to 
make statements before the courts on oath upon as little or 
no enquiry, expecting from the Chief Secretary the same 
unconcern". 
9. After so holding, the Court has allowed the appeals and directed 
the State Government to pay costs which was quantified in the sum of 
Rs. 50,000/-. In the second round oflitigation, the State ofKarnataka 
sought to deny the exemption on the ground that grinding of tea does not
DEPUTY COMMLSSIONER OF COMMERCIAL TAXES 
(VIGILANCE) v. M/S HINDUSTAN LEVER LTD. [DIPAK MLSRA, J.] 
amount to manufacture and, therefore, as such the exemption was not 
available. The matter travelled to this Court but eventually the appeals 
were dismissed by orders dated 17.07.1998 and 07.09.1998 preferred 
by the State of Karnataka. 
I 0. The present one is the third round. Mr. Patil, learned senior 
counsel appearing for the State would urge that the tribunal as well as 
the High Court is not justified in interfering with the finding of fact recorded 
by the Assessing Authority and the first appellate authority that 'lhe 
assessee had collected sales tax on the sale of tea manufacture at 
Dharwad and hence, not entitled for the benefit of sales tax exemption 
solely on the ground the company had considered local sales tax element 
in the sale price fixed. It is also contended by him that the levy' of tax on 
the assessee cannot be found fault with inasmuch as inclusion of sales 
tax in the sale price would disentitle the assessee from the benefit of 
exemption stipulated in the Notification dated 19.06.1991 issued under 
Section SA of the KST Act. Lastly, it is canvassed by Mr. Patil that the 
issue whether the legend "inclusive of taxes" found on both the packed 
tea produced in the exempted unit, Dharwad, Karnataka and tea obtained 
from outside the State and sold in the State (taxable tea), makes the end 
consumer believe that in the end consumer price sales tax
element has 
been considered, has not been properly considered by the High Court. 
Learned senior counsel would submit that the High Court has not properly 
appreciated the authorities in the field and arrived at the erroneous 
conclusion. Mr. Patil has placed reliance on State:tJ,f Karnataka v. Mis 
C. Venkataf(iriall and Brothers~ and T. Stanes & Co. Ltd. v. State of 
T.N. and another'. 
11. Mr. Salve, learned senior counsel appearing for the assessee-
respondent would urge that the declaration made by the assessee about 
MRP is a statutory declaration required as per Rule 2(r) of the Standards 
of Weights and Measures (Packaged Commodities) Rules, 1977 framed 
under erstwhile Standards of Weights and Measures Act, 1976 and the 
same does not mean that the assessee had collected any amount by way 
of tax. The aforesaid statutory declaration only means that the end 
consumer does not have to pay amount beyond MRP. It is urged by him 
that the assessee had taken the stand that it has uniform MRP throughout 
India irrespective of whether sales tax is payable in certain States or not 
2 t 994 Supp (2) sec 572 
' (2005J 9 sec 30s 
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SUPREME COURT REPORTS 
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and despite the fact that the rate of tax is also different in different 
States because the assessee has felt that it is necessary to have uniform 
MRP for PAN India to prevent flowing of goods from one State to 
another. lt is his further submission that revenue has erroneously based 
its conclusion on a comparison of price between the two units of the 
same manufacturer either in the same State or in two different States 
wherein one unit is covered by exemption and the other is not. 
Incrementing the said argument learned senior counsel would contend 
that though the two prices are uniform, the revenue on an erroneous 
comparison has presumed that the assessee has collected tax without 
appreciating the fact that the assessee has adopted a singular business 
model to have a uniform price throughout India which does not 
countenance any kind of comparison. Mr. Salve would contend that the 
authorities cited by the revenue are absolutely inapplicable to the facts 
of the case, for the controversy is totally different therein. According to 
Mr. Salve, the controversy in the case has been put to rest in Del/ti 
Cloth and General Mills Co. Ltd. v. Commissioner of Sales Tax, 
/11tlore•. 
12. The heart of the matter is whether the respondent has violated 
clause ( e) of Explanation Ill to the Sales Tax Exemption notification 
dated 19'" June, 1991. The said clause is reproduced below:-
E 
"Explanation III. The provisions
of this Notification shall 
not apply: 
F 
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(a) X,'1:. 
X.\. 
xx 
xx 
(b)xx 
xx 
xx 
xx 
(c) xx 
xx 
xx 
X.\. 
(d)xx 
xx 
xx 
xx 
(e) To the turnovers on which any tax is collected by a new 
Industrial Unit under the provisions of KST Act, 1957." 
The above quoted clause stipulates that the notification will not 
apply on turnovers on which any tax is collected by the new industrial 
unit under the provisions of the KST Act. It is the submission of the 
appellant that inference should be drawn that the respondent company 
had collected sales-tax on packaged tea sold by the new industrial unit, 
• < 1971) 2 sec 559
DEPUTY COMMISSIONER OF COMMERCIAL TAXES 
(VIGILANCE) v. MIS HINDUSTAN LEVER LTD. [DIPAK MISRA, J.] 
and thus, there was violation of clause (e) of Explanation III to the Sales 
Tax Exemption Notification. Reliance is primarily placed on the 
observations of this Coui1 in Amrit Bmwspati Co. Ltd. and another v. 
State of Punjab and another' and more pa11icularly on paragraph 11, 
which reads as under:-
"! I. Exemption from tax to encourage industrialisation should 
not be confused with refund of tax. They are two different 
legal and distinct concepts. An exemption is a concession 
allowed to a class or individual fmm general burden for 
valid and justifiable reason. For instance tax holiday or 
concession to new or expanding industries is well known to 
be one of the methods to grant incentive to encourage 
industrialisation. Avowed objective is to enable the industry 
to stand up and compete in the market. Sales tax is an indirect 
tax which is ultimately passed on to the consumer. If an 
industry is exempt from tax the ultimate beneficiary is the 
consumer. The industry is allowed to overcome its teething 
period by selling its products at comparatively cheaper rate 
as compared to others. Therefore, both the manufacturer 
and consumer gain, one by concession of non-levy and other 
by non-payment. Such provisions in an Act or Notification 
or orders issued by Government are neither illegal nor 
against public policy." 
13. Reference is also made to the decision of this
Court in Mis 
C. VenkataJ?irialt and Brothers (supra) wherein it has been observed:-
"4. For the said proposition. the Tribunal relied upon a 
decision of the Mysore High Court in Spencer & Co. Ltd. 
v. Stale of Mysore". The proposition enunciated in the said 
decision is that the dealer can be held to have collected the 
tax under the Act, if: 
"[F]rom the facts and circumstances, it can be inferred that 
the seller intended to pass on the tax and the buyer had 
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agreed to pay the sales tax in addition to the price and thal 
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in the accounts of the dealer he has shown such 
amounts separately." 
(emphasis supplied) 
' ( 1992 l 2 sec 411 
'' (1970) 26 STC 283 (Mys) 
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Applying the said proposition, the Tribunal held that even 
though the bills issued by the dealer in this case did say 
specifically that the price charged was inclusive of tax it 
cannot be held that he has collected the tax. We are of the 
opinion that the additional requirement envisaged in Spencer 
& Co. Ltd (supra) is not correct in law. Whether a dealer 
has discharged the burden that is laid upon him by the statute 
is a question of fact, to be decided in each case with 
reference to the facts and material in that case. It is not a 
matter of law nor can the mode of proof be reduced to a 
proposition of law. Sub-section (2) or sub-section (I) of 
Section I 0 of the Amendment Act do not provide for such 
a requirement. In such a situation, it cannot be said as a 
general proposition that unless the tax collected is reflected 
in the account books of the dealer, it cannot be said to have 
been collected. No such general proposition can be evolved 
in a matter totally within the realm of appreciation of 
evidence. It is up to the dealer to discharge the said burden 
by producing such material as he can and it is for the 
appropriate authority to say whether the dealer has 
succeeded in discharging the burden or not. [n this view of 
the matter, we cannot agree with the Tribunal's view which 
has been upheld by the High Court. The endorsement in 
the bill that the price charged is inclusive of tax is
prima 
facie proof against the dealer's contention. Unless he 
produces material to displace the presumption arising from 
the said endorsement, he must be held to have collected 
the tax." 
14. rt is the argument of the assessee that the aforesaid declaration 
about MRP is a statutory declaration and that does not mean that the 
assessee had collected any amount by way of tax. The further stand is 
that the end consumer does not have to pay any amount beyond MRP 
and that is how the business model of the assessee operates and hence, 
there is no question ofany comparison. In fact, the appellant department 
is of the view that the respondent assessee ought to have determined 
lesser price for the exempted unit as compared to other units. 
It is 
urged that the absence of any price control the view of the department
DEPUTY COMMISSIONER OF COMMERCIAL TAXES 
(VIGILANCE) v. M/S HINDUSTAN LEVER LTD. [DIPAK MISRA, J.] 
is neither a legal requirement nor practically possible. Once this erroneous 
comparison is obliterated, the entire case of department collapses. 
15. First, we shall deal with the applicability of the principle stated 
in Amrit Bmwsp"ti (supra). The issue raised in the case of Amrit 
Bcmmp"ti (supra) was quite distinct and separate. The question raised 
was whether the principle of promissory estoppel would apply, for the 
learned single Judge of the High Court on facts had found that there 
was sufficient material to direct the State to honour its commitment to 
refund the sales-tax. The issue involved in the said case relates to refund 
of tax paid to the State. In this context, this Comt observed that refund 
of tax was made in consequence of excess payment or when it was 
realized illegally or contrary to law. The refund of tax due and realised in 
accordance with law cannot be comprehended and no law can be made 
for refund of tax to a manufacturer realized under the statute for the 
same would be invalid and ultra vires. A promise or an agreement to 
refund tax which was due under the law and realised in accordance 
with the law would be a fraud on the Constitution and breach of faith of 
the people. It is in this context, the aforesaid observations were made in 
paragraph 11 in the case of Amrit Bmwsp"ti (supra). 
16. In fact, a careful elucidation of the said
reasoning would 
suppo1t the stand of the respondent. The assessee, on the basis of 
exemption notification had set up a new undertaking incurring expenditure. 
This was done on the foundation that the new unit would be exempt 
from tax. The exemption granted under the law by a legally valid 
notification was to encourage investment in the backward districts and 
enabled the newly established industry to overcome initial financial 
problems, recoup and ensue reasonable return on the capital expenditure 
and associated risks. Exemptions are allowed to industrial units to 
overcome the teething problems. Observations in paragraph 11 in Amrit 
B"naspati (supra), nowhere stipulate that the sale price as fixed must 
expressly exclude the tax component. It is obvious when a manufacturer 
is granted an exemption, the unit would fix the sale price taking the said 
exemption into account. In this manner both the manufacturer and the 
consumer gain. As sales-tax is an indirect tax, the purchaser has to pay 
the same and when the tax is not levied, the purchaser does not pay the 
same. 
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17. The respondent having set up a new industry which was 
exempted, should not have, in terms of clause ( e) of the Explanation llI 
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SUPREME COURT REPORTS 
[2016] 5 S.C.R. 
of the notification, collected any tax and to the extent the tax was collected 
the turnover was not exempted. Sales-tax, as noticed above, is an indirect 
tax, which is charged from the consumer or the purchaser. But the liability 
to pay is that of the dealer. It may be charged by the dealer from the 
purchaser. Sometimes this indirect tax is inbuilt and included in the retail 
price. This may be mandated by law to protect consumer interest. One 
frequently comes across products where the maximum sale price is 
specified and stated on the packaging as in the present case. Ru le 2 of 
the Standards of Weights and Measures (Packaged Commodities) Rules, 
1977, framed under the erstwhile Standards of Weights and Measures 
Act, 1976, stipulated that the maximum sale price should be inclusive of 
all taxes. This was the statutory requirement binding on the respondent, 
who was selling packaged product. The statement on the packaged 
product inclusive of alltaxes, means all taxes which were leviable, were 
already included in the price mentioned. It should not be constructed as 
an admission that the respondent had charged sales tax. The respondent 
could not have deviated or ignored the statutory requirement by making 
a declaration contrary to the statutory rules. The consequences of not 
obeying and violating the statutory rules would have been severe. 
18. Observations made in Mis C. Ve11katagiria/1 a11d
Brothers 
(supra) have to be again understood in the context in which they were 
made. In the said case the dealer was exigible to Central Sales-tax only 
if he had collected the tax and not otherwise. In the said context, this 
Court referred to amendment made under the Central Sales-tax Act, 
putting the burden of proof on the dealer to show that he had not collected 
the tax. For this reason, it was observed that when an endorsement was 
made in the Bill that price charged was inclusive of tax, it was prima 
facie proof against the dealer's contention and in such circumstances 
where burden was on the dealer, he should produce material to displace 
the presumption. The finding of the tribunal that the Central Sales-tax 
had not been charged independently in the Bills, it was observed, would 
not be a conclusive proof or good finding in law. Importantly, this Court 
observed that the question whether the dealer had discharged the burden 
placed upon him by the statute is the question of fact and has to be 
decided in each case with respect to facts and material of the case. 
Significantly, in the present case no such burden has been placed on the 
assessee. Further the tribunal and the High Court have recorded as a 
finding of the fact that the assessee respondent had not collected the tax
DEPUTY COMMISSIONER OF COMMERCIAL TAXES 
(VIGILANCE) v. MIS HINDUSTAN LEVER LTD. [DIPAK MISRA, J.] 
on sales made from the exempted unit. The assessee has relied upon 
invoices issued by them to the purchaser which have the following 
declaration:-
"Goods sold under this invoice are fully exempted from levy 
of KST/CST under exemption certificate No. IDF/E3/50-
St/92-93 dt. 1-12-1992 by the Director of Industries and 
Commerce Department, Govt. ofKarnataka, Bangalore as 
applicable to our newly set up tea factory at Dharwad. We 
are on rolls of Asst. Commissioner, ST Bangalore. Our 
principal place of business is at No.2 4•1> Cross, MM 
Compound, Mysore Road, Bangalore. 
OR 
"Goods sold under this invoice are fully exempted from levy 
of KST/CST in terms of Govt. of Karnataka's order No. 
C/1/138/SPC/90 (GO dt. 27.9. I 990and Finance Depmtment 
649 
A 
B 
c 
Notification No. FD/239/CSl/90 dt. 19.6.1991 and Industries 
D 
and Commerce Department Certificate No. IDF/FS/91-24/ 
93-94 dt. 5.6.1993 applicable to our newly set up factory at 
Dharwad (Ka). Our principal place of business is at Booke 
Fields, Marathahalli". 
19. It has been highlighted that 3,50,000 invoices relating to the 
said product manufactured and sold from the Dhaward unit were placed 
on record. Apart from this the assessee-respondent had also placed 1200 
price circulars issued, which showed that the assessee respondent had 
not collected sales tax. The books of account cotTOborate the trade price
circular and invoices. The entire sale proceeds or consideration was 
shown as receipt and the amount was not bifurcated into sale price and 
tax collected. 
20. An assessee is entitled to carry on and conduct business, fix 
the maximum retail price of its products. In the present case in spite of 
the multiple units both exempted and non-exempted, the respondent had 
adopted and followed uniform market price throughout India. The 
respondent is entitled and can fix a uniform price meant for whole of 
India. The uniform market price does not differ in spite of differences in 
sales-tax payable at the end point, i.e., at the point of sale. This is a 
matter of business policy and cannot be taken exception to. The 
respondent has also explained that uniform market retail price at all India 
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SUPREME COURT REPORTS 
[2016) 5 S.C.R. 
level ensures that the goods from one State do not flow to the other 
State, thereby distorting sales. It avoids and prevents shortages of goods 
in lower tax area. Uniform pricing cannot be a ground to hold that the 
respondent was charging sales tax on a sale price of the goods 
manufactured in the exempt unit. Cost of production in different units of 
the respondent assessee can vary. Cost of production has various 
components and is computed with reference to revenue expenditure, 
rate of return on the capital expenditure, etc. These are complex 
commercial and business considerations which cannot be decided with 
reference to a single factor, i.e., the uniform market retail price. A market 
retail price stating that it is inclusive of all taxes could be the starting 
point, but would not prove and establish that the sales-tax has bee1~ 
collected. 
21. Reliance placed on T. St(l11es & Co. Ltd. (supra) is 
misconceived. The question involved therein related to interpretation of 
Section 22 of the Tamil Nadu General Sales-tax Act. Tht< said Section 
stipulates that no person, who was not a registered dealer would collect 
any more tax and no registered dealer shall make any such collection, 
except in accordance with the provision~ of the Act and the rules. The 
proviso stipulated that the sub-section would not apply to collection of an 
amount by a registered dealer towards an amount of tax already
suffered 
under the Act in respect to the goods, the sale or purchase price of 
which was control'::d by any law in force. In this background, it was 
observed that the term 'collected' would include any collection in any 
manner and purported recoupment as projected and pleaded would be 
nothing but collection. The contention of the assessee that he was only 
recouping and was not collecting the tax was rejected. Thus, the factual 
score is totally different. 
22. In this context, it would be relevant to refer to the decision of 
the Court in Delhi Cloth (Ind General Mills Co. Ltd. (supra). This 
case relates to Madhya Pradesh General Sales-tax Act, 1958. While 
interpreting the words "turnover" and "sale price" in the context of the 
charging Section it was observed that the liability to pay tax was on the 
dealer and the purchaser had no liability to pay tax. If a dealer had to 
pass the tax burden on to the purchaser, he could only do by adding the 
tax in question to the price of the goods sold. ff that be so, the taxes 
collected by the dealer from the purchaser became a part of the sale 
price as fixed. Thus, the amount recovered by the dealer was in reality
DEPUTY COMMISSIONER OF COMMERCIAL TAXES 
(VIGILANCE) v. MIS HlNDUSTAN LEVER LTD. [DIPAK MISRA, J.] 
a part of the entire sale consideration. To appreciate the principle we 
may usefully reproduce c0rtain passages from the said authority:-
"6. Under Section 4 the liability to payjax is that of the 
dealer. The purchaser has no liability to pay tax. There is 
no provision in the Act from which it can be gathered that 
the Act imposes any liability on the purchaser to pay the 
tax imposed on the dealer. If the dealer passes on his tax 
burden to his purchasers he can only do it by additing the 
tax in question to the price of the goods sold. In that event. 
the price fixed for the goods including the tax payable 
becomes the valuable consideration given by the purchasers 
for the goods purchased by him. It that be so, the tax 
collected by the dealer from his purchasers becomes a part 
of the sale price fixed, as defined in Section 2( o ). In some 
of the Sales Tax Acts power has been conferred on the 
dealers to pass on the incidence of tax to the purchasers 
subject to ce11ain conditions. Those provisions may call for 
different consideration. In the Act there is no such provision 
except Section 7-A which was introduced into the Act by 
Madhya Pradesh Act 23of1963. That provision would have 
relevance only in respect of the assessment for the year 
1963-1964. 
Section 7-A says: 
"No dealer shall collect any amount, by way of sales tax 
or purchase tax, from a person who
sells agricultural or 
ho11icultural produce grown by himself or grown on any 
land in which he has an interest, whether as owner, 
usufructuary mortgagee, tenant or otherwise, when such 
produce is sold in the fonn in which it was produced. without 
being subjected to any physical, chemical or other process 
for being made fit for consumption save mere dehusking, 
cleaning, grading or so11ing." 
7. In these appeals, it is not necessary to examine the 
relevance of that provision. But that provision does any give 
only statutory power to collect sales tax as such from any 
class of buyers. There is no other provision in the Act which 
confers such a power on the dealers. Unless the price of 
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SUPREME COURT REPORTS 
[2016] 5 S.C.R. 
an ai1icle is controlled, it is always open to the buyer and 
the seller to agree upon the price to be payable. While doing 
so it is open to the dealer to include in the price the tax 
payable by him to the Government. If he does so, he cannot 
be said to be collecting the tax payable by him from his 
buyers. The levy and collection of tax is regulated by law 
and not by contract. So long as there is no law empowering 
the dealer to collect tax from his buyer or seller, there is no 
legal basis for saying that the dealer is entitled to collect the 
tax payable by him from his buyer or seller. Whatever 
collection that may be made by the dealer from his 
customers the same can only be considered as valuable 
consideration for the goods sold. 
x 
x 
x 
x 
x 
x 
x 
x 
x 
x 
10. From all these observations, it is clear that when the 
seller passes on his tax liability to the buyer, the amount 
recovered by the dealer is really part of the entire 
consideration paid by the buyer and the distinction between 
the two amounts, -tax and price- losses all significance." 
The relevance of this decision is that it holds that in a given case 
the tax component may form a part of the sale price and cannot be 
treated as a separate component. 
23. In the case at hand, when the respondent was not liable to pay 
tax and had not passed on the tax liability, we do not think, sale 
consideration received should be bifurcated
and divided on the basis of 
any assumption that the sale price received must have included the tax. 
This fiction has no application in the present case. There is neither such 
principle nor any precept in law. In any case the finding of fact is to the 
contrary. 
24. In view of the aforesaid premised reasons, the appeal, being 
sans merit, stands dismissed with costs which is assessed at Rs. 1,00,000 
(Rupees One Lac Only). 
\Kalpana K. Tripathy 
Appeal dismissed.