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Deputy Commissioner of Commercial Taxes (Vigilance) v. M/s Hindustan Lever Limited

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 656 of 2008)Decided 30 Jun 2016
Civil Appeal No. 656 of 2008
Justice Dipak Misra · Justice N.V. Ramana

Background

Brooke Bond India Limited (later amalgamated into Hindustan Lever Limited) ran a tea factory at Dharwad, Karnataka that enjoyed a five-year sales-tax exemption as an incentive for setting up in that location. Tax authorities noticed that the Dharwad unit's "tax-exempt" tea was sold at the same retail price as similar tea made at the company's non-exempt units (which did carry a tax component), and concluded from this price parity that the company must secretly be collecting sales tax on the exempt goods too, which would disqualify it from the exemption under the relevant notification. This was the third round of litigation between the same parties over the same exemption, after the company had already won two earlier rounds before the Supreme Court.

Decision Breakdown

The Supreme Court held that charging a uniform all-India retail price (marked "inclusive of all taxes" as required by the Standards of Weights and Measures Rules) does not by itself prove that tax was actually collected on exempt goods: that is a question of fact to be proved from the dealer's actual invoices and accounts, not inferred merely from price parity with non-exempt products. The Tribunal and High Court had both found as fact, based on thousands of invoices and price circulars, that the company had not separately collected or shown any tax component on the Dharwad tea, and the Court saw no reason to disturb that concurrent factual finding. It distinguished the precedents the tax department relied on (Amrit Banaspati, C. Venkatagiriah, T. Stanes) as dealing with materially different facts, and held a uniform pricing policy across exempt and non-exempt units is a legitimate business decision, not evidence of disguised tax collection.

Lesson Learnt

A business can lawfully charge the same retail price for tax-exempt and taxable versions of the same product without losing its tax exemption, so long as its books and invoices genuinely show no tax was collected: price parity alone is not proof of tax evasion.

Official source (sci.gov.in)View Judgment (PDF)

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