1991 (4) TMI 363 - SC - VAT and Sales Tax

Supreme Court upholds rule on motor spirit tax, denies refund for evaporation/leakage losses.

The Supreme Court dismissed the petition challenging the vires of rule 15 of the Bombay Sales of Motor Spirit Taxation Rules, 1958. The Court held that ... Vires of rule 15 of the Bombay Sales of Motor Spirit Taxation Rules, 1958 challenged Held that:- Appeal dismissed. The basis of the petitioners' claim is on a misunderstanding of the provisions of the Act and the Rules as if the liability of sales tax arises on a further sale made by them to the consumers. The petitioners have also not placed the Act and the Rules of other States in order to show that traders in such business of the State of Maharashtra alone are treated differently. Issues:Challenge to the vires of rule 15 of the Bombay Sales of Motor Spirit Taxation Rules, 1958.Detailed Analysis:The petitioners, a private limited company and its director, challenged the validity of rule 15 of the Bombay Sales of Motor Spirit Taxation Rules, 1958. The petitioners operated a petrol pump in Bombay and sought a refund of sales tax for the evaporation and leakage of motor spirit during specific years. The initial litigation resulted in dismissal of their claims, leading them to approach the Supreme Court via a special leave petition under article 136 of the Constitution. The High Court previously held that the loss occurred while the motor spirit was stored by the purchasing dealer, and the provisions of rule 15(3) did not apply. The High Court further stated that a refund could only be granted by the selling trader, not the purchasing trader, and thus dismissed the petitions. The petitioners then initiated a second round of litigation challenging the vires of rule 15(3) of the Rules.The crux of the petitioners' argument was that the rule discriminated against purchasing traders by allowing refunds only to selling traders. They contended that as the motor spirit evaporated and leaked during storage, reducing the quantity sold to consumers, they should not be liable for sales tax on the lost quantity. However, the Court found no merit in this argument. Rule 15(3) only applied when the purchasing trader stored the motor spirit in the installation of the selling trader, and a refund was granted by the selling trader for the lost quantity. The Court clarified that sales tax was chargeable only at the initial sale stage, not on subsequent sales to consumers. The assessment orders confirmed that the petitioners' sales were considered as resales and not subject to tax, eliminating the need for any refund claim.The Court emphasized that the petitioners paid sales tax on the motor spirit purchased during the first transaction, and any subsequent evaporation or leakage did not result in additional tax liability. As the petitioners became the full owners of the motor spirit post-purchase, they were not entitled to claim a refund from the selling trader or the government for any losses due to evaporation or leakage. The Court rejected the petitioners' claim, stating that it was based on a misunderstanding of the tax laws and rules. Additionally, the petitioners failed to demonstrate that similar traders in other states were treated differently under their respective laws. Consequently, the Court dismissed the petition, upholding the validity of rule 15(3) and affirming the previous decisions against the petitioners.In conclusion, the Supreme Court dismissed the petition challenging the vires of rule 15 of the Bombay Sales of Motor Spirit Taxation Rules, 1958, holding that the rule was not discriminatory and did not violate any legal provisions. The Court clarified that the petitioners were not entitled to a refund of sales tax for motor spirit lost due to evaporation or leakage, as they had already paid tax on the purchased quantity, and subsequent losses did not attract additional tax liability.