Exemption scheme and taxable turnover: rule 50 cannot be used to impute tax where collection of tax is prohibited.

Rule 50 of the Gujarat Sales Tax Rules, 1970 could not be applied to notionally treat the sale price of an exempt industrial unit as inclusive of tax where the unit was barred from collecting sales tax under the incentive scheme. The rule operates only when the sale price actually contains a tax element, whether separately shown or embedded, so that taxable turnover can be worked out by excluding that element. Where no tax is payable and no tax may be collected, there is no lawful basis to assume a hidden tax component or reduce turnover by a formula meant for taxable sales. Applying the rule in that setting would enlarge the exemption beyond the notification.

---

---

Issues: Whether, where an eligible industrial unit was granted sales tax exemption under the incentive scheme and was prohibited from collecting tax on its sales, rule 50 of the Gujarat Sales Tax Rules, 1970 could be invoked to notionally reduce the sale price by treating it as inclusive of tax for computing the exemption benefit.

Analysis: Rule 50 applies where the sale price charged by a registered dealer actually contains an element of sales tax or general sales tax, either shown separately or embedded in the price, so that the taxable turnover can be ascertained by excluding the tax element. Where the dealer is not liable to pay tax and is not entitled to collect tax at all under the exemption scheme, the sale price does not contain any tax element in fact or in law. In such a case, there is no basis for assuming a legal fiction that the price includes tax or for reducing the actual turnover by a formula designed for sales on which tax is actually payable. Accepting such an approach would enlarge the exemption beyond the statutory limit and would alter the scheme by substituting a different yardstick for the one provided in the exemption notification.

Conclusion: Rule 50 had no application, and the question referred was answered in favour of the revenue and against the assessee.

Ratio Decidendi: A provision for deducting tax from sale price to determine taxable turnover cannot be invoked where the dealer is exempt from tax and prohibited from collecting any tax on the sales in question.

---