Sales tax collected after exemption cannot be retained as sale price; later credit notes cannot defeat the State demand.

An assessee that continued collecting sales tax after receiving an exemption certificate could not retain the tax as part of its sale price for its own benefit. The court treated the later reliance on credit notes and debit notes as an afterthought and held that the device was sham and colourable, because the amounts collected as tax were not promptly refunded to customers or remitted to the State within the prescribed time. The Tribunal erred in accepting the subsequent accounting entries to defeat the demand, and the liability to remit the collected tax was upheld.

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Issues: Whether the assessee was entitled to retain sales tax collected from its customers for the month of August 2004 after the grant of exemption to its Cherthala unit, and whether the Tribunal was right in granting relief on the basis of credit notes and debit notes.

Analysis: The exemption certificate was communicated to the assessee on 12 August 2004, yet it continued to collect tax on sales effected during August 2004 and did not remit the amounts to the State within the prescribed time. The assessee's earliest replies did not disclose any immediate refund to customers and later pleas regarding credit notes and debit notes were treated as an afterthought. The Court held that the assessee could not convert an amount collected as tax into part of its sale price for its own benefit. Such a device was held to be a sham and a colourable device, and the Tribunal was found to have erred in relying on the subsequent credit and debit notes to nullify the demand.

Conclusion: The assessee was not entitled to retain the tax collected for August 2004, and the demand to remit the collected tax to the State was upheld.

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