Depreciation rate on hire-purchase motor vehicles and exclusion of statutory sales tax from turnover restored for assessee

Depreciation on sales of motor vehicles on hire purchase is discussed as allowable at 30% under the applicable depreciation schedule, and not 25%, because the governing rule supported the higher rate. Sales tax recovered from customers under statutory authority is also discussed as not forming part of taxable turnover, since the relevant explanation was treated as clarificatory and not as enlarging the definition of turnover. The note concludes that the higher depreciation rate applies and the collected sales tax is excluded from turnover.

---

---

Issues: (i) whether depreciation on sales of motor vehicles on hire purchase was to be allowed at 30% or 25%; (ii) whether sales tax recovered from customers under the Act was includible in taxable turnover.

Issue (i): whether depreciation on sales of motor vehicles on hire purchase was to be allowed at 30% or 25%.

Analysis: The depreciation schedule placed before the Court showed that item No. 9 provided depreciation at 30%. The Tribunal had reduced the rate to 25% merely because the Income-tax Department had earlier allowed 30%, but the governing depreciation rule supported the higher rate. The Tribunal's approach could not be sustained.

Conclusion: Depreciation was allowable at 30% and not 25%, in favour of the assessee.

Issue (ii): whether sales tax recovered from customers under the Act was includible in taxable turnover.

Analysis: Section 8-A(2)(b) authorised a dealer to recover an amount equivalent to sales tax from the purchaser, while Explanation I to Section 2(i) deemed amounts realised as sales tax to be included in turnover. The Court held that the Explanation was clarificatory and did not enlarge the definition of turnover in Section 2(i). In light of the binding Supreme Court ruling that tax realised under a statutory authority to recover it cannot form part of turnover for levy purposes, the recovered sales tax was not includible in taxable turnover.

Conclusion: Sales tax recovered from customers was not includible in the assessee's taxable turnover, in favour of the assessee.

Final Conclusion: The revision succeeded and the assessment was modified by restoring the higher depreciation rate and excluding the collected sales tax from taxable turnover.

Ratio Decidendi: Where a dealer is statutorily authorised to recover sales tax from purchasers, the amount so recovered does not form part of taxable turnover, and a clarificatory explanation deeming such collection to be included in turnover does not widen the charging concept of turnover.

---