Service tax collected on invoices under VAT composition scheme, treated as "sale price" for VAT; cancellation orders quashed

The dominant issue was whether, despite the statutory appellate remedy under s.73 of the Gujarat VAT Act, the HC should decide the legality of orders cancelling composition permission under s.14D on the ground that VAT was not paid on the service tax component collected from customers. Interpreting ss.3 and 14 read with the definition of "sale price" in s.2(24), the HC held that "includes" is enumerative but the legislature expressly listed only specified duties/taxes, indicating an intent to exclude service tax; applying the analogous reasoning in an earlier HC decision on exclusion of VAT from purchase price, service tax could not be treated as part of sale price. The impugned cancellation orders were quashed and the petitions were allowed.

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Issues Involved:
1. Maintainability of petitions due to alternative remedy under Section 73 of the Gujarat Value Added Tax Act, 2003.
2. Inclusion of service tax component in the sale price for VAT calculation under the Gujarat Value Added Tax Act, 2003.
3. Legality of the cancellation of permission to pay lump sum composition tax under Section 14D of the Act.

Detailed Analysis:

1. Maintainability of Petitions:
The respondent raised a preliminary issue regarding the maintainability of the petitions, arguing that the petitioners had an alternative remedy available through a statutory appeal under Section 73 of the Gujarat Value Added Tax Act, 2003. However, the court entertained the petitions, referencing a previous decision in the case of Ambuja Cement Ltd., which dealt with a similar issue, thus justifying the court's jurisdiction to hear the matter despite the availability of an alternative remedy.

2. Inclusion of Service Tax in Sale Price for VAT Calculation:
The core issue was whether the service tax component collected by the petitioners should be included in the sale price for the purpose of calculating VAT. The petitioners argued that, according to Section 2(24) of the Act, the sale price should not include the service tax component. They relied on the decision in Ambuja Cement Ltd., where it was held that statutory taxes collected by dealers do not form part of the taxable turnover. The court agreed with this argument, noting that the legislative intent was to exclude service tax from the sale price, as evidenced by the definition of "sale price" under Section 2(24), which did not explicitly include service tax.

3. Legality of Cancellation of Permission under Section 14D:
The petitioners challenged the cancellation of the permission to pay lump sum composition tax under Section 14D, which was revoked on the grounds that VAT was not paid on the service tax component. The court found that the cancellation was unjustified, as the service tax component should not have been included in the sale price for VAT calculation. The court reiterated that the legislative framework did not support the inclusion of service tax in the taxable turnover of sales, aligning with the reasoning in Ambuja Cement Ltd. Consequently, the impugned orders and show-cause notices were quashed.

Conclusion:
The court ruled in favor of the petitioners, concluding that the service tax component should not be included in the sale price for VAT purposes. The cancellation of the permission to pay lump sum composition tax was deemed unjustified, and the impugned orders were set aside. The petitions were allowed, with the rule made absolute to the specified extent, and no order as to costs was made.

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