Holding

The Supreme Court held that the supply of bamboo and hardwood from a government forest is not subject to sales tax, and the appellants are entitled to a refund of tax paid, limited to the three years preceding the writ petition, as the presumption of passing on the tax burden to consumers does not apply.

Summary

Bhadracalam Paperboards Ltd. and another entered into an agreement with the Government of Andhra Pradesh for the supply of bamboo and hardwood from state forests. Under the Andhra Pradesh Sales Tax Act, the Forest Department, as a dealer, was liable to pay sales tax on the value of the extracted timber, but the appellants reimbursed this tax and used the timber in their paperboard manufacturing. Relying on the Supreme Court’s decision in Titaghur Paper Mills, the appellants claimed that the supply of bamboo from a government forest was not taxable and sought a declaration that the tax collected from 1978-79 onward was illegal and a refund of the tax paid. The High Court agreed that the transactions were not taxable but denied refund, presuming the appellants had passed the tax burden onto consumers. The Supreme Court held that this presumption was incorrect because the appellants had reimbursed the tax liability of the Forest Department and consumed the goods themselves, and therefore allowed a refund limited to the three years preceding the filing of the writ petition.

Issues considered

Whether the supply of bamboo and hardwood from a government forest is liable to sales tax under the Andhra Pradesh Sales Tax Act.
Whether the appellants can be presumed to have passed on the sales tax burden to consumers, thereby disqualifying them from a refund.
Whether a refund of sales tax can be granted for periods prior to three years before the filing of the writ petition.

Subjects

sales taxrefundgovernment forestbamboohardwooddealertax burdenpresumptionlimitation periodSupreme Court

Judgment

-I

A BHADRACHALAM PAPERBOARDS LTD. AND ANR.
v.
THE GOVERNMENT OF ANDHRA PRADESH AND ORS.

AUGUST 4,1998

B [S.P. BHARUCHA AND K. VENKATASWAMI, JJ.]

Sales Tax-Andhra Pradesh Sales Tax Act-Refund-Agreement
between Assessee and Government for supply of bamboo and hardwood-In
C terms of the agreement Assessee reimbursed sales tax to Department though
the later was exigible to tax as a Dealer-Assessee also consuming goods for
manufacturing paper boards-Judicial decision that supply of bamboo from
Government forest was not exigible to sales tax-Assessee 's claim for refund
of taxes already collected-Held, permissible only for a period of 3 years
prior to the date offiling of the Writ Petition-Presumption that the Assessee
D must be deemed to have passed on the burden of tax to consumers-Held not
valid.

The appellants entered into an agreement with the respondent-state for
supply of bamboo and hardwood from the Government forests. As a dealer the
E Forest Department was exigible to sales tax upon the value of bamboo and
·hardwood removed by the appellants from the forest However, in terms of the
agreement the appellant reimbursed to the Forest Department the amount of
sales tax. In Titaghur Paper Mills case this Court held that supply of bamboo
from Government Forest was not exigible to tax. On the basis of this judgment
F the appellants sought a declaration that the tax collected from them on the
royalty and extraction charges paid for the supply of bamboo and hardwood ,-r .
for the period from 1978-79 onwards was illegal, null and void. It also sought
consequential relief of refund of tax already collected from 27.3.1978 to
30.10.1985.

G The High Court held that the transactions in question were not exigible
to tax but denied the relief of tax refund on the ground that the appellants
must be deemed to have passed on the burden of tax to the consumers. The
appellants preferred appeal before this Court

H Allowing the appeal, this Court
968
BHADRACHALAM PAPERBOARDS LTD. v. GOVT. OF A.P. [VENKATASWAMI, J.] 969

' . HELD : The High Court was not right in presuming that the appellants
must have passed on the burden of tax to the consumers. The appellants have
A

reimbursed a tax liability which was on the Forest Department and the
appellants have consumed the goods for manufacturing paperboards, etc.
Therefore, the question of the appellants passing on the tax liability to the
consumers, on the facts of this case, would not arise. Consequently the
appellants are entitled for refund of the tax collected from them, not for the
B
entire period but for the period commencing three years prior to the date of
filing of the Writ Petition. [971-E-F)

State of Orissa & Ors. v. Titaghur Paper Mills Co. Ltd & Anr. etc.,
(1985) Supp. SCC 280 and Mafatlal Industries Ltd. & Ors. v. Union of India
& Ors., I1997) 5 sec 536, referred to.
c
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4418 of
1993.

From the Judgment and Order dated 28.9.88 of the Andhra Pradesh High
..; Court in W.P. No. 13995of1985 . D

.. Shri Narain and Sandeep Narain for the Appellants .

K. Ram Kumar, Santinarayan, Y. Sobba Rao and G.Prabhakar for the
Respondents.
E
The Judgment of the Court was delivered by

K. VENKA T ASWAMI, J. The appellants moved the High Court of
Andhra Pradesh under Article 226 of the Constitution of India for the issuance
of a Writ of Mandamus to declare the action of the respondents in demanding

-- and collecting sales tax from them on the royalty and extraction charges paid
for the supply of bamboo and hardwood to them from the forest for the period
F

1978-79 onwards as illegal, null and void and for a consequential relief of
refund of the taxes so collected from them.

The admitted facts are that the appellants entered into an agreement on
27.3 .1978 with the State Government for supply of bamboo and hardwood
G
from the Government forest on certain terms and conditions. The Sales Tax
Department demanded and collected sales tax upon the value of the bamboo
- ,,_. and hardwood removed by the appellants from the forest. Under the State
Sales Tax Act, during the relevant period the commodity (bamboo and
hardwood) was exigible to tax at the first sale and as such the Forest H
970 SUPREME COURT REPORTS [1998] 3 S.C.R.

A Department, who was a dealer, was liable to pay the sales tax. However, under -•
the agreement mentioned above, the appellants undertook to reimburse the
Forest Department the amount of sales tax payable on the supply of bamboo
and hardwood. Both the appellants and the Revenue were under a mistaken
impression that the supply of bamboo and hardwood from the Government
B forest under an agreement was exigible to tax. This court in State of Orissa
& Ors. v. Titaghur Paper Mills Co. Ltd. & Anr., etc., [1985] (suppl.) SCC 280,
held that such supply of bamboo from the Government forest was not exigible
to tax. It was on that basis the appellants moved the High Court for the relief >
set out above.

C The High Court by the judgment under appeal held that no sales tax was
payable by the appellants on the royalty and extraction charges payable by
them under the Agreement entered into with the State for supply of bamboo
and hardwood with effect from 1.11.85. However, the High Court declined to
grant the refund of sales tax already collected for the period 27.3.78 to
31.10.85. The High Court, for denying the refund, was of the view that the
D manufacturer (appellants) is presumed to have passed on the burden of tax
to the consumer unless there are clear allegations and proof to the contrary.
In the absence of such allegations and proof, the appellants must be deemed
to have passed on the burden of tax to the consumers, which would disentitle
them from seeking refund of the sales tax already paid.

E Aggrieved by the judgment of the High Court denying the relief of
refund, the present appeal has been filed by the appellants.

The learned counsel appearing for the appellants submitted that the
High Court was not right in presuming that the appellants must have passed
F on the burden of tax to the consumers. He invited our attention to the case
of the respondents advanced before the High Court. The High Court has
observed thus:-

"He (the Government Pleader) submits that in the case of this
petitioner the demand is not upon the petitioner but upon the Forest
G Department as seller of the goods. He submits that according to the
definition of the dealer, the Forest Department is also a dealer. He
submits that both bamboo and hardwood are placed in the first
Schedule to the A.P. General Sales Tax Act which means that tlie tax
is payable at the point of first sale in the State."

H In the the light of the above case of the Revenue as put forward before
I

~

BHADRACHALAM PAPERBOARDS LTD. v. GOVT. OF A.P. [VENKATASWAMI,J.] 971

-• the High Court, it is the contention of the learned counsel for the appellants
that the question of passing on the tax burden to the consumers would not
A

arise in this case. According to the learned counsel, in view of the above
stand taken by the Revenue before the High Court the relief of refund ought
to have been allowed.

Mr. K. Ram Kumar, learned counsel appearing for the respondents, B
placing reliance on the judgment of this court in Mafatlal Industries Ltd &
Ors. v. Union of India & Ors., [1997] 5 SCC 536, submitted that unless the
appellants moved the appropriate forum to set aside the assessments already
made for collecting the sales tax, the question of refund will not arise. In
any case, learned counsel submitted that the refund cannot be ordered for
more than three years preceding the filing of the writ petition.
c
We have seen that the appellants sought a declaration that the tax
demanded and collected on the transactions in question for the period from
1978-79 onwards was illegal, null and void. The High Court in the light of the
decision of this court in Titaghur Paper Mills Co. Ltd. (supra), held that the D
transactions in question were not exigible to tax. The refund was, however,
denied on the ground that the appellants must be deemed to have passed on
the liability to the consumer.

We find that the High Court was not right in so presuming in the light
of the case put forward by the Government pleader as extracted above. The E
appellants have reumbursed a tax liability which was on the Forest Department
and the appellants have consumed the goods for manufacturing paper boards,
etc. Therefore, the question of the appellants passing on the tax liability to
the consumer, on the facts of this case, would not arise. Consequently, the

-.. appellants are entitled for refund of the tax collected from them, not for the
entire period but for the period commencing three years prior to the date of
filling of the Writ Petition.
F

The appeal is accordingly allowed with no order as to costs.

T.N.A. Appeal allowed. G