Holding

Refund of sales tax is permissible only to the extent that tax was actually paid at the first point of sale and the purchaser must establish the quantum of such tax and its use in manufacture; the State cannot refund amounts it never collected.

Summary

Crown Re‑roller (P) Ltd., a re‑rolling mill in Orissa, purchased iron and steel scrap from registered dealers. The State of Orissa, under an industrial policy, exempted raw material purchases from sales tax, but a 1989 notification shifted the taxable event to the first point of sale. The company claimed a refund of sales tax under Section 14 of the Orissa Sales Tax Act, arguing that tax had been paid at the first sale and subsequent purchases were tax‑free. The assessing officer held that no tax was paid by the company and rejected the claim; the High Court directed a fresh application in the correct form without interest. The Supreme Court held that refund can be granted only to the extent tax was actually collected at the first sale and that the company must prove the quantum of tax paid by the first seller and its use in manufacture. The Court allowed the appeals in part, directing the assessing authority to determine the refund amount after giving the company an opportunity to produce evidence, and declined any order for interest or costs.

Issues considered

The applicability of the 1989 notification shifting the taxable event to the first point of sale for iron and steel.
Whether the exemption under the industrial policy confers a right to refund of sales tax to the purchaser.
On what basis and methodology the refund under Section 14 of the Orissa Sales Tax Act should be calculated.
Whether the State can refund tax that it has not actually collected.
The procedural correctness of the refund application form and entitlement to interest.

Legislation cited

Subjects

sales taxexemptionrefundfirst point of saleOrissa Sales Tax Actindustrial policySection 14tax holidayre‑rolling millraw material

Judgment

A
COMMNR. OF SALES TAX, ORISSA AND ORS.
.\,-

CRO\VN RE-ROLU R (P) LTD. AND ORS.

MAIU il 8, 2007
B
[S.B. SINHA AND MARKANDEY KATHJ. J.IJ

Sales Tai:: +
c Orissa Sales Tax Act, I Y-17

Nu1ification dated 22. I 2. I 989-Exemption under-Basis of
determination-Held, it is based on the value ofgoods sold by dealer effecting
first point sale-Value of good5 in subsequent transactions upon which no
D tai: was paid thus not relevant for grant ()f exemption.

Respondent-assessee is a re-rolling mill manufacturing MS rounds and
flats out of iron and steel scrap materials. State Government issued a
notification d:1tcd 22.12.1989, notifying that 'Iron and Steel' would be taxable
E at the first point of sale, in a series of sale by successive dealers, when such
sale is effected by a dealer liable to pay sales tax under Orissa Sales Tax Act,
1947. Prior to issuance of the said Notification the taxable event was the last
purchase. Respondent made purchases from registered dealers of ir<>n scrap.

He filed an application for refund of the sales tax in terms of s.14 of the
F Act. The assessing officer held that the respondent has not paid any amount
of Sales Tax on purchase of any goods which are declared u/s.14 and that it
)
has purchased 'first point tax paid' Iron and Steel from registered dealers of
Orissa who are the subsequent sellers and these sellers have not collected
any sales tax from the respondent which is evident from the purchase bills
G furnished by him hence the claim is not sustainable.

Respondent filed writ petition which was allowed directing him to submit
fresh form. Hence these appeals. 1

Partly allowing the appeals, the Court
H 686
COMMNR. OF SALES TAX. ORI SSA r. CROWN RE-ROLLER (P) LTD. 687
HELD: I. Applicability of the exemption notification dated 22.12.1989 A
-)
is not in dispute. The dealers, from whom the respondent had made purchases
of raw material are registered. Therefore the application for refund of tax,
filed by the respondent, was maintainable. The tax was paid on the value of
goods sold by the dealer effecting first point sale. The amC1unt of tax realized
for the purpose of refund thus must be on the said basis. The value of the
B
goods of subsequent transactions, upon which no tax was paid, thus could not
have been taken into consideration for the purpose of grant of exemption. If
that be so, the respondent for the purpose of establishing its claim for refund
t was required to establish : (I) what is the quantum of tax paid to the
Department by the dealer effecting first point of sale and; and (2) whether the
tax paid goods have been utilized for the purpose of manufacture of its product c
by the respondent. [Paras 12 and 141 [693-B-C; 694-A-CJ

2. The respondent had claimed the amount of refund being a sum of
Rs.15 laes only on the basis that as the goods purchased by it are the tax paid
once, 4% thereof should be directed to be refunded as if the actual tax paid
D
was on the price paid by it. It is not so. The exemption is to be granted on the
basis of the price of the goods on first sale thereof. As the point of levy of tax
was the first point of sale which being exempted from the notification, none of
the subsequent sales thereof could be subjected to levy of sales tax.
[Para 161 [694-E-Fl
E
Amrit Banaspati Co.Ltd & Anr. v. State of Punjab & Anr., [1992) 2 SCC
411, distinguished.

State of Bihar & Ors. v. Suprabhat Steel Ltd and Ors., (19991 1 SCC
31, referred to.
F
3. The State cannot resile itself from the statutory provisions of
I\ exemption made by it. In equity, the State in a situation of this nature, must
act in letters and spirit of the Act. However, State can only refund what it
actually collected and not any amount which it had not collected. The interest
of justice would be subserved if an opportunity is given to the respondent to G
produce evidence before the assessing authority for maintaining its claim of
refund. It would also be open to the assessing authority, if any situation arises
,, ~
therefor, to call for any record from the Rourkela Steel Plant or any other
'dealer'. The respondent would not be entitled to any interest on the refund
amount for the present as the quantum thereof is yet to be determined.
[Para 19[ [696-F-H; 697-A-B) H
688 SUPREME COURT REPORTS [2007] ·3 S.C.R.

A CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1215 of2007.

From the Order/Judgment dated 21.11.2003 of the High Court of Orissa,
Cuttack in O.J.C. No. 1047/2001.

WITH
B
Civil Appeal No. 1216/2007.

Joseph Vellapally and Kirti Renu Mishra for the Appellant.
t
B.A. Mohanti, Mamta Tripathy and Ashok Mathur for the Respondents.
c The Judgment of the Court was delivered by

S.B. SINHA, J. I. Leave granted.

2. Respondent herein, a company registered under the Indian Companies
D Act, known as Mis. Crown Re-rolling (P) Ltd., is the owner ofa Re-rolling mill.
It is a re-rolling mill manufacturing M.S. rounds and flats, out of iron and steel
scrap materials. Indisputably, the State of Orissa made an industrial policy
wherefor a resolution was adopted on 13.5.1986, pursuant whereto and in
furtherance whereof, exemption was granted from payment of sales tax on raw ~·
E materials sold to or purchased by a registered dealer and certified by the
General Manager, District Industrial Corporation to be a small scale industry
set up on or after 1.4.1986 and commencing commercial production thereafter.
It is furthermore not in dispute that by reason of a notification dated 22.12.1989,
the State Government in exercise of its powers conferred upon it under
Section 8 of the Orissa Sales Tax Act, 194 7, notified 'Iron and steel' to be
F taxable at the first point of sale, in a series of sale by successive dealers, when
such sale is effected by a dealer liable to pay tax under the Act. It is also not
in dispute that prior to issuance of the said notification the taxable event was )
the last purchase. It has not been denied or disputed before us that the
exemption notification dated 13.5.1986 is applicable in the case of the assessee.
G It is also not in dispute that the said exemption relates to transaction of
purchase or sale of raw material which go into the composition of the finished
product manufactured by the assessee in the State.

3. Respondent had been making purchases from the Rourkela Steel Plant ~
of the Steel Authority of India Ltd. Admittedly, the benefit of the exemption
H notification in respect of such purchases have been granted to the respondent-
COMMNR. OF SALES TAX. ORI SSA r. CROWN RE-ROLLER(P) LTD. [S.B. ~iNll-\, J.] 689

assessee. Admittedly, Respondent had made purchases also from the A
-J registered dealers of iron scrap. However, the problem arose in obtaining the
said exemption as on and from I. l .1990 steel was made taxable at the first sale
point by reason of the said notification dated 22. I 2. I989 issued under Section
8 of the Act. The mechanism for availing of exemption was by way of
statutory declaration by the buyer/manufacturer to the taxable seller, thereby
purchasing the raw material free of tax.
B

4. It is furthermore not in dispute that the respondent had purchased
., tax paid raw materials. He filed an application for refund of the sales tax
purported to be in terms of Section 14 of the Orissa Sales Tax Act, 194 7 (for
short, 'the Act) which reads as under :- c
"14. Refunds -

The Commissioner shall, in the prescribed manner, refund to a
dealer applying in this behalf any amount of tax penalty or interest
paid by such dealer in excess of the ::imount due from him under this D
Act, either by cash payment or by deduction of such excess from the
amount of tax, penalty or interest due in respect of any other period:

Provided that no claim to refund of any tax, penalty or interest
paid under this Act, shall be allowed unless it is made within twenty-
four months from the date on which the order of assessment or order E
imposing penalty, as the case may be, was passed or from the date
of the final order passed on appeal, revision or reference in respect
of the order earlier mentioned, whichever period is later:

Provided further that no claim to refund of any tax, penalty or
interest paid under this Act shall be allowed in cases where there is
F
an order for re-assessment, until the re-assessment is finalized."
~
'
5. As the said prayer of the respondent was denied, he filed a writ
petition before Orissa High Court praying inter alia for the following reliefs-

"Further direct the Opposite Party No.5 & 6 to refund the entire
G
amount of Sales Tax collected from the petitioner amounting to Rs. 15
lacs approximately pursuant to the notification vide Annexure-5."
~ _,J. )-

6. The said writ petition was allowed holding:
H
690 SUPREME COURT REPORTS [2007) 3 S.C.R.

A "6. In view of the aforesaid undisputed position, since the
petitioner has already lodged representation for refund and no decision
has been taken on it, we dispose of the writ application by directing
that on the petitioner filing application in the prescribed form, opposite
parties 5 and 6 without taking any objection of limitation will consider
the question of the exact amount of refund to which the petitioner is
B
entitled to under the Industrial Policy Resolution, 1986 and the Finance
Department Notification No 5389 dated 13.2.1987 and communicate
their decision within a period of three months of receipt of the
application in the prescribed form."

c 7. However, the assessing officer in its order dated 18.12.1997 upon
examining the matter opined that :-

" ... Being asked whether the sellers from whom he purchased the "Iron
and Steel" are the first or subsequent sellers, Sri Agarwal expressed
his inability to say whether they were first or subsequent sellers. His
D only submission was that they have purchased "tax paid" materials.

On scrutiny of the refund applications with reference to relevant
purchase bills of "Iron & Steel" and other connected documents
furnished by the dealer and after giving him reasonable opportunity
of being heard, it is found that :-
E
Firstly, the dealer Mis. Crown Re-rollers (P) Ltd. has not paid any
amount of Orissa Sales Tax on purchase of any goods which are
declared U/s. 14 of the Central Sales Tax Act, 1956. He has purchased
"first point tax paid" Iron & Steel from registered dealers of Orissa
who are the subsequent sellers. The sellers have not collected any
F
sales tax from the instant dealer which is evident from the purchase
bills furnished by him. The dealer himself has simply calculated 4%
tax on such purchase of "Iron & Steel" and claimed refund.

Therefore, the claim of the dealer vide Col.2 and 5 of his refund
G applications relating to date of payment of tax and the amount of tax
paid U/s. 5 of the O.S.T. Act respectively is not based on any
documentary evidence and as such found to be incorrect. In fact, the
amount of tax paid by the dealer U/s. 5 of the O.S.T. Act is found to
be "Nil"."

H 8. Questioning the legality or validity of the said order, another writ
COMMNR. OF SALES TAX, ORISSA "·CROWN RE-ROLLER(P) LTD. [S.B. SINHA. J.] 691

petition was filed by the respondent herein before the High Court which by A
-f reason of the impugned judgment dated 21.11.2003 was allowed holding :-

"13. Hence, the applications of the petitioner should not have
been made in Fonn XII-A under rule 42-A. The petitioner will have to
make fresh applications for refund in Form XII under Rule 39 of the
Orissa Sales Tax Rules, 1947 for refund of tax under Section 14 of the B
Orissa Sales Tax Act, 1947. Since the petitioner himself had not
submitted the applications in the correct form and under the correct
rule, the petitioner will not be entitled to interest from the date of the
.. t
applications as claimed by him in this writ petition.

14. For the aforesaid reasons, we quash the impugned order dated
c
18.12.1997 of the Sales Tax Officer, Rourkela Circle-II, Panposh in
Annexure-1 to the writ petition and direct that the petitioner will
submit fresh applications for the periods in question in Form XII
under Rule 39 of the Orissa Sales Tax Rules, 1947 and the Sales Tax
Officer, Rourke la Circle-II, Panposh will compute the amount of tax D
paid by the petitioner on the tax paid goods purchased by it as raw
materials for its industry on the basis of the copies of the purchase
._...,., bills prod•1ced before him by the petitioner and determine such amount
to be refunded and refund the same to the petitioner within 90 (ninety) ,_
days frolT' the date of such application failing which the petitioner will E
be entitled to interest at the rate mentioned in Section 14-C of the
Orissa Sales Tax Act, 1947 with effect from the date of expiry of the
said period of ninety days."

9. The High Court, however, did not grant any interest in favour of the
respondent-assessee. Both the parties are, thus, before us. F

>, 10. Mr. Joseph Vellapally, the learned senior counsel appearing on
behalf of the appellant, in support of this appeal raised the following
contentions:-

I. The High Court committed a manifest error in passing the impugned G
judgments insofar as it failed to take into consideration that the taxable event
in sales tax law being the transaction of sale, exemption to pay tax, if any,
, ,,. would be available only where a transaction is taxable.

2. Exemption notification would apply only when the manufacturer
H
692 SUPREME COURT REPORTS [20071 3 S.C.R.

A establishes that he had purchased raw material from a registered dealer which ~-
had gone into the composition of the finished product manufactured by it in
the State.

3. The order of the High Court passed in OJC No. 8052/1992 did not
confer any right on the assessee to get any specific amount by way of refund
B and, thus, the High Court misdirected itself in assuming that it was so entitled.

4. Exemption notification read with the Industrial policy does not give
any right to claim refund from the State as the Sales Tax Officer being a t •
creature of Statute can grant refund only in the event the conditions therefor
c are fulfilled and not otherwise.

5. The problem had arisen on account of the taxable seller having sold
the goods to another dealer of steel from whom the assessee have purchased
the scrap and the application for grant could have been allowed subject to
the proof of the respondent that the raw material used by it for manufacturing
D purposes was the goods in respect whereof the tax was paid by the first seller.

6. There is no practical way in which either the assessee or the department
can ascertain as to whether any tax has been paid in the State of Orissa on
the precise quantity of steel purchased by the assessee from non-taxable
dealer; nor there is any practical way to quantify and determine the exact
E amount of tax paid by the first seller on the steel in question as the identity
or the quantum of sales turn over is not known to the department.

I l. Mr. B.A. Mohanty, learned senior counsel appearing on behalf of
the respondent, on the other hand, would submit that admittedly the
F respondent had purchased goods from the registered dealers and the goods
in question are tax paid goods. Drawing our attention to the earlier judgment
of the High Court dated 23 .6.1997, the learned counsel contended that the ,.4
application filed by the respondent for refund of tax should have been
considered in terms of the observations made by the High Court and in that
view of the matter the assessing authority could not have sat in appeal over
G the judgment of the High Court on the following grounds :

(a) The Finance Department Notification provides for exemption from
payment of tax on purchase of raw material and not refund. 1 '

(b) The respondent has not paid any tax on purchase ofraw material
H from subsequent dealers as such raw material had already suffered
COMMNR. OF SALES TAX. ORISSA r. CROWN RE-ROLLER(P)LTD. [S.B SINHA, J] 693

-) first point tax an earlier event of sale and therefore the respondent A
is not entitled to any refund.
(c) The application of the respondent for refund was in the wrong
form i.e. form no. XII A and Rule 42-A of the Orissa Sales Tax
Rules, which are applicable to refund of tax paid on declared
goods sold in the course of inter state trade and commerce under B
Section 14-B of the Orissa Sales Tax Act, which was therefore not
applicable to the respondents,
;,, t
12. Applicability of the exemption notification, in the instant case, is not
in dispute. The fact that the dealers, from whom the respondent had made
purchases of raw material are registered, is also not in dispute. The goods c
purchased by the respondent are tax paid goods. Taxable event, however,
under sales tax laws is the transaction of sale. Exemption, thus, would be
available only where such a transaction takes place. So long as the taxable
event was the last purchase, no problem arose. The State, however, altered
the taxable event. The validity of the notification altering the taxable event D
at the first sale point by notification dated 22.12.1989 with effect from 1.1.1990
cannot also be disputed .
. "'"' 13. In Re. The Bill to Amend S. 20 of the Sea Customs Act, 1878, and
S. 3 of the Central Excises and Salt Act, 1944 [(1964) 3 SCR 787] this Court
held: E

"This will show that the taxable event in the case of duties of
excise is the manufacture of goods and the duty is not directly on the
goods but on the manufacture thereof. We may in this connection
contrast Sales Tax which is also imposed with reference to goods sold,
F
where the taxable event is the act of sale. Therefore, though both
~ excise duty and Sales Tax are levied with reference to goods, the two
~
are very different imposts; in one case the imposition is on the act of
manufacture or production while in the other it is on the act of sale.
In neither case therefore can it be said that the excise duty or Sales
Tax is a tax directly on the goods for in that event they will really G
become the same tax. It would thus appear that duties of excise
partake of the nature of indirect taxes as known to standard works on
" lo"
economics and are to be distinguished from direct taxes like taxes on
property and income."
H
694 SUPREME COURT REPORTS [2007] 3 S. C.R.

A 14. We will assume that the application for refund of tax, filed by the
respondent, was maintainable. The question, however, is what should be the
t-
methodology therefor. The dealer effecting the first sale point may have sold
the raw materials at a price 'A'." The subsequent dealer might have sold at a
price to 'B'. Respondent might have purchased from 'C' who had in tum
purchased the raw material from 'B'. In terms of Section 14 of the Central Sales
B Tax Act, the rate of tax is 4%. The tax was paid on the value of goods sold
by the dealer effecting first point sale. The amount of tax realized for the
purpose of refund thus must be on the said basis. The value of the goods
j
of subsequent transactions, upon which no tax was paid, thus could not have ...
been taken into consideration for the purpose of grant of exemption. If that
c be so, the respondent for the purpose of establishing its claim for refund was
required to establish : (1) what is the quantum of tax paid to the Department
by the dealer effecting first point of sale and; and (2) whether the tax paid
goods have been utilized for the purpose of manufacture of its product by
the respondent.
D
15. The question of refund could arise provided tax has been paid, the
logical corollary whereof would be that the claim for the refund of the tax must
be calculated on the basis of the value of the goods at the first point of sale
and not thereafter. ~-

E 16. The respondent had claimed the amount of refund being a sum of
Rs.15 lacs only on the basis that as the goods purchased by it are the tax
paid once, 4% thereof should be directed to be refunded as if the actual tax
paid was on the price paid by it. It is not so. It is no doubt true that as the
point of levy of tax was the first point of sale which being exempted from the
notification, none of the subsequent sales thereof could be subjected to levy
F
of sales tax.
,,.
17. In State of Bihar & Ors v. Suprabhat Steel Ltd and Ors., [1999] 1
SCC 31 this Court has held :-

"7. Coming to the second question, namely, the issuance of notification
G
by the State Government in exercise of power under Section 7 of the
Bihar Finance Act, it is true that issuance of such notifications entitles
the industrial units to avail of the incentives and benefits declared by ~
the State Government in its own industrial incentive policy. But in
exercise of such power, it would not be permissible for the State
H
COMMNR. OF SALES TAX. ORISSA v. CROWN RE-ROLLER (P) LTD. [S.B. SINHA, J.J 695

Government to deny any benefit which is otherwise available to an A
industrial unit under the incentive poHcy itself. The industrial incentive
policy is issued by the State Government after such policy is approved
by the Cabinet itself. The issuance of the notification under Section
7 of the Bihar Finance Act is by the State Government in the Finance
Department which notification is issued to carry out the objectives B
and the policy decisions taken in the industrial policy itself. In this
view of the matter, any notification issued by government order in
exercise of power under Section 7 of the Bihar Finance Act, if is found
to be repugnant to the industrial policy declared in a government
resolution, then the said notification must be held to IJe bad to that
extent. In the case in hand, the notification issued by the State C
Government on 4-4-1994 has been examined by the High Court and
has been found, rightly, to be contrary to the Industrial Incentive
Policy, more particularly, the policy engrafted in clause I0.4(i)(b).
Consequently, the High Court was fully justified in striking down that
part of the notification which is repugnant to sub-clause (b) of clause
10.4(i) and we do not find any error committed by the High Court in D
striking down the said notification. We are not persuaded to accept
the contention of Mr Dwivedi that it would be open for the Government
to issue a notification in exercise of power under Section 7 of the
Bihar Finance Act, which may override the incentive policy itself. In
our considered opinion, the expression "such conditions and E
restrictions as it may impose" in sub-section (3) of Section 7 of the
Bihar Finance Act will not authorise the State Government to negate
the incentives and benefits which any industrial unit would be
otherwise entitled to under the general policy resolution itself. In this
view of the matter, we see no illegality with the impugned judgment
of the High Court in striking down a part of the notification dated F
A. 4-4-1994."
. I

IS. But, we have no doubt in our mind that the exemption could be
granted on the basis of the price of the goods on first sale thereof. We,
however, do not accept the submissions of Mr. Vellapally based on the
decision of this Court in Amrit Banaspati Co.Ltd & Anr. v. State of Punjab G
& Anr., [ 1992] 2 SCC 411 that although the respondent was entitled to
exemption from payment of tax, it was not entitled to any refund. In Amrit
Banaspati (supra), this Court held :-

H
696 SUPREME COURT REPORTS (2007) 3 S.C.R.

A ·• 11. Exemption from tax to encourage industrialization should not t-
be confused with refund of tax. They are two different legal and
distinct concepts. An exemption is a concession allowed to a class or
individual from general burden for valid and justifiable reason. For
instance tax holiday or concession to new or expanding industries is
well known to be one of the methods to grant incentive to encourage
B industrialization. Avowed objective is to enable the industry to stand
up and compete in the market. Sales tax is an indirect tax which is
ultimately passed on to the consumer. If an industry is exempt from
tax the ultimate beneficiary is the consumer. The industry is allowed
to overcome its teething period by selling its products at comparatively
c cheaper rate as compared to others. Therefore, both the manufacturer
and consumer gain, one by concession of non-levy and other by non-
payment. Such provisions in an Act or Notification or orders issued
by Government are neither illegal nor against public policy.

12. But the refund of tax is made in consequence of excess payment
D of it or its realization illegally or contrary to the provisions of law. A
provision or agreement to refund tax due or realized in accordance
with law cannot be comprehended. No law can be made to refund tax
to a manufacturer realized under a statute. It would be invalid and
ultra vires ..."

E 19. In that case, the issue was as to whether the manufacturer of
Banaspati had set up an industry in the State of Punjab, on the assurance
that the sales tax amount actually collected by it from the ultimate purchasers,
would be refunded to it by way of incentive, can be enforced by a court of
law. Such a prayer was declined on the ground that refund of tax is made in
F consequence of excess payment of it. This case, however, deals with
completely different situation as despite the exemption notification issued in "
terms of a statute, the respondent was compelled to pay tax through its
purchase price when it purchased the scrap material from subsequent sellers.
The State cannot resile itself from the statutory provisions of exemption made
by it. In our opinion, in equity, the State in a situation of this nature, must
G act in letters and spirit of the Act. However, State can only refund what it
actually collected and not any amount which it had not collected. We, therefore,
are of the opinion that the interest of justice would be subserved if an
opportunity is given to the respondent to produce evidence before the
assessing authority in regard to existence of the legal requirements, as noticed
H hereinbefore, for maintaining its claim ofrefund. The assessing authority shall
COMMNR. OF SALES TAX, ORJSSA 1·. CROWN RE-ROLLER (P) LTD. [S.B. SINHA, J.] 697

- 't· give an opportunity to the respondent to place all materials in connection A
therewith or in relation thereto. It would also be open to the assessing
authority, if any situation arises therefor, to call for any record from the
Rourkela. Steel Plant or any other 'dealer'. We, furthermore, are of the opinion
that the respondent would not be entitled to any interest on the refund
amount for the present as the quantum thereof is yet to be determined.
B
20. These appeals are accordingly allowed to the extent mentioned
hereinbefore and with the above directions. However, in the facts and
circumstances of the case, there shall be no order as to costs.

D.G. Appeals allowed.

: .I
A