Gauhati High Court Rejects Hawkins Cookers' Plea To Compute VAT On Reduced Sale Price

The Gauhati High Court has held that Hawkins Cookers Ltd. must pay the balance 8.5% Value Added Tax (VAT) on the original sale price of pressure cookers after an earlier ruling held that the products attracted VAT at 12.5% before 2010 and not 4% as claimed by the company.

Dismissing six revision petitions, the court rejected Hawkins' contention that the original sale consideration should be treated as inclusive of 12.5% VAT while computing the additional tax liability

The controversy was confined to the manner of computing the differential VAT after an earlier ruling had already settled that pressure cookers attracted VAT at 12.5% prior to 2010.

A Division Bench of Justice Michael Zothankhuma and Justice Sanjeev Kumar Sharma upheld the order of the Joint Commissioner of Taxes, Assam, rejecting Hawkins' contention that the revised VAT liability should be calculated after excluding the previously collected 4% VAT from the sale price.

The dispute arose after an earlier decision of the High Court had settled that, prior to 2010, pressure cookers attracted VAT at 12.5% under Schedule V of the Assam VAT Act, instead of 4% as claimed by Hawkins under the entry relating to aluminium utensils.

While Hawkins accepted its liability to pay VAT at 12.5%, it argued that the additional tax should be computed on the sale consideration after deducting the 4% VAT already collected from customers.

Rejecting this approach, the Court held that the original sale price of the product remained unchanged and that the earlier 4% VAT had itself been calculated on that sale price. Therefore, the subsequent differential tax must also be computed on the same original sale value.

Illustrating the issue with an example, the Bench observed that if a pressure cooker was sold for ₹100 with ₹4 collected as VAT, the correct differential liability would be the remaining 8.5% on the ₹100 sale price.

It observed that accepting Hawkins' formula of recalculating the sale price by backing out the revised VAT would artificially reduce the taxable value and result in payment of a lower amount than legally due.

"The attempt of the petitioner to lower the sale price, only because he is now liable to pay 12.5% VAT instead of 4%, would lead to an anomalous situation, whereby there would be an undue loss caused to the Public Exchequer. The same would lead to various difficulties and a fraud played upon the authorities, by paying a lower tax amount than what is due from the petitioner. The attempt by the petitioner to now pay the balance 8.5% tax, by reducing the sale price from Rs. 100/- to Rs. 91/- is illegal and unreasonable", the bench said.

The court noted that permitting such a methodology would lead to an anomalous situation, cause undue loss to the public exchequer, and enable dealers to reduce their tax liability after the applicable rate had been finally determined.

It further clarified that the differential tax was not a case of "VAT on VAT", since the 12.5% rate was always being applied to the original sale price and not on the tax component itself.

"..there would not be any VAT on VAT, if the 12.5% tax payable by the petitioner is calculated from the sale price of Rs. 100/- and not on Rs. 91/-, Rs. 100/ being the sale price and Rs. 4/- being the 4% tax earlier paid by the petitioner. The balance 8.5% payable by the petitioner would have to be calculated on the sale price of Rs. 100/-", the bench held.

Finding no infirmity in the order of the Joint Commissioner of Taxes dated 30 May 2024, the High Court dismissed all six revision petitions filed by Hawkins Cookers Ltd. challenging the computation of VAT.

For Petitioner: Advocate A. Goyal,

For Respondent: B. Gogoi, Standing Counsel