The Supreme Court (SC) has allowed the appeals of Madras Refineries Ltd and Indo Burma Petroleum (IBP) and set aside the decision of the Tamil Nadu sales tax tribunal including the amount received by them from the industrial pool in the annual turnover.
The two refineries sell the major portion of their products to different oil companies such as Indian Oil Corporation Ltd (IOCL), Bharat Petroleum and Hindustan Petroleum. In respect of the sales so made, money is paid to them from the industrial pool account in cases where the retention price is more than the sale price (equivalent to ex-refinery price) received from the oil companies. This is done according to a formula and to achieve equalisation of price of petroleum products produced by the refineries.
The Tamil Nadu government demanded tax on the amount received by the refineries from the compensation pool. The law exempts tax on sale to oil companies. But the amount received from the pool was different and it should be included in the turnover, the government argued. Therefore, the refineries appealed to the Supreme Court after failing in the tribunal.
The bench headed by Justice B N Kirpal clarified the law and remanded the cases to the assessing authority. The order said, "Any money received either from the IOCL or from the compensation pool which is relatable to the sales made by the refineries to the IOCL is not to be included in the taxable turnover as it is not to be regarded as the first sale in the state, therefore to that extent, no tax can be levied in the hands of the refineries on the amount so received."