CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2684-90 of 1982 etc. etc.
From the Judgment and order dated 23.12.1981 of the Madras High court in Tax Cases (Revision) Nos.206-210, 586 and 825 of 1979.
M.L. Verma, G.L. Sanghi, S.K. Verma, Manoj Prasad, Ms. Minoti Mukherji, A.K. Srivastava, R. Mohan, T. Raja, R. Nedumaran and K. Ram Kumar for the appearing parties. The Judgment of the court was delivered by
RANGANATHAN, J. By its judgment dated 23.12.1981, report as Ramco cement Distribution Co.(p) Ltd. v. The State of Tamil Nadu, (1982) 51 S.T.C. 171, The Madras High Court disposed of a batch of 48 sales tax revision cases arising out of the assessments, to local sales Tax(T.N.S.T) as well as Central sales Tax (C.S.T), of Ramco Cement Distribution Co. (p) Ltd. (16 cases). Madras Cements Ltd. (8 cases), Dalmia Cement Bharat Ltd. (21 cases) and India cement Ltd. (3 cases) . The question at issue were answered partly in favour of Revenue and partly in favour of the assessees. C.A. Nos. 5306-5336/1985 preferred by the state of Tamil Nadu arise out of 31 of these cases; 9 relating to Ramco Cements, 16 relating to Dalmia cements and 6 relating to Madras Cements. C.A. No. 2684 to 2690/82 are appeals by Ramco Cements and C.A. No. 4043-4044/1982 are by Madras cements from the same judgment. C.A. Nos. 315-319/1983 arise out of the other 5 cases relating to Dalmia Cements. C.A. Nos 280-281/1989 arise out of a judgment of the High Court dated 17.1.1985 which dismissed two revision tax cases pertaining to Dalmia Cements. One of the question involved in these cases was decided in favour in of the assessee by following the decision in 51 S.T.C. 171. As the question involved are common, all these appeals are being disposed of by a common judgment. In doing so, we shall refer to the fact in the appeals pertaining to Ramco Cements. It is common ground that the facts in other cases are similar and that the decision reached in the case of Ramco Cements will govern the other appeals as well.
Ramco Cement Distribution Co. Ltd. (hereinafter referred to as ’the assessee’) are the selling agents of M/s. Madras Cements Ltd., Rajapalayam, For the assessment year 1969-70 , they were assessed to sales tax on a taxable turn-over of Rs. 2,37,66,245 which included an amount of Rs. 29,71,527, representing freight charges. The assessee claimed exclusion of freight charges in computing the taxable turnover on the ground that freight had been independently charged in the invoice. It relied on the decision of the supreme court in the case of Hyderabad Asbestos Cements products Ltd. v. state of Andhra Pradesh, (1969) 24 S.T.C. 487. This contention was rejected by the assessing authority, the appellate authority as well as the Tribunal. Aggrieved by the above orders the assessee preferred revisions to the High court were enunciated as follows at the commencement of its judgment:
(i) Whether the freight charges
incurred by a dealer in the
despatch of cement to the place of
the customer could be deducted from
the total turnover of the dealer
under the Central sales Tax Act,
(ii) Whether the packing charges
being the cost of the packing
materials used by the dealer in
packing cements for being delivered
to his customers could be properly
excluded from his turnover for the
assessment of sales tax;
(iii) Whether the excise duty paid
on packing materials used by a
dealer for packing cement to be
sold to his customers can be
excluded in his total turnover.
These questions were answered by the High Court as follows:
"In tax revision cases arising
under the Central sales Tax act, we
hold that the freight, packing
charges and excise duty on packing
materials have to be included in
the sale price for the computation
of sales tax.
In cases arising under the Tamil
Nadu General Sales Tax Act and
Tamil Nadu Additional Sales Tax
Act, we hold that freight, packing
changes and excise duty on packing
materials are not liable to be
included in the sale price for the
computation of the sale price.
The assessees are not liable to pay
additional sales tax on freight,
packing materials and excise duty
on packing materials in those cases
arising under the Tamil Nadu
Additional sales Tax Act."
The High court certified the case to be one fit for appeal the Supreme Court and hence these appeals.
Both the asseesses as well as the state urges that, the High court having held that the amounts in question were liable to be included in the turnover for purpose of Central sales Tax, ought to have also held that these amounts were liable to be included in the taxable turnover for purposes of Tamil Nadu Additional sales Tax Act. On the other hand, on behalf of the assessees it is contended that, even for the purposes of C.S.T., the freight charges, the cost of packing materials and excise duty on the packing materials should have been excluded in the computation of the taxable turnover. It is thus there are cross appeals before us.
We have heard learned counsel on both sides. In our opinion, so far as C.S.T is concerned, the issue in the present case is July and directly covered by the decision of this court in Hindustan Sugar mills Limited v. State of Rajasthan, (1979) 43 S.T.C.13. AS stated earlier, the assessee relied strongly on the decision of this court in Hyderabad Asbestos cement Products Ltd. v. state of Andhra Pradesh, (1969) 24 S.T.C. 487 but this decision has been considered and explained in the Hindustan sugar Mills case. We do not wish to state the facts or discuss the issues at great length since, in our opinion, they are all facts and issue at great length sine, in our opinion, they are all facts and issues that were under consideration by this Court in Hindustan Sugar Mills Ltd. Learned counsel for the assessee contended that the Cement Control order, the terms of which sales of cement were effected during the relevant period by all cement manufactures, had no relevance to the question presently at issue. According to them all that the Cement Control order laid down was that cement could not be sold at a price higher than a price fixed by the Cement Control order on terms described "as free on rail (F.O.R.), destination" It did not stand in the way of cement manufacturers with various purchasers that the letter should bear the freight charges. In view of this, it was submitted that the terms of the cement control order do not alter the principal enunciated by this court in the Hyderabad Asbestos Cement products case. It was then urged that, in fact, the assessees had entered into contracts with the purchasers which clearly stipulated that the freight will be payable by the letter. The following terms and conditions of sale were cited before us as an instance of the type of contracts entered into by the assessees:
" Condition 2 : Once the
consignment is handed over to the
carriers and a receipt is obtained,
the responsibility of the company
ceases. The company does not accept
any liability for any delay,
shortage, damage or loss of goods
in transit. Claims should be lodged
with the carriers by buyers
directly.
Condition 3 : The consignees shall
arrange to take delivery against
indemnity bond, should the railway
receipt or bill of lading not reach
them in time. The company is not
liable in any manner whatsoever and
is also not responsible for any
demurrage or damages that may
accrue due to non-receipt or late
receipt of railway receipt or bill
of lading by the consignees.
Condition 4 : Prices shall be
charged as ruling on the date of
despatch of the goods and the
company shall not be responsible
for any variation in prices. The
price of the cement supplied to the
buyers shall be the current general
gross list price charged by the
company, free on rail less such
discount as may be fixed by the
company from time to time. But the
terms and the times of delivery and
the payments therefore shall be in
the absolute discretion of the
company who may vary the same from
time to time. Each despatch shall
be a separate contract.
Condition 10 : The condition of any
railway receipt shall be binding on
the buyer and the date of delivery
shall mean the date of the railway
receipt and in the case of
consignments sold free on rail
destination, the railway freight
shall be nevertheless payable by
the buyers at the destinations.
Condition 11 : The buyer shall
further be responsible for any
additional freight, should
transport by expensive route be
undertaken or should the quantity
despatched be less than a wagon
load.
Condition 12 : In the case of road
deliveries, freight will be allowed
upto the nearest rail head to the
destination or actual transport
charges whichever is less or
according to the instruction of the
control authorities from time to
time.
Condition 13 : The buyer shall put
up his claim with the Railways
direct whenever amounts are
collected in excess of the freight
indicated in the Railway receipt.
The company will allow freight only
at the scheduled wagon load rate."
basing themselves on these terms and conditions, learned counsel for the assessee contended that this was a case where, despite the terms of the control order, the assessees chose to sell the goods free on rail and that the liability to pay point where the goods were loaded on rail and that the liability to pay freight was entirely that of the purchasers. It was contended that these contracts were not inconsistent with or repugnant to the terms of the Cement Control Order and that on the same basis as the decision of this court in the Hyderabad Asbestos Cement products Ltd. case, the assesses are entitled to exclude the amounts of freight as not forming the part of the turn over at all.
Interesting as these arguments are, we find that they are merely a repetition of what was urged in the case of Hindustan Sugar Mills Ltd. In that case also the point urged was that the Cement Control order only fixes the maximum price and that there was nothing to prevent the producer opted to sell his cement at price lower than the control price and allow credit to the purchaser where the smaller amount by deducting the freight, the sale price can only be the smaller amount of the bill. The second argument, based in the terms of the contract between the parties, was also addressed in the Hindustan Sugar Mills case. There also clauses 5,8 and 11 of the general terms and condition of supply were strongly relied upon on behalf of the assessee. Under those terms and conditions, it was specifically mentioned that although the price of cement was on the basis of F.O.R. destination railway station, consignments would nevertheless be despatched ’freight to pay’ and credit afforded in the bill for the amount of freight payable and that the purchaser should accordingly arrange to pay railway freight or road transport charges at the destination at the time of taking delivery. This Court, after referring to the above contention, pointed out that, if the terms and conditions of the contract had stood alone, the assessee might have been entitled to succeed in excluding the freight charges on the principle of Hyderabad asbestos cement Products Ltd. case but that relief could not be given to the assessee in view of the scheme and provisions of the cements control order and their implications. The terms of the Cement control order have been fully analysed and discussed at pages 33 to 35 of the report. There is, therefore no difference either on facts or in principal between this case and the Hindustan Sugar Mills Ltd. case. on the other hand, as pointed out by the learned Judges in that case, the whole purpose of the cement control order was do not find any reason to doubt or dissent from the decision in the Hindustan Sugar Mills Ltd. case. On the other hand, as pointed out by the learned Judges in that case, the whole purpose of the Cement Control order was cement should be available for sale at all places in the country at a controlled price. No doubt, the price was described as a maximum beyond which the sale price could not go but the intention, which was also carried out by all the suppliers, was that cement was to be sold at what may be described as a controlled price on terms ’free on rail destination’. In other words, the producer was entitled to the controlled price irrespective of the amount of freight which might have been incurred in respect of the transaction. Having regard to the fact that the freight on consignments to places near the factory and consignments to places to places far away from the factories could show a lot of variation, the control order created a machinery by which all freight charges were credited to common account ad any particular cement manufacturer incurring more than a specified amount was entitled to be reimbursed for the excess freight incurred by him. As the learned Judges pointed out in the earlier decision, the whole control order proceeds on the footing that the freight charges are to be met by the producer and that he was entitled to a cosolidated price irrespective of the freight he may have incurred. In this view of the matter, the sale price, on the terms of the Central sales Tax Act, could only be the controlled price as fixed by the cement control Order.
We find that the factual position in these cases is also not as described by the learned counsel for the assessee. The assessee’s arguments in this regard were sought to be highlighted by the production of one of the invoices by which certain goods were despatched by Dalmia cements to Karaikal. It is interesting to see that this invoice mentions F.O.R. cement price as the controlled price stipulated in the Cement Controlled Order, and this is also what is contemplated by condition 4 set out earlier. To this is added a central Excise Duty. Thereafter, the assessee purports to give credit for railway freight and a net price, which is described as net price F.O.R. with a liability on the purchasers to bear the railway freight the invoice need not have contained all the details which it purports to contain including all the above calculations starting with the F.O.R. price at the controlled rate. In such an event all that the assessee need have done was to invoice the purchasers at the net price F.O.R. Works Siding and despatch the goods under ’freight to pay’ . It is also interesting to see that the invoice specifically includes a deposit to " cover any levy of sales tax on freight" . It is clear that the invoice has been drawn up in terms of the control order. The price charged by the assessee is F.O.R. Central Excise Duty has been added on this footing. The invoice mentions the amount of railway freight and permits it to be deducted only because the freight will be paid to the Railways by the Purchasers on behalf of the assessee and credit is given therefor in the invoice. This process is necessary because the amounts of freight for which credit has been given have to be eventually adjusted while settling accounts between the manufacturer of cement and obtaining reimbursement, if any , from the pool account. The producer will have to satisfy the concerned authorities that, in certain instances, the freight paid is in excess of the freight which a producer can be called upon to pay in terms of para 9 of the Cement Control order. In our opinion the invoice placed before us only reinforce the factual and legal position outlined by this Court in the Hindustan Sugar Mills Ltd. case in regard to the purpose and effect of the terms of the Cement Control Order.
For the reasons above mentioned, we are of the opinion that the High court was fully justified in applying the decision in Hindustan Sugar Mills Ltd. to the present case and denying the benefit of deduction of freight charges from the controlled price to arrive at the turnover of the assessee for the purpose of the Central sales Tax Act.
Turning now to the appeals filed by the state, the contention, as earlier mentioned, is that the High court should have arrived at the same conclusion on the provisions of the Tamil Nadu General Sales Tax Act and Additional sales Tax Act as it did under the Central Sales Tax Act and that in view of the decision of this Court in the Hindustan Sugar Mills case the relief granted for purpose of the local sales tax is erroneous. In coming to a different conclusion on the provisions of the local sales Tax Act from that reached in respect of the Central Act, the High Court has relied upon the fact that the local sales tax is charged not on the turnover of the dealer but only on his taxable turnover. The explanation ’taxable turnover’ has been defined in section 2(p) as follows:
"2(p)- ’taxable turnover’ means the
turnover of which a dealer shall be
liable to pay tax as determined
after making such deduction from
his total turnover and in such
manner as may be prescribed ."
The Tamil Nadu General sales Tax Rules, 1959, have prescribed rules for the determination of the taxable turnover. Rules 6 reads thus:
" Rules 6- The tax or taxes under
section 3,4 or 5 shall be levied on
the taxable turnover of the dealer
. In determining the taxable
turnover, the amount specified in
the following clause shall, subject
to the conditions
specified in the following clauses
shall, subject to the conditions
specified therein, be deducted from
the total turnover of a dealer-
(a) all amounts for goods specified
in the Third Schedule to the Act
are sold;
(b) all amounts for which goos
exempted by a Notification under
Section 17 are sold or purchased,
as the case may be provided that
the terms and conditions, if any,
for the exemption in the
notification are complied with;
(c) all amounts falling under the
following three heads when
specified and charged for by the
dealer, separately with out
including him in the price of the
goods sold-
(i) freight;
(ii)(omitted);
(iii) charges for delivery;
(cc) all amounts falling under the
head charged for packing, that is
to say, cost of packing materials
and cost of labour.
(i) when charged for by the dealer
separately without including such
amounts in the price of the goods
sold in respect of the goods liable
to tax at the hands of the
assessee; and
(ii) whether or not such amounts
are specified and charged for by
the dealer separately, in respect
of the goods not liable to tax the
hands of the assessee".
The High Court has held that since freight is one of the items specified in clause (i) of rule 6(c) and since the assessee have specified and charged for freight separately in their invoices, they ar entitled to the deduction of the freight in the computation of the taxable turnover. This is the short ground on which the High court has reached, in respect of the local Act, a conclusion different from that reached in respect of the central Act.
We agree with the learned counsel for the state of Tamil Nadu that, in coming to the above conclusion, the High court has over-looked the significance of the inclusion of the words "without including them in the price of the goods sold" in clause (c). These words make it clear it clear that the freight charges are not to be deducted in the computation of the taxable turnover merely because they are specified and charged for separately by the dealer. A further pre-requisite for their deduction is that these charges should not have been included in the price of the goods sold. This takes us back to the consideration as to whether the price charged for by the assessee includes freight or not, which we have discussed elaborately in respect of the levy of Central sales tax. once we comp to the conclusion - as we have-that freight has been included as part of the price sold and that the liability to pay the freight remains with the dealer, though permitted to be set off against the sale price by the purchaser or consumer, it follows that the deduction of the freight as a separate items in the computation of taxable turnover is not permissible. Rule 6(c) will apply only in cases where the sale price charged does not include the freight charges and the dealer separately collects freight from the consumer without including the same in the sale price. IN fact this aspect has been made clear in three decisions of this court dealing with similar rules. In Tungabhadra Industries Ltd. v. Commercial Tax officer, Kurnool, (1960) 11 S.T.C. 827, the dealer claimed deduction of railway freight form the amount of price of the goods sold as stated in the bill on the strength of rule 5(1) (g) of the madras General sales Tax (Turnover and Assessment ) Rules, 1939, which is in precisely the same terms, as rules 6, which is now being considered by us. The claim was negative by this court. It observed :
"The appellant claimed exemption on
a sum of Rs. 3,88, 377-13-3 on the
ground that it represented the
freight in respect of the ground
that it represented the freight in
respect of the goods sold by the
appellant, asserting that they had
been charged for separately. The
assessing officer rejected the
claim and this rejection was upheld
by the departmental authorities and
by the High Court in revision. It
would be seen that in order to
claim the benefit of this exemption
the freight should (i) have been
specified and charged for by the
dealer separately, and (ii) the
same should not have been included
in the price of the goods sold. The
learned Judges of the High Court
held that neither of these
conditions was satisfied by the
bills produced by the appellant. We
consider, the decision of the High
Court on this point was correct. In
the specimen bill which the learned
counsel for the appellants has
placed before us, after setting out
the quality sold by weight (23, 760
lb.) the price is specified as 15
annas 9 pies per lb. and the total
amount of the price is determined
at Rs. 23,388-12-0. From this the
railway freight of Rs. 1,439-12-0
is deduced and the balance is shown
as the sum on which sales tax has
been computed. From the contents of
this invoice it would be seen that
the appellant has charged a price
inclusive of the railway freight
and would therefore be outside the
terms of rule 5(1) (g) which
requires that in order to enable a
dealer to claim the deduction it
should be charged for separately
and not included in the price of
goods sold. The conditions of the
rule not having been complied with,
the appellant was not entitled to
the deduction in respect of
freight."
The same conclusion was reached by this Court in Dyer Meakin Breweries Ltd. v. State of Kerala, (1970) 26 S.T.C. 248. Here, the appellant-company which manufactured liquor at various places in U.P. and Haryana, transported the goods from its breweries and distilleries to its place of business in Ernakulam and sold them there. When selling liquor to the customers the appellant made out separate bills for exfactory price and for "freight and handling charges". The appellant claimed that the amount charged for "freight and handling charges" incurred by it in transporating the goods from the breweries and distilleries to the warehouse in Kerala were eligible for deduction under rule 9(f) of the Kerala General Sales Tax Rules, 1963, a rule which is in the same terms as rule 6, with which we are now concerned in the present case. This claim was negatived by this Court. The Court obvserved:
"It is common ground that the sale
of the liquor took place in
Ernakulam. The company arranges to
transport liquor for sale from the
factories to its warehouse t
Ernakulam. It was not brought for
any individual customer. All the
expenditure incurred s prior to the
sale and was evidently a component
of the price for which the goods
were sold. it is true that separate
bills were made out for the price
of the goods ex-factory and for"
freight and handling charges".
But, in our judgment, the Tribunal
was right in holding that the
exemption under clause (f) of rule
9 applied when the freight and
charges for packing and delivery
are found to be incidental to the
sale and when they are specified
and charged for by the dealer
separately and expenditure in-
curred for freight and packing and
delivery charges prior to the sale
and for transporting the goods from
the factories to the warehouse of
the company is not admissible under
rule 9(f) . Rule 9(f) seeks to
exclude only those charges which
are incurred by the dealer
either expressly or by necessary
implication for and no behalf of
the purchaser after the sale when
the dealer undertakes to transport
the goods and to deliver the same
or where the expenditure is
incurred as an incident of sale. It
is not intended to exclude forms
the taxable turnover any component
of the price, expenditure incurred
by the dealer which he had to incur
before sale and to make the goods
available to the intending
customer at the place of sale."
In Johar and sons(p) Ltd. v. Tax officer Ernakulam, (1971) 27 S.T.C.120, The same question arose, again in the context of the Kerala General sales Tax Rules, 1963. The court followed the decision in Dyer Meakin Breweries Ltd. case. It was pointed out that the decision in Tungabhadra Industries Ltd. had rested on the facts of the case without going into the interpretation of the relevant rule of the Madras General Sales Tax (Turnover and Assessment ) Rules, 1939. It was, held that the Dyer Meakin decision would apply to the case before the court. A number of subsequent decisions has also held to a like effect : C.C.T. v. Ashoka Marketing Ltd.,(1973) 32 S.T.C. 411, State of Mysore v. Panyam Cements and Mineral Industries Ltd. (1974) 33 S.T.C. state of Tamil Nadu v. parry and company (1976) 38 S.T.C. 122, state of Tamil Nadu v. Chettinad Cement Corporation Ltd.,(1976) 38 S.T.C. 519 and Premier Breweries Ltd. v. state of Karnataka, (1984) 56 S.T.C. 14 we are, therefore, of the opinion that High court was in error in trying to distinguish the decision in the Hindustan Sugar Mills case and in excluding freight charges from the taxable turnover for the purpose of the Tamil Nadu Act.
The position in regard to packing charges as well as the excise duty on packing charges is also no different. As pointed out by this court in the Hindustan Sugar Mills case and in Commissioner of sales Tax v. Rai Bharat Das & Bros., [1988] 71 S.T.C. 277 (SC), packing charges from part of "sale price" because the expression " any sum charged for anything done by the dealer in respect of the goods" used in the definition in section 2(h) of the Central sales Tax Act, 1956, squarely covers such charges, as packing is an integral element of the transaction of sale and packing charges are an integral part of the sale price. Once this is so, it follows that these charges and the excise duty thereon cannot be excluded from the turnover for purpose of the Central sales Tax Act. Nor will, for the reasons earlier discussed in relation to freight charges, the assessee be in a position to claim a deduction in respect of these charges by virtue of rule 6(cc) of the sales Tax Rules. In our view, this position has been correctly set out, applying the decision in the case of Rai Bharat Das and Bros., in state of Tamil Nadu v. Vanniaperumal & co., (1990) 76 S.T.C. 203, Dalmia cement (Bharat) Ltd. v. state of Tamil Nadu, (1991) 81 S.T.C. 327 and Dalmia Cement (Bharat) Ltd. v. state of Tamil Nadu, (1991) 83 S.T.C. 442. we are, therefore, of the opinion that the packing charges and excise duty thereon cannot also be deducted in computing the taxable turnover for the purpose of the Tamil Nadu Acts.
We, therefore, hold-
(i) That the freight charges could be included in arriving at the taxable turnover for purposes of C.S.T. and T.N.S.T.; and
(ii) that packing charges and excise should be included in arriving at the taxable turnover for purposes of both C.S.T. and T.N.S.T.
The appeals by the state of TAmil Nadu are accordingly allowed and the appeals filed by the assessee ar dismissed. There will, however, be no order regarding costs. N.P.V. C.A. Nos. 2684-90,4043-44/82 315-19/83-dismissed. C.A.-Nos-5306-36/85 and 280-81/89-allowed.