1992 (11) TMI 264 - HC - VAT and Sales Tax

Issues Involved:
1. Legality of the inclusion of lorry freight charges in the turnover for sales tax purposes.
2. Applicability of the Supreme Court judgment in Hindustan Sugar Mills Ltd. case to the present case.
3. Distinction between freight charges for rail and lorry transport under the Cement Control Order.

Detailed Analysis:

1. Legality of the inclusion of lorry freight charges in the turnover for sales tax purposes:

The petitioner, a manufacturer and dealer in cement, challenged the inclusion of lorry freight charges in the turnover for sales tax purposes for the assessment years 1980-81 and 1981-82. The freight charges collected from stockists and dealers amounted to Rs. 43,01,169 and Rs. 89,64,519, respectively. The petitioner argued that the cement was dispatched by lorries at the request and risk of the buyers, and thus, the lorry freight charges should not be included in the turnover. The Sales Tax Appellate Tribunal dismissed the appeals, leading to the present tax revision cases.

The Court noted that the petitioner deducted notional railway freight charges from the gross amount in the sale bills and collected the higher lorry freight charges through separate debit notes. The differential amount under dispute was Rs. 29,72,918 for 1980-81 and Rs. 64,11,569 for 1981-82. The petitioner contended that the sales were completed at the factory, and the lorry freight charges were a "post-sale service."

2. Applicability of the Supreme Court judgment in Hindustan Sugar Mills Ltd. case to the present case:

The Sales Tax Appellate Tribunal relied on the Supreme Court judgment in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13, which analyzed the Cement Control Order and held that the freight charges form part of the sale price. However, the petitioner argued that this judgment was inapplicable to despatches by lorry, as it specifically dealt with rail transport.

The Supreme Court in Hindustan Sugar Mills Ltd. case held that the freight charges are part of the sale price under the Cement Control Order, as the producer is obliged to bear the freight and recover it from the buyer. The Court emphasized that the Control Order has overriding effect and the freight charges must be included in the turnover.

3. Distinction between freight charges for rail and lorry transport under the Cement Control Order:

The Court examined the Cement Control Order, 1967, which governs the sale of cement. Clause 8 specifies the ex-factory prices and defines "free on rail destination railway station" to include the cost of transport by the cheapest mode, usually rail. The producer is reimbursed for the freight by the cheapest mode from the Cement Regulation Account. The Court noted that the Control Order does not mandate the inclusion of lorry freight charges in the sale price, as it only covers the cheapest mode of transport.

The Court distinguished the present case from the Hindustan Sugar Mills Ltd. case, stating that the latter dealt with rail transport, whereas the current case involved lorry transport. The Control Order does not obligate the producer to bear lorry freight charges, and the reimbursement is only for the cheapest mode of transport. The Court held that the inclusion of lorry freight charges in the turnover depends on the contractual terms and mutual understanding between the parties.

The Court directed the Sales Tax Appellate Tribunal to reconsider whether the differential freight charges for lorry transport are exigible to tax, allowing the petitioner to adduce additional evidence. The Tribunal was instructed to dispose of the appeals expeditiously.

Conclusion:

The High Court set aside the orders of the Sales Tax Appellate Tribunal and allowed the tax revision cases, directing the Tribunal to reconsider the inclusion of lorry freight charges in the turnover for sales tax purposes. The Tribunal must assess the facts and contractual terms to determine the tax liability, considering the distinction between rail and lorry transport under the Cement Control Order.

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