TMI Blog1978 (8) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... enior Advocate (V.K. Singhal, N.N. Goswamy and Arvind Minocha, Advocates, with him), for the appellant in C.A. No. 1122 of 1976. F.S. Nairman and Y.S. Chitale, Senior Advocates (A.K. Srivastava, v. Bhasin, C.V. Francis and Vineet Kumar, Advocates, with him), for the appellant in C.A. No. 1310 of 1976. Anandha Babu and A. Subba Rao, Advocates, for the intervener in V.A. No. 1122 of 1976. -------------------------------------------------- The judgment of the Court was delivered by SEN, J. -The short question involved in this writ petition is whether or not the railway freight on the cement sold by the petitioner under the Cement Control Order, 1967, should be deducted from its taxable turnover for purposes of the Rajasthan Sales Tax Act, 1954, or it should be treated as the part of the sale price and liable to be taxed under the Act. The Commissioner, Commercial Taxes, has, in response to a show cause notice, entered a caveat and raised a preliminary objection as to the maintainability of the petition. The parties were heard both on the objections as well as on the merits at great length. They have also filed their written submissions. The pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing authority had no jurisdiction to levy any tax on the amounts of freight which were claimed as deduction in its returns. By an earlier order dated 17th April, 1975, the assessing authority held that the question whether or not the petitioner was entitled to deduction of the freight from its gross turnover, would be decided at the time of the passing of the assessment order under section 10 of the Rajasthan Sales Tax Act. Being aggrieved, the petitioner filed revisions before the Board of Revenue. The revisions were, however, dismissed as premature by a single member of the Board, by his order dated 25th November, 1975, as the assessments were still to be made. The petitioner then preferred special appeals. In the special appeals, a Division Bench of the Board, by its order dated 21st May, 1976, directed the assessing authority to dispose of the preliminary objection raised by the petitioner as a preliminary point, with a further direction that the petitioner should be given reasonable opportunity to seek its remedy before an appropriate authority in respect of the decision, if any, given against it. In view of that direction given by the Board, the assessing authority had n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned counsel for the Commissioner, Commercial Taxes, drew our attention to a recent decision of the Board of Revenue in Associated Cement Companies Ltd. (Lakheri Cement Works) v. Commercial Taxes Officer, Kota, Revision No. 1267 of 1975 decided on 22nd April, 1976, where under precisely similar set of circumstances, the Board of Revenue has held that in view of the Cement Control Order, 1967, which envisages that the price of the cement sold by a manufacturer will be the price f.o.r. destination , i.e., inclusive of railway freight, the railway freight forms part of the sale price as defined in section 2(h), and the subsequent deduction of the amount of freight from the price with a direction to the buyer to pay freight would not mean that the railway freight was separately charged or that it was not liable to be included in the sale price as defined in section 2(h) of the Central Sales Tax Act. The Board of Revenue has followed the view taken by the Madhya Pradesh, Patna and Mysore High Courts in Birla Jute Mfg. Co. Ltd. v. Commissioner of Sales Tax, Madhya Pradesh [1972] 29 S.T.C. 639., Commissioner of Commercial Taxes v. Ashoka Marketing Ltd. [1973] 32 S.T.C. 411., and S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old contention. In the first place, he contends that the assessing authority has acted without jurisdiction in holding that the railway freight forms part of the sale price within the meaning of section 2(p) of the Act, when the petitioner deducted the freight as trade discount and the railway freight was separately charged. In the second place, he contends that the petitioner has no equally efficacious alternative remedy, as due to the circular dated 27th February, 1975, issued by the Commissioner of Sales Tax, the filing of an appeal before the Deputy Commissioner was an empty formality. Thirdly, he contends that no tax was recovered on supplies to the D.G.S.D. on the advice of the Ministry of Law and Justice when no tax was leviable. As regards the other consumers, it is said that the amounts of freight are collected as a deposit. There is, in our view, no force in any of these submissions. Much stress was laid by the learned counsel for the petitioner on the circular dated 27th February, 1975, issued by the Commissioner requiring the assessing authorities to assess the tax on the railway freight. It is said that the offending circular in question was nothing but a mandate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. R.R. Gupta [1976] 38 S.T.C. 113 (S.C.)., referred to that circular while affirming the decision. Nothing, therefore, turns on the circular. There was some controversy as to whether the Deputy Commissioner to whom the circular was issued was the Deputy Commissioner (Administration), as stated by the learned counsel for the Commissioner, or was the Deputy Commissioner (Appeals) as asserted by the learned counsel for the assessee. But we do not think it necessary to enter into that controversy here. On merits, the point in controversy whether the railway freight of cement sold by a manufacturer under the Cement Control Order forms part of the price, in a contract of sale of goods, where the sale price fixed under the Cement Control Order is f.o.r. destination and, therefore, falls within the meaning of sale price as defined in section 2(h) of the Central Sales Tax Act, 1956, and, consequently, must be included in the turnover of a dealer under section 2(j) of the Act, is settled by a series of decisions of different High Courts (see Birla Jute Mfg. Co. Ltd. v. Commissioner of Sales Tax, Madhya Pradesh [1972] 29 S.T.C. 639., Commissioner of Commercial Taxes v. Ashoka Marketi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pradesh [1969] 24 S.T.C. 487 (S.C.)., it was observed: Strong reliance was placed by learned counsel for the petitioner on the decision of their Lordships in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh [1969] 24 S.T.C. 487 (S.C.)., on which the opinion of the Law Ministry is based and, on the strength of which, the present writ petition is filed. It is urged that this decision of their Lordships really concludes the matter, as the facts in that case were identically the same as those in the present case. We are unable to accept the contention. No doubt, the bills prepared in respect of-(a) supplies to different Government departments through the Director- General of Supplies and Disposals under sub-clause (vi) of clause 16 of the Rate Contract and (b) supplies to non-Government buyers, contained the term that the consignments would be sent 'freight to pay', and in case of all sales, the payment of freight is by the buyers. To that extent the bills prepared are identically the same as those in Hyderabad Asbestos Cement Products Ltd. v. State of A.P.(1) While dealing with the sale of a controlled commodity like cement where freight is part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commodity of which there was a free trade. Under these circumstances, their Lordships held that the railway freight paid by the customers did not, as a matter of contract, form part of the 'sale price' within the meaning of section 2(r) of the Andhra Pradesh General Sales Tax Act, 1957. Our attention was drawn to the fact that their Lordships reversed the decision of the Andhra Pradesh High Court based on their earlier decision in Tungabhadra Industries Ltd. v. Commercial Tax Officer, Kurnool [1960] 11 S.T.C. 827 (S.C.)., and also that the catalogue price in that case was 'f.o.r. destination'. We do not think that these circumstances are of any avail to the petitioner. The form in which the invoice is made out is not determinative of the contract between the parties. In Tungabhadra Industries Ltd. v. Commercial Tax Officer, Kurnool[1960] 11 S.T.C. 827 (S.C.)., the freight, as here, was part of the price, while in Hyderabad Asbestos Cement Products Ltd. v. State of A.P. [1969] 24 S.T.C. 487 (S.C.)., the price received by the assessee for the sale of goods was the invoice amount less the freight. Their Lordships, therefore, did not think it necessary to refer to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t paid by the customer of a controlled commodity like cement, the price of which fixed under the Control Order, 1957, was f.o.r. destination, i.e., an all-inclusive price including the cost of freight and a case where the railway freight did not, as a matter of contract, form part of the sale price. In Premier Vegetable Products v. Commercial Taxes Officer, Special Circle II, Jaipur 1974 R.R.D. 324., one of us (Kudal, J.), while sitting as a Member of the Board of Revenue dealt with a case where the sale was not of a controlled commodity nor was the contract one where the price was f.o.r. destination . It was decided on a finding of fact that from the material available on record, it was clearly established that railway freight was never intended to be part of sale price . That decision is, therefore, clearly distinguishable. The other decisions cited are also distinguishable for similar reasons. We are informed that the judgment of the Madhya Pradesh High Court in Birla Jute Manufacturing Co. Ltd. v. Commissioner of Sales Tax, Madhya Pradesh [1972] 29 S.T.C. 639., is in appeal before the Supreme Court. If that be so, then that is an additional ground that we should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears 1971-72 and 1972-73. During these assessment years the sale of cement was controlled under the Cement Control Order, 1967 (hereinafter referred to as the Control Order). The Control Order was issued by the Central Government in exercise of the powers conferred by sections 18-G and 25 of the Industries (Development and Regulation) Act, 1951. Clause 7 of the Control Order provided that the ex factory prices admissible to the producer for the different varieties of cement shall be as specified in the schedule, and the schedule, as it stood at the material time, specified a retention price of ₹ 161.40 per metric tonne for cement manufactured by all producers other than those mentioned at items 1 to 5, which included the assessee. The maximum price at which a producer could sell cement was prescribed in clause 8, which said that no producer shall sell any other variety of cement at a price exceeding ₹ 214.65 per metric tonne free on rail destination railway station plus the excise duty paid thereon . The proviso to clause 8 provided that in the case of packed cement, there shall be added to this price such charges as may be fixed by the Central Government in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the third proviso to clause 8; (iii) expenses incurred by the Controller in discharging the functions under this Order subject to such limits, if any, as may be laid down by the Central Government in this behalf. Clause 14 which is the last clause laid down the procedure for making claims for payment from the Cement Regulation Account. It provided that every producer shall make an application regarding his claim for any reimbursement towards equalising freight or equalising concession in the matter of export price to the Controller who may, in settling the claim, require the producer to furnish all details, relating thereto, including the cost of freight incurred, excise duty, if any, paid, etc. The underlying object behind these provisions was that cement should be available at uniform price throughout the country and that is why it was provided that no producer shall sell cement at a price exceeding ₹ 214.65 per metric tonne free on rail destination railway station plus packing charges and excise duty. This was the maximum price at which the Central Government intended that cement should be available anywhere in India, irrespective of the distance from the place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the consignment is handed over to the carrier 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. Claim should be lodged with the carriers by the buyers directly. (11) In respect of any claim for overcharge of freight, the purchaser shall put up claim with the concerned railway authorities. The assessee, in fulfilment of these contracts, despatched cement to the purchasers at various destinations by rail and the railway receipts were made out on the basis of freight to pay . The invoices sent by the assessee showed the free on rail destination railway station price of the cement despatched at the rate of ₹ 214.65 per metric tonne and added the amounts representing excise duty and packing charges and deducted the amount of railway freight since it was to be paid by the purchasers. The assessee did not charge in the invoices sales tax on the amount of railway freight, since in its view it did not form part of the sale price , but in order to provide against a possible claim which might be made by the sales tax authorities, the assessee claimed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 122 of 1976. It must be conceded straightaway that the question is not free from difficulty and there is a sharp divergence of opinion amongst different High Courts, with an almost equal number of High Courts ranged on either side. But fortunately there are two decisions of this Court which throw some light on this question. We shall refer to them in due course. Though we are concerned in these appeals with assessments made under both the Rajasthan Sales Tax Act, 1954, and the Central Sales Tax Act, 1956, it would be sufficient to refer only to the provisions of the Rajasthan Sales Tax Act, 1954, since the material provisions of both the Acts are identical. Section 3 of the Rajasthan Sales Tax Act, 1954, provides that every dealer whose turnover in the previous year exceeds a certain limit shall be liable to pay tax on his taxable turnover, subject to the provisions of that Act. Taxable turnover is defined in section 2(s) to mean that part of the turnover which remains after deducting the aggregate amount of proceeds of certain categories of sales and turnover , according to section 2(t), means the aggregate of the amount of sale prices received or receivable by a dealer in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it would make no difference whether the amount of excise duty is included in the price charged by the dealer or is shown as a separate item in the bill. In either case, it would be part of the sale price . So also, the amount of sales tax payable by a dealer, whether included in the price or added to it as a separate item, as is usually the case, forms part of the sale price . It is payable by the purchaser to the dealer as part of the consideration for the sale of the goods and hence falls within the first part of the definition. This position is now well-settled as a result of the decision of this Court in George Oakes (Pvt.) Ltd. v. State of Madras [1961] 12 S.T.C. 476 (S.C.)., where the view taken by the Madras High Court in Sri Sundararajan Co. Ltd. v. State of Madras [1956] 7 S.T.C. 105., was approved. There S.K. Das, J, speaking on be- half of the court, approved the following observations of Lawrence, J., in paprika Ltd. v. Board of Trade [1944] 1 All E.R. 372.: Whenever a sale attracts purchase tax, that tax presumably affects the price which the seller who is liable to pay the tax demands but it does not cease to be the price which the buyer has to pay even if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price within the meaning of the first part of the definition. This position is also well-settled having regard to the decisions of this Court in Dyer Meakin Breweries Ltd. v. State o Kerala [1970] 26 S.T.C. 248 (S.C.)., and D.C. Johar Sons (A) Ltd. v. Sales Tax Officer, Ernakulam [1971] 27 S.T.C. 120 (S.C.). We may now take another example which is very much near to the one which we have already discussed. The dealer may, instead of transporting the goods from his factory or his place of business and selling them there, enter into a contract of sale f.o.r. destination railway station. Where such a contract is made, the seller undertakes an obligation to put the goods on rail and arrange to have them carried to the destination railway station at his expense. The delivery of the goods to the purchaser in such a case is complete at the destination railway station and till then the risk continues to remain with the dealer. The freight is payable by the dealer since he has to arrange for the goods to be carried by rail to the destination railway station at his expense and there is no obligation on the purchaser to pay the freight. The purchaser is concerned only to pay the agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke the railway agent of the purchaser for taking delivery of the goods. The freight in such a case would be payable by the purchaser though the price agreed upon is f.o.r. destination railway station. The price of the goods receivable by the dealer would, in that event, be the f.o.r. destination railway station price less the amount of freight payable by the purchasers That would be the consideration payable by the purchaser to the dealer for the sale of the goods and the amount of freight being payable by the purchaser would not be included in the sale price within the meaning of the first part of the definition. The position would be the same even if the dealer pays the freight and obtains railway receipt freight prepaid and claims the full f.o.r. destination railway station price in the bill. The amount representing freight would not be payable as part of the consideration for the sale of the goods but by way of reimbursement of the freight which was payable by the purchaser but in fact disbursed by the dealer and hence it would not form part of the sale price . This was precisely the basis on which the decision in Hyderabad Asbestos Cement Products Ltd. v. State o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the purchasers. But by clause (16) the purchasers clearly undertook to pay railway freight which was deducted from the invoice made out by the company. By clause (16) the company received the catalogue rate less the railway freight as price of the goods sold. We are unable to agree with the High Court that 'the term relating to the price in the contract between the company and the stockist envisaged by this clause [clause (16)] implies an obligation on the part of the company to pay the railway freight'. In our judgment, under the terms of the contract, there is no obligation on the company to pay the freight, and under the terms of the contract the price received by the company for sale of goods is the invoice amount less the freight and held that the amount of freight was not part of the sale price . It, was, to quote again the words of Shah, J, not made a part of the price . We may also at this stage refer to another decision of this Court earlier in point of time. That is the decision in Tungabhadra Industries Ltd., Kurnool v. Commercial Tax Officer, Kurnool [1960] 11 S.T.C. 827 (S.C.). What happened in this case was that the appellant sold and despatched hydro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of cement entered into by the assessee with the purchasers. The Control Order is designed to ensure availability of cement at a uniform price throughout India irrespective of the distance from the place of manufacture and clause 8 provides a maximum price of ₹ 214.65 per metric tonne f.o.r. destination railway station at which a producer may sell cement manufactured by him. It was at this maximum price of ₹ 214.65 per metric tonne f.o.r. destination railway station that, in pursuance of this clause, the assessee sold cement to various purchasers. The price was clearly inclusive of freight. But the question is: who, under the terms of the contract, was liable to pay the freight, the assessee or the purchaser. Was the contract one for delivery at destination railway station or was it a contract in which delivery to the purchaser would be complete as soon as the goods are put on rail at the place of despatch. The answer to this question would clearly be in favour of the assessee if we have regard only to the terms and conditions of the contract without taking into account the provisions of the Control Order. Clause (8) of the General terms and conditions of supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted to him under the Control Order and that is the basis on which the machinery of the Cement Regulation Account is worked out in the Control Order. This machinery would become unworkable and at the least it would require the Central Government to subsidise the Cement Regulation Account in a large way, if every producer were to sell cement at a price lower than ₹ 214.65 per metric tonne f.o.r. destination railway station. It is, therefore, obvious that though the Control Order merely provides the maximum price of ₹ 214.65 per metric tonne f.o.r. destination railway station at which a producer may sell cement, leaving it theoretically open to him to sell it at a lower price, the basic assumption underlying the Control Order is that every producer will sell at the maximum price. And in fact, in both the cases before us, every transaction of sale of cement by the assessee was at the price of ₹ 214.65 per metric tonne f.o.r. destination railway station. This, however, by itself would not be determinative of the controversy because the question would remain as to who, between the assessee and the purchaser, is liable to pay the freight and that requires us to conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not the f.o.r. destination railway station price but that price less the amount of freight? How would the assessee claim to be entitled to be reimbursed under the proviso to clause 9 if he has not incurred any expenditure on the freight? The entire statutory scheme would become unworkable. The scheme of the Control Order clearly proceeds on the basis that the freight is payable by the producer and he recovers it from the purchaser as part of the f.o.r. destination railway station price. The provision in the contract that the delivery to the purchaser shall be complete as soon as the goods are put on rail and payment of the freight shall be the responsibility of the purchaser is wholly inconsistent with the scheme of the Control Order and must be held to be excluded by it. The Control Order is paramount: it has overriding effect and if it stipulates that the freight shall be payable by the producer, such stipulation must prevail, notwithstanding any term or condition of the contract to the contrary. The conclusion is, therefore, inevitable that the amount of freight forms part of the sale price within the meaning of the first part of the definition. This renders it unnecess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State has not done so. The exclusion clause is, therefore, irrelevant and cannot be called in aid by the assessee. We may point out that even if the exclusion clause were read as an exception to the first part of the definition which, as we have pointed out, cannot be done, it cannot avail the assessee. It is only where the cost of freight is separately charged that it would fall within the exclusion clause and in the context of the definition as a whole, it is obvious that the expression ...cost of freight... is separately charged is used in contradistinction to a case where the cost of freight is not separately charged but is included in the price. it is not intended to apply to a case where the cost of freight is part of the price but the dealer chooses to split up the price and claim the amount of freight as a separate item in the invoice. Where the cost of freight is part of the price, it would fall within the first part of the definition and to such a case, the exclusion clause in the second part has no application. We must, therefore, hold that, by reason of the provisions of the Control Order which governed the transactions of sale of cement entered into by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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