TMI Blog1992 (10) TMI 228X X X X Extracts X X X X X X X X Extracts X X X X ..... f both CST and TNST - C.A. Nos. 2684-2690 of 1982, - - - Dated:- 20-10-1992 - RANGANATHAN S. AND JEEVAN REDDY B.P. JJ. October 20, 1992 C.A. Nos. 2684-2690 of 1982, 4043, 4044 of 1982, C.A. Nos. 315, C.A. Nos. 316, C.A. Nos. 317, C.A. Nos. 318, C.A. Nos. 319 of 1983, C.A. Nos. 5306, C.A. Nos. 5307, C.A. Nos. 5308, C.A. Nos. 5309, C.A. Nos. 5310, C.A. Nos. 5311, C.A. Nos. 5312, C.A. Nos. 5313, C.A. Nos. 5314, C.A. Nos. 5315, C.A. Nos. 5316, C.A. Nos. 5317, C.A. Nos. 5318, C.A. Nos. 5319, C.A. Nos. 5320, C.A. Nos. 5321, C.A. Nos. 5322, C.A. Nos. 5323, C.A. Nos. 5324, C.A. Nos. 5325, C.A. Nos. 5326, C.A. Nos. 5327, C.A. Nos. 5328, C.A. Nos. 5329, C.A. Nos. 5330, C.A. Nos. 5331, C.A. Nos. 5332, C.A. Nos. 5333, C.A. Nos. 5334, C.A. Nos. 5335, C.A. Nos. 5336 of 1985, C.A. Nos. 280, C.A. Nos. 281 of 1989 R. Mohan, T. Raja and R. Nedumaran, Advocates, for the respondents in C.A. Nos. 2684 to 2690 and 4043 and 4044 of 1982 and Nos. 315 to 319 of 1983 and appellants in C.A. Nos. 5306 to 5336 of 1985 and 280 and 281 of 1989. K. Ram Kumar, Advocate, for the appellants in C.A. Nos. 2684 to 2690 of 1982 and respondents in C.A. Nos. 5306 to 5336 of 1985. G.L. Sanghi and M.L. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion of freight charges in computing the taxable turnover on the ground that freight had been independently charged in the invoices. It relied on the decision of the Supreme Court in the case of Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh [1969] 24 STC 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. The questions that arose for the consideration of 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, 1956, Tamil Nadu General Sales Tax Act, 1959, and the Tamil Nadu Additional Sales Tax Act, 1970. (ii) Whether, the packing charges being the cost of the packing materials used by the dealer in packing cement for being delivered to his customers could be properly excluded from his total turnover for the assessment of sales tax. (iii) Whether, the excise duty paid on packing materials used by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Hindustan Sugar Mills Ltd. [1979] 43 STC 13 (SC). Learned counsel for the assessee contended that the Cement Control Order, 1967 under the terms of which sales of cement were effected during the relevant period by all cement manufacturers, 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 charging a price less than the ceiling fixed under the Order, nor did it preclude individual contracts by the cement manufacturers with various purchasers that the latter should bear the freight charges. In view of this, it was submitted that the terms of the Cement Control Order do not alter the principle enunciated by this Court in the Hyderabad Asbestos Cement Products case [1969] 24 STC 487. 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 latter. The following terms and conditions of sale were cited befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case where, despite the terms of the Control Order, the assessees chose to sell the goods free on rail at the 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 [1969] 24 STC 487, the assessees are entitled to exclude the amounts of freight as not forming the part of the turnover 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. [1979] 43 STC 13 (SC). 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 from selling the cement at a lower price and that, if the producer opted to sell his cement at price lower than the control price and allow credit to the purchaser where the purchaser agreed to pay the freight, the sale price can only be the smaller amount by deducting the freight charges from the gross a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es could show a lot of variation, the Control Order created a machinery by which all freight charges were credited to a common account and 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 consolidated 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 Control Order, and this is also what is contemplated by condition 4 set out e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Tamil Nadu 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 [1979] 43 STC 13 the relief granted for purposes 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 on which a dealer shall be liable to pay tax as determined after making such deductions 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 come to the conclusion-as we have-that freight has been included as part of the price of the goods 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 item 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 [1960] 11 STC 827 (SC), the dealer claimed deduction of railway freight from 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 rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 observed: "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 at Ernakulam. It was not brought for any individual customer. All the expenditure incurred is 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 applies 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 incurred 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( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purposes 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 Tamil Nadu General Sales Tax Rules. In our view, this position has been correctly set out, applying the decision in the case of Rai Bharat Das Bros. [1988] 71 STC 277 (SC) in State of Tamil Nadu v. Vanniaperumal Co. [1990] 76 STC 203 (Mad.) [FB], Dalmia Cement (Bharat) Ltd. v. State of Tamil Nadu [1991] 81 STC 327 (Mad.) and Dalmia Cement (Bharat) Ltd. v. State of Tamil Nadu [1991] 83 STC 442 (Mad.) 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 purposes of the Tamil Nadu Acts. We, therefore, hold- (i) that the freight charges should be included in arriving at the tax- able turnover for the purposes of CST and TNST; and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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