TMI Blog1981 (12) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be properly excluded from his total 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?" In T.C. Nos. 31 to 37, 206 to 210, 585, 586, 588 and 825 of 1979, the assessee is Ramco Cement Distribution Co. (P.) Ltd., Rajapalayam. While T.C. Nos. 206 to 210 of 1979, 586 and 825 of 1979 arise under the C.S.T. Act, the other cases arise under the T.N.G.S.T. Act and the T.N.A.S.T. Act. These cases cover the assessment years 1967-68 to 1975-76. In T.C. Nos. 581 to 584, 587, 589, 826 and 827 of 1979, the assessee is the Madras Cements Ltd., Rajapalayam. T.C. Nos. 581 and 583 of 1979 arise under the Central Sales Tax Act (C.S.T. Act), while the other cases arise under the T.N.G.S.T. Act and the T.N.A.S.T. Act. The assessment years covered by these cases are 1975-76 to 1977-78. In T.C. Nos. 470 to 474, 45 to 52 and 54 to 61 of 1979, the assessee is Dalmia Cement (Bharat) Ltd., Dalmiapuram. While T.C. Nos. 470 to 474 of 1979 arise under the C.S.T. Act, T.C. Nos. 45 to 52 and 54 of 1979 arise under the T.N.G.S.T. Act and T.C. Nos. 56 to 61 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 978. The appeals in M.T.A. Nos. 553 and 556 of 1978 had been filed by M/s. Madras Cements Ltd., Rajapalayarn, against the order of the Appellate Assistant Commissioner, for the assessment years 1975-76 and 1976-77, while M.T.A. No. 589 of 1978 had been filed by Ramco Cement Distribution Co. (P.) Ltd., Rajapalayam. The Tribunal by its order dated 30th June, 1979, held that the freight element in free on rail sales has to be included in the sale price under the C.S.T. Act. The Tribunal also found that packing charges and excise duty also form part of the sale price and they have to be included in the turnover under the C.S.T. Act. Against this order of the Tribunal for the assessment year 1975-76, T.C. No. 581 of 1979 has been filed by Madras Cements Ltd. The facts in the other tax cases need not be set out in detail, except to set out the facts of a case arising under the T.N.G.S.T. Act. T.C. No. 31 of 1979 arises under the T.N.G.S.T. Act. The relevant assessment year is 1969-70. The assessees are Ramco Cement Distribution Co. (R) Ltd., selling agents of M/s. Madras Cements Ltd., Rajapalayam. The assessees were assessed to sales tax on a taxable turnover of Rs. 2,37,64,245 which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved by the above orders, the assessees preferred the tax revision case. The first question that arises for consideration is whether, on the facts and in the circumstances of the case and having regard to the definition under section 2(h) read with section 8A of the C.S.T. Act, the assessment as made on freight charges separately disclosed in the bills and given rebate to the consumer, is liable to be assessed in the hands of the assessee. Mr. P.R. Ranganathan, the learned counsel for the assessee, very strenuously contended that under the provisions of the C.S.T. Act, the freight charges incurred by an assessee, when goods are despatched to a customer on "free on rail basis" and the freight is shown separately in the invoices and a rebate is given to a consumer, cannot be included in the sale price of cement. In this connection, the learned counsel referred to us to the following sections of the C.S.T. Act. Section 6 which reads as follows was first referred to: "6. (1) Subject to the other provisions contained in this Act, every dealer shall, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not being earlier than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale prices: ------------------------------------------------------ 100 + rate of tax Provided that no deduction on the basis of the above formula shall be made if the amount by way of tax collected by a registered dealer, in accordance with the provisions of this Act, has been otherwise deducted from the aggregate of sale prices." We are not concerned with the explanation to section 8A. If we are only called upon to deal with the question whether freight paid by a dealer in despatch of the goods to the customer can be included in the "sale price" for the purpose of sales tax under the C.S.T. Act in terms of the definition of "sale price" under section 2(b) of the C.S.T. Act, there can be absolutely no difficulty in accepting their arguments and holding that such freight will have to be excluded from the "sale price" for the computation of sales tax under the C.S.T. Act. But, unfortunately, in these cases where cement is the subject of sale, we have to take into consideration the provisions of the Cement Control Order, 1967, and the impact of the provisions of the said Order on section 2(h) of the C.S.T. Act. The sale of cement was from time to time controlled by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsport under clause 4 at the destination point. Clause 9 provides that every producer shall, in respect of each transaction by way of sale of cement effected by him, pay within one month of the close of the month in which such sales take place to the Controller an amount equivalent to the amount, if any, by which the free on rail destination price of such cement exceeds the aggregate of the following amounts, namely: (i) The ex-factory price of such cement calculated in accordance with the rates specified in the schedule; (ii) selling expenses calculated at the rate of Rs. 3.71 per tonne; (iii) the excise duty paid thereon; and (iv) in the case of packed cement, the charges fixed by the Central Government in respect of the packing under the first proviso to clause 8. The first proviso to clause 8 stipulates that in the case of packed cement, there shall be added to the price referred to in clause 8 such charges as may be fixed by the Central Government in respect of packing in jute bags or in any other containers, and that different charges may be fixed for the use of new and serviceable second-hand jute bags and for the use of such other containers. Clause 11 enjoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of taking delivery. Secondly, once the consignment was handed over to the carrier and a receipt was obtained, the responsibility of the assessee ceased and the assessee was no longer liable for any liability for any delay, shortage, damage or loss of goods in transit. The responsibility was on the buyers to claim damages from the carriers. In the event of there being any overcharge of freight, it was the duty of the purchaser to lodge necessary claims with the concerned railway authorities. In terms of the above contract, the assessee despatched cement to the customers. The invoices showed that the goods were despatched "free on rail destination railway station". The invoices referred to the amount representing excise duty and packing charges. They also deducted from that amount the railway freight to be paid by the purchasers. The assessee did not charge in the invoice sales tax on the amount of railway freight. However, in order to provide for a possible future claim on the part of the authorities, the assessee obtained by way of deposit an amount towards contingent liability to sales tax on railway freight to be paid. When the assessment of the assessee, in that case, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke a case where a dealer transports goods from his factory to his place of business and sells them at a price which is arrived at after taking into account 'freight and handling charges' incurred by him in transporting the goods. The amount of 'freight and handling charges' included in the price would obviously be part of the 'sale price', because it would be payable by the purchaser to the dealer as part of the consideration for the sale of the goods. The same would be the legal position even if the 'freight and handling charges' are shown separately in the bill and added to the price of the goods, for the character of the payment would remain the same. Since 'freight and handling charges' represent expenditure incurred by the dealer in making the goods available to the purchaser at the place of sale, they would constitute an addition to the cost of the goods to the dealer and would clearly be a component of the price charged to the purchaser. The amount of 'freight and handling charges' would be payable by the purchaser not under any statutory or other liability but as part of the consideration for the sale of the goods and it would, therefore, form part of 'sale price' within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt the provisions of the Control Order." After referring to clauses 8 and 11 of the general terms and conditions of supply incorporated in the contract and the specimen invoice produced by the assessee, the learned judge observed that the delivery of the goods to the purchaser would be complete as soon as they are put on rail at the work siding and the risk then passes to the purchaser and payment of freight would be the responsibility of the purchaser. However, the learned judge proceeded to examine the impact of the relevant provisions of the Control Order on the terms and conditions of the contract. In this connection, the learned Judge referred to the fact that the Control Order was a statutory order, having overriding effect and the terms and conditions of the contract to the extent to which they conflict with the provisions must be held to be excluded. He referred to clause 8 which provided a maximum price of Rs. 214.65 per metric tonne f.o.r. destination railway station. The learned judge then referred to clause 9 which contemplated that the f.o.r. destination railway station price would be realised by the producer for the excess of such price over the retention price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." The ratio of the Supreme Court is conclusive on the question which arises for determination in this case. However, Mr. P.R. Ranganathan, the learned counsel for some of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is, therefore, part of the 'sale price', the exclusion clause cannot avail the assessee to take the amount in question out of the definition of 'sale price'. Here, on the view taken by us, the amount of freight forms part of the 'sale price' within the meaning of the first part of the definition and it is not necessary for the State to invoke the inclusive clause and in fact the 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision must have an overriding effect over the decision in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 (SC) which is only a judgment by a Bench of two judges of the Supreme Court. The question that arose for consideration before the Supreme Court in Vishnu Agencies' case [1978] 42 STC 31 (SC) referred to above was whether sale of cement, cotton, coal or iron and steel which are in short supply and which are governed by various types of Control Orders issued under the Essential Commodities Act, 1955, with a view to making the goods available to the consumer at a fair price, will amount to a sale in the language of the law. Vishnu Agencies (P.) Ltd., appellants before the Supreme Court, were stockists of cement. They supplied cement to persons in whose favour allotment orders were issued at the price stipulated and in accordance with the conditions of the permits issued by the authorities. The permits were issued by the authorities designated under the Cement Control Order. They were assessed to sales tax in respect of the sales effected by them as per the allotment orders. The tax was duly paid. Later on, they found that the transactions were not exigible to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than [1979] 43 STC 13 (SC) equally applies to packing charges and excise duty on packing materials also. In Hindustan Sugar Mills Ltd.'s case [1979] 43 STC 13 (SC) Bhagwati, J., has stated thus with reference to the definition of "sale price" in section 2(p) of the Rajasthan Sales Tax Act which, as already stated, is in pari materia with section 2(h) of the C.S.T. Act: "This definition is in two parts. The first part says that 'sale price' means the amount payable to a dealer as consideration for the sale of any goods; Here, the concept of real price or actual price retainable by the dealer is irrelevant. The test is, what is the consideration passing from the purchaser to the dealer for the sale of the goods. It is immaterial to enquire as to how the amount of consideration is made up, whether it includes excise duty or sales tax or freight. The only relevant question to ask is as to what is the amount payable by the purchaser to the dealer as consideration for the sale and not as to what is the net consideration retainable by the dealer." Thus, according to the decision of the Supreme Court as we have already noticed, sale price means the entire price inclusive of the freight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 4th December, 1973. However, for the period during which this notification was in force, i.e., for 1969-70, the Tribunal held that the claim of the assessees for exclusion of the packing charges from the C.S.T. Act was admissible. Against the said order, the department has not come up in revision. The same conclusion should follow as regards the inclusion of excise duty as well. The Supreme Court as a matter of fact has specifically stated in Hindustan Sugar Mills Ltd.'s case [1979] 43 STC 13 (SC) that excise duty also goes to make up the sale consideration which passes from the purchaser to the dealer. This is what Bhagwati, J., has observed with regard to excise duty: "Take for example, excise duty payable by a dealer who is a manufacturer. When he sells goods manufactured by him, he always passes on the excise duty to the purchaser. Ordinarily, it is not shown as a separate item in the bill, but it is included in the price charged by him. The 'sale price' in such a case could be the entire price inclusive of excise duty because that would be the consideration payable by the purchaser for the sale of the goods. True, the excise duty component of the price would not be an ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome the distinction between "excise duty" and "sales tax". The appellants before the Supreme Court were manufacturers of Indian liquors. Under the rules the manufacturer can remove liquor from the distilleries only after prepayment of the excise duty. Every buyer of Indian liquor from the appellants' distilleries obtained distillery pass for the release of the liquor after making payment of the excise duty and presented the same at the concerned distillery, whereupon a bill of sale or invoice was prepared by the distillery showing the price of the liquor. The bill did not include the excise duty paid by the buyer. The appellants' books of account also did not contain any reference regarding the excise duty paid by the purchasers in the manner stated above. The question arose whether the excise duty paid by the purchasers could also be included in the sale price of the liquor sold by the manufacturer. The learned judge made a distinction between the nature of the excise duty and the nature of the sales tax. It was clearly laid down that the excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. Countervailing duty was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 2(r) is defined as meaning "the aggregate amount for which goods are bought or sold, or supplied, or distributed, by a dealer, either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable consideration, provided that the proceeds of the sale by a person of agricultural or horticultural produce, other than tea grown within the State by himself or on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover". The explanations are omitted. Section 2(p) defines "taxable turnover" as follows: " '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." Thus the scheme of the T.N.G.S.T. Act is that sales tax is payable on the taxable turnover of a dealer who is defined as any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(r) of the T.N.G.S.T. Act and rule 6(cc) of the T.N.G.S.T. Rules. A dealer is liable to pay sales tax on his taxable turnover. "Turnover' means the aggregate of the amounts received by him for the goods sold. The definition of "turnover", therefore, will take in its fold not only the actual price of the goods, but the cost of freight charges for delivery and cost of packing materials and cost of labour. To arrive at the net taxable turnover, the necessary statutory deductions provided for under rule 6 have to be made in terms of the definition of "taxable turnover" contained in section 2(p). Rule 6(c) provides for the deduction of freight from the total turnover of a dealer. It must, therefore, necessarily follow that in arriving at the taxable turnover of a dealer under the provisions of the T.N.G.S.T. Act read along with the Rules made thereunder, the freight charges will have to be deducted. Similarly, under rule 6(cc) all amounts falling under the head "charges for packing, that is to say, cost of packing materials and cost of labour" will have to be deducted. This is to be so when packing charges are charged for by the dealer separately without including such amounts in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 6(c) excludes freight and charges for delivery from the taxable turnover, though freight and charges for delivery are separately itemised in rule 6(c) and that the delivery charges were the contractual ex-factory price and has to be treated as part of the price itself and therefore to be excluded from the taxable turnover (sic). In State of Tamil Nadu v. Parry Co. [1976] 38 STC 122 this Court held that merely because freight is shown separately in the bill, the dealer is not entitled to deduct the amount from the taxable turnover under rule 6(c) of the T.N.G.S.T. Rules, 1959. In order to claim deduction of freight, not only the freight will have to be shown and separately charged in the bill, but there should be evidence to show that it was not included in the price in the bargain made between the dealer and the purchaser. If the bargain between the parties was for payment at a particular price, the mere fact that the dealer had bifurcated the price and shown the total amount under separate headings would not enable the dealer to get the deduction of the freight from the total taxable turnover. No contention has been taken by the department in these cases that the bargain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges relating to labour. The present rule 6(cc) is identical with the original rule 6(f) which the Supreme Court had to interpret in this connection. It was however argued by the learned counsel for the department that in any event excise daty on packing materials could not be included for the purpose of deduction from the total turnover under rule 6(cc). We do not agree. Admittedly, the assessees in all these cases are not manufacturers of cement bags. They are buying jute bags for packing cement from others. The cost of packing materials, which in the case of these assessees, are the jute bags, will include not only the actual price charged for by the dealers of jute bags, but also the excise duty paid by such dealers of cement in respect of jute bags and collected from the assessee. As we have already observed, while dealing with an identical question under the provisions of the C.S.T. Act, so far as the assessees are concerned, the consideration paid by them for the jute bags is the total cost for the same. When they buy jute bags from the dealers, they do not pause to consider how much of the consideration is made up of the actual price of the jute bags and how much of i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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