1981 (12) TMI 143 - HC - VAT and Sales Tax

Court Rules on Sales Tax Treatment of Freight and Packing Charges under C.S.T. and T.N.G.S.T. Acts

The court ruled that freight charges are part of the sale price and subject to sales tax under the C.S.T. Act, while they are deductible under the ... Sale price - Definition of 'sale price' (first and second parts) - Cement Control Order, 1967 and its overriding effect - Inclusion of freight, packing charges and excise duty in sale price under statutory control - Taxable turnover and statutory deductions - Deduction of freight from taxable turnover - Deduction of charges for packing (cost of packing materials and labour)Sale price - Cement Control Order, 1967 and its overriding effect - Inclusion of freight, packing charges and excise duty in sale price under statutory control - Freight, packing charges and excise duty on packing materials are includible in the 'sale price' for computation of sales tax under the C.S.T. Act in cases governed by the Cement Control Order, 1967. - HELD THAT: - The Court applied the Supreme Court's decision in Hindustan Sugar Mills Ltd. v. State of Rajasthan and held that where the Cement Control Order, 1967 governs cement sales the statutory scheme treats the f.o.r. destination price as inclusive of transport. Clause 8 and related provisions (notably clause 9 and clause 11) demonstrate that the producer pays freight and then recovers it as part of the f.o.r. destination price; thus the freight forms part of the consideration payable by the purchaser and falls within the first part of the definition of 'sale price.' The Court further held that the same reasoning extends to packing charges and excise duty on packing materials: the total consideration paid by the purchaser, whether or not bifurcated in the invoice, constitutes the sale price and is taxable under the C.S.T. Act. The Court rejected arguments that the second limb of the definition or decisions distinguishing excise and sales tax (e.g., McDowell) take the matter outside this principle where the Control Order applies.Freight, packing charges and excise duty on packing materials must be included in the sale price and are taxable under the C.S.T. Act where the Cement Control Order, 1967 applies.Taxable turnover and statutory deductions - Deduction of freight from taxable turnover - Deduction of charges for packing (cost of packing materials and labour) - Under the T.N.G.S.T. Act (and accordingly for additional sales tax under the T.N.A.S.T. Act), freight, packing charges (cost of packing materials and labour) and excise duty on packing materials are deductible from the total turnover in computing taxable turnover where they are separately specified and charged. - HELD THAT: - The Court examined the T.N.G.S.T. Act's scheme and the Rules made thereunder. 'Turnover' under section 2(r) includes the aggregate amounts received for goods; taxable turnover is determined after making prescribed deductions. Rule 6(c) permits deduction of freight when specified and charged separately, and rule 6(cc) permits deduction of packing charges (cost of packing materials and labour) when separately charged. Where packing charges are separately shown, the cost of packing materials (including the excise duty component embedded in the price paid for jute bags) is part of the cost and is deductible under rule 6(cc). The Court distinguished the C.S.T. Act line of authority because the T.N.G.S.T. Act lacks a similar statutory definition of 'sale price' and expressly provides for these deductions by rule. Accordingly, these items are excluded from taxable turnover under the T.N.G.S.T. Rules and, consequently, are not subject to additional sales tax under the T.N.A.S.T. Act.Freight, packing charges and excise duty on packing materials are deductible from total turnover for determination of taxable turnover under the T.N.G.S.T. Act and are not subject to additional sales tax under the T.N.A.S.T. Act when separately specified and charged.Final Conclusion: The Court dismissed the tax revisions under the C.S.T. Act and held freight, packing charges and excise duty on packing materials taxable as part of the sale price where the Cement Control Order, 1967 applies; conversely, under the T.N.G.S.T. Act and T.N.A.S.T. Act those same items are deductible from total turnover (when separately charged) and are not liable to additional sales tax. Leave to appeal to the Supreme Court was granted to both sides. Issues Involved:1. Deductibility of freight charges under the C.S.T. Act, T.N.G.S.T. Act, and T.N.A.S.T. Act.2. Exclusion of packing charges from the total turnover for sales tax assessment.3. Exclusion of excise duty on packing materials from the total turnover.Detailed Analysis:1. Deductibility of Freight Charges:Issue: Whether freight charges incurred by a dealer in the despatch of cement to the place of the customer could be deducted from the total turnover under the C.S.T. Act, T.N.G.S.T. Act, and T.N.A.S.T. Act.Judgment:- C.S.T. Act: The freight charges form part of the 'sale price' within the meaning of section 2(h) of the C.S.T. Act due to the overriding effect of the Cement Control Order, 1967. The Supreme Court's decision in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 (SC) was applied, establishing that freight charges are included in the sale price and thus subject to sales tax.- T.N.G.S.T. Act: Under the T.N.G.S.T. Act, freight charges are deductible from the total turnover as per rule 6(c) of the T.N.G.S.T. Rules, provided they are specified and charged separately.- T.N.A.S.T. Act: Since the freight charges are deductible under the T.N.G.S.T. Act, they are also not liable for additional sales tax under the T.N.A.S.T. Act.2. Exclusion of Packing Charges:Issue: Whether the packing charges being the cost of the packing materials used by the dealer in packing cement for delivery to customers could be excluded from the total turnover for the assessment of sales tax.Judgment:- C.S.T. Act: Packing charges are included in the sale price under section 2(h) of the C.S.T. Act, following the Supreme Court's rationale in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 (SC). The price includes the cost of packing materials and labor charges.- T.N.G.S.T. Act: Packing charges are deductible from the total turnover under rule 6(cc) of the T.N.G.S.T. Rules, provided they are specified and charged separately.- T.N.A.S.T. Act: Packing charges are not liable for additional sales tax under the T.N.A.S.T. Act, following their exclusion under the T.N.G.S.T. Act.3. Exclusion of Excise Duty on Packing Materials:Issue: Whether the excise duty paid on packing materials used by a dealer for packing cement to be sold to customers can be excluded from the total turnover.Judgment:- C.S.T. Act: Excise duty on packing materials is included in the sale price under section 2(h) of the C.S.T. Act, as it forms part of the total consideration paid by the purchaser.- T.N.G.S.T. Act: Excise duty on packing materials is deductible from the total turnover under rule 6(cc) of the T.N.G.S.T. Rules, as it forms part of the cost of packing materials.- T.N.A.S.T. Act: Excise duty on packing materials is not liable for additional sales tax under the T.N.A.S.T. Act, following its exclusion under the T.N.G.S.T. Act.Conclusion:- C.S.T. Act: Freight charges, packing charges, and excise duty on packing materials must be included in the sale price for the computation of sales tax.- T.N.G.S.T. Act and T.N.A.S.T. Act: Freight charges, packing charges, and excise duty on packing materials are not liable to be included in the sale price for the computation of sales tax. Consequently, they are also not subject to additional sales tax under the T.N.A.S.T. Act.Orders:- C.S.T. Act Cases: T.C. Nos. 206 to 210, 450 to 452, 470 to 474, 825, 581, 583, and 586 of 1979 are dismissed.- T.N.G.S.T. Act and T.N.A.S.T. Act Cases: T.C. Nos. 31 to 37, 45 to 52, 54 to 61, 826, 827, 582, 584, 585, and 587 to 589 of 1979 are allowed.Leave to Appeal:- Both sides are granted leave to appeal to the Supreme Court due to the substantial questions of law involved.