TaxTMI 
TaxTMI 
1978 (8) TMI 186
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....ion 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 petitioner is engaged in the business of manufacturing and selling cement, which is a controlled commodity, to its purchasers in Rajasthan as well as outside Rajasthan. The sale of cement is controlled by the Cement Control Order, 1967. According to clause 8 of the Cement Control Order, the price is not to exceed the prescribed price per metric ton "f.o.r. destination". The price is, therefore, a fixed price per metric ton "f.o.r. destination" and the supplier has to bear the cost of the freight. In the invoices issued by the petitioner, th....
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....issed 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 no option but to decide the preliminary objection raised by the petitioner. This it did by its order dated 17th June, 1976. The petitioner has straightaway filed this writ petition challenging the order of the assessing authority in so far as it relates to the taxability of the railway freight under the Rajasthan Sales Tax Act, 1954. Shri S.C. Bhandari, learned counsel for the Commissioner, Commercial Taxes, raised a preliminary objection as to the maintainability of the writ petition. He submits that the writ petition, besid....
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....he 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 State of Mysore v. Panyam Cements & Mineral Industries Ltd. [1974] 33 S.T.C. 407. In our judgment. the writ petition cannot be entertained. It is not the function of the High Court under article 226 of the Constitution, in taxation matters, to constitute itself into an original authority or an appellate authority to determine the question of taxability which depends upon a precise definition of facts. Here, the assessing authority has come to a particular conclusion. The correctness of that view can be questioned in the manner ....
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....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 and the assessing authority had no option but to pass the impugned order, rejecting the preliminary objection. It is further stated that the circular is also directed to the Deputy Commissioner and, therefore, the appeal to him would be an exercise in futility. We are afraid, the learned counsel is not right in his contention. The circular issued by the Commissioner is an innocuous document. It was issued by the Commissioner, Commercial Taxes, directing the assessing authorities to collect sales tax on the full f.o.r. destination p....
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....roversy 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 Marketing Ltd.[1973] 32 S.T.C. 411., and State of Mysore v. Panyam Cements & Mineral Industries Ltd. [1974] 33 S.T.C. 407.) Though there is no decision of the Rajasthan High Court, we see no reason to take a different view. The price of the cement sold by the petitioner being f.o.r. destination was an all-inclusive price including the cost of freight till destination. The railway freight, therefore, cannot be considered as "separately charged" for the purposes of the definition of the term "sale price" as contained in section 2(p) of t....
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....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 the price, it was said: "Nevertheless, the distinguishing feature is that in the present case the sales, whether to Government buyers or to non-Government buyers, were sales of a controlled commodity. The contracts of sale were, therefore, subject to the provisions of the Cement Control Order, 1961. Under clause 6(2)(a), the price at which the State Trading Corporation could sell cement was the price fixed thereunder, from time to time, f.o.r. destination, i.e., inclusive of railway freight. That being so, the amount of freight fo....
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....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 their earlier decision. Besides, when under the contract between the parties, the assessee deducted the railway freight from the catalogue price, the price charged was not in the true sense 'f.o.r. destination'." We see no reason to take a different view. Under clause 8 of the Cement Control Order, 1967, the price at which the petitioner could sell cement was the price fixed thereunder. The price so fixed was the price "f.o.r. destination", i.e., inclusive of railway freight. That being so, the amount of freight for....
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....ed 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 intervene. If the judgment of the Madhya Pradesh High Court is reversed by their Lordships, the taxing authorities shall give to the petitioner the relief that it claims. If, on the contrary, that judgment is upheld in appeal, then the view of the assessing authority must prevail. In conclusion, we would like to stress that the assessing authorities should come to an independent conclusion of their own on the point in controversy, uninfluenced by any of the observations that we might have made in disposing of this petition. T....
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....he material time, specified a retention price of Rs. 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 Rs. 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 packing in jute bags or in any other containers. The explanation to this clause clarified that for the purpose of the Control Order, the expression "free on rail destination railway station" means "the price including the cost of transport by the cheapest mode except where any other mode of transport has been specified by the Central Government under clause 4 at the destination point". Clauses 9 and 11 provided for the creation of a Cement Regulation Account in the following terms: "9. Payments to Cement Regulation Account.-Every producer shall, in r....
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....he 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 Rs. 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 of manufacture. Now this price was worked out on the basis of average freight and since the actual freight would necessarily be more or less than the average freight depending on the distance of the place of destination from the manufacturing site, clauses 9 and 11 of the Control Order provided a machinery by which the producer could be ensured the retention price specified in the schedule along with the selling agency commission at the rate of Rs. 3.00 per metric tonne, packing charges and excise duty. This result was achieved by providing that the producer should ....
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....he 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 Rs. 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 way of deposit an amount "towards contingent liability to sales tax on railway freight to be paid by you" that is, the purchasers. Each invoice also contained a statement at the commencement that: "Every care is taken in packing and despatching goods and our responsibility for shortage, loss, delay or damage ceases after delivery at works siding. All such claims should be preferred with the railways or the carriers concerned." The purchasers received the railway receipts from the banks against payment of the amounts of the invoices and thereafter took delivery of the ceme....
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....ales 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 respect of the sale or supply of goods..." The definition of "sale price" is given in section 2(p) and, according to that definition, it means: "....the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade, but inclusive of any sum charged for any- thing done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in case where such cost is separately charged. " ....
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....lt 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 the price is express- ed as 'x' plus purchase tax." The learned Judge also quoted with approval what Goddard, L.J., said in Love v. Norman Wright (Builders) Ltd. [1944] 1 All E.R. 618.: "Where an article is taxed, whether by purchase tax, customs duty, or excise duty, the tax becomes part of the price which ordinarily the buyer will have to pay. The price of an ounce of tobacco is what it is because of the rate of tax, but on a sale there is only one consideration though made up of cost plus profit plus tax. So, if a seller offers goods for sale, it is for him to q....
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....ilway 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 price for the delivery of the goods at the destination railway station. The agreed price being inclusive of the freight, it would be a matter of indifference to the purchaser as to what is the amount of freight. Even if there is any fluctuation in the amount of freight, since the making of the contract, the purchaser would have no concern, because he is liable to pay only the agreed price which includes the freight, whatever it be. The dealer may, in such a case, pay the freight and charge the agreed price to the purchaser, or he may obtain a railway receipt on the basis of....
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....aning 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 of Andhra Pradesh [1969] 24 S.T.C. 487 (S.C.)., was given by this Court. There the appellant maintained a uniform catalogue rate all over the country in respect of its manufactures and the catalogue rate obviously included freight in transporting goods to the customers. The appellant despatched goods to the customers by rail under railway receipts with "freight to pay" and made out invoices at the catalogue rate, deducted discount from it and charged sales tax on the balance and then gave credit for the amount of freight to be paid by the customers. The question arose in the ....
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....bligation 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 hydrogenated groundnut oil to the purchasers at an agreed price which was inclusive of freight. It is not very clear from the record but it does appear that the railway receipts obtained by the appellant were on the basis of "freight to pay" and the amount of freight was paid by the purchasers and in the invoices made out by the appellant, the agreed price inclusive of freight was shown and from this the amount of freight was deducted and on the balance the amount of sales tax was computed. The appellant claimed to deduct the amount of freight from the turnover on the strength of ru....
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.... 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" incorporated in the contract provided that once the goods are handed over to the railway and a railway receipt is obtained, the responsibility of the assessee shall cease and the risk shall pass to the purchaser and, therefore, if there is non-delivery or shortage or delay in delivery, it is the purchaser who, according to this clause, shall be entitled to make a claim against the railways. If there were overcharge of freight, then again under clause (11) it is not the assessee but the purchaser who would be entitled to lodge a claim with the railway authorities. The specimen invoic....
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.... 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 Rs. 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 consider whether there is anything in the Control Order which overrides the relevant provisions of the contract bearing on this question and, by necessary implication, excludes them. Clause 9 clearly contemplates 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 and the selling agency commission is required to be paid over by the producer to the Controller in the Cement Regulation Account. The amount of freight has, therefore, to be realised by the producer from the purchaser and that postulates that it is the produce....
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....n 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 unnecessary to consider the second part of the definition, but the latter clause of the second part was strongly relied upon on behalf of the assessee to support the exclusion of the amount of freight from "sale price" and hence we must proceed to consider it. The second part enacts an inclusive clause. It says that "sale price" includes "any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in case where such cost is separately charged". Therefore, "any sum charged for anythi....
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....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 assessee with the purchasers in both the appeals before us, the amount of freight formed part of the "sale price" within the meaning of the first part of the definition of that term and was includible in the turnover of the assessee. Before we part with these appeals we think it necessary to advert to one rather unusual circumstance which has caused some anxiety to us. We were told by the learned counsel appearing on behalf of the assessee and that was not disputed on behalf of the State that the assessee had entered into a large number of transactions of sale of cement with the Central Government thro....