TaxTMI 
TaxTMI 
1981 (12) TMI 143
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.... 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 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 u....
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....nch, Madurai. The Tribunal disposed of three appeals by a common order, viz., M.T.A. Nos. 553, 556 and 589 of 1978. 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 Ceme....
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....ed by the authorities below and found that excise duty on packing materials would be eligible for deduction. Aggrieved 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 effe....
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....rom the aggregate of the sale prices, namely: (a) the amount arrived at by applying the following formularate of tax X aggregate of 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, an....
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....ll mean the price including the cost of transport by the cheapest mode, except in cases where the Central Government has specified any other mode of transport 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 c....
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.... afforded in their bill for the amount of freight payable. The purchaser should accordingly arrange to pay railway freight or road transport charges at the destination at the 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, t....
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.... to the dealer as consideration for the sale and not as to what is the net consideration retainable by the dealer." The learned judge further observed as follows: "We may then take 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 pay....
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.... 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." 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 lea....
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.... 9 if what is realised by the assessee 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 d....
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....use for the purpose of bringing a particular amount within the definition of 'sale price'. But if the State is able to show that the particular amount falls within the first part of the definition 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 n....
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....n the decision of a Full Bench of seven Judges of the Supreme Court reported in Vishnu Agencies (Pvt.) Ltd. v. Commercial Tax Officer [1978] 42 STC 31 (SC). The learned counsel contended that the said 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 Con....
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.... could be included in the sale price within the meaning of the sale price under section 2(h) of the C.S.T. Act. In our opinion the decision of the Supreme Court in Hindustan Sugar Mills Ltd. v. State of Rajasthan [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....
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....nter-State trade or commerce when the packing charges are specified and charged for separately without including them in the price of goods sold. It is admitted that this notification was cancelled by G.O.P. 7237, Revenue, dated 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....
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....ch go to make up the totality of the consideration. Our attention has been drawn to the decision in McDowell & Co. Ltd. v. Commercial Tax Officer [1977] 39 STC 151 (SC). This decision was relied on by the learned counsel to bring home 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....
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....ent dealer, whatever be his turnover for the year, shall pay a tax for each year at the rate of four per cent of his taxable turnover." The rest of the sub-section in section 3 is not relevant for our present purpose. "Turnover" in 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 dea....
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.... tax at the hands of the assessee; and (ii) whether or not such amounts are specified and charged for by the dealer separately, in respect of the goods not liable to tax at the hands of the assessee." The following principle emerges when we read sections 3, 2(p) and 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, unde....
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....d Industrial Corporation Ltd. v. State of Tamil Nadu [1976] 38 STC 511 a Bench of this Court following the ratio in Mettur Chemical and Industrial Corporation Ltd. v. State of Tamil Nadu by D.C.T.O., Omalur [1976] 37 STC 288 held that under the Tamil Nadu General Sales Tax Rules, 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, ....
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....., took the view that the price of packing materials were liable to be excluded in the sale price under the rule which prevailed then and which was identical to rule 6(f). The Supreme Court held that the charges for packing included both the price of packing materials as well as the 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 ....