Hindustan Sugar Mills Vs. State of
Rajasthan & Ors [1978] INSC 143 (22 August 1978)
BHAGWATI, P.N.
BHAGWATI, P.N.
TULZAPURKAR, V.D.
CITATION: 1978 AIR 1496 1978 SCC (4) 271
CITATOR INFO :
F 1980 SC 346 (3,4) F 1980 SC 952 (2,3) C
1981 SC1681 (1) RF 1981 SC1887 (2,5,16,17) RF 1986 SC 649 (34) RF 1986 SC1556
(16)
ACT:
Sale Price, under section 2(p) of the
Rajasthan Sales Tax Act, 1954 and Section 2(h) of Central Sales Tax Act,
1956-whether, in sales of cement effected under the Cement Control Act and Control
Act-Distinction between contract of sale for destination railway station' and a
'contract where price alone is so'.
HEADNOTE:
The appellant assessee owned a cement factory
known as Udaipur Cement Works at Udaipur. During the assessment year 1971-72
and 1972-73, the sale of cement was controlled under the Cement Control order,
1967, issued by the Central Government, in exercise of the powers conferred by
Sections 18 and 25 of the Industries (Development and Regulation) Act. 1951.
Clause 7 of the Control Order specified a retention price of Rs. 161.40 per
metric tonne for cement manufactured by all producers, other than those
Mentioned in items 1 to 5 of the schedule, which included the assessee.
Tho 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", plus "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 clause 8 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
clauses (4) at the destination point".
During the relevant assessment years the
assesses entered into diverse contracts of sale of cement with purchasers at
the price of Rs. 214.65 per metric tonne, "free on rail destination
railway station" plus packing charges plus excise duty. These contracts
were on the terms and conditions set out in the form of "General terms and
conditions of supply" adopted by the assessee. The assessee, in fulfillment
of these contracts, despatched cement to the purchasers at various destinations
by rail and the railway receipts were made out on the 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
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.
277 In the assessment of the assessee to
sales tax under the Rajasthan Sales A Tax Act, 1954 and the Central Sales Tax
Act, 1956, the Sales Tax Authorities took the view that the amount of freight
formed part of the "sale price" and was, therefore, liable to be
included in the turnover of the assessee for the purposes of assessment of
sales tax. The assessee challenged the correctness of the view by filing a Writ
petition in the High Court of Rajasthan, but the High Court agreed with the
view taken by the Sales Tax Authorities and held that since under clause 8 of
the Control order, the price payable by the purr- chasers was of destination
price, the amount of freight included in it formed part of 'sale price Dismissing
the appeals, the Court
HELD: 1. By reason of the provisions of the
Cement Control order 1967, which governed the transactions of sale of cement
entered into by the assessee with the purchasers, 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.
[296 D- E]
2. (a) The Control order is paramount; it has
over- riding 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 and any such term or conditions to
the extent to which it is in conflict with the provisions of the control order
would stand excluded. It is a statutory order having binding force and effect
and it must govern the transactions of sale of cement entered into by the
assessee with the purchasers.
[292 C, 293 B-C, 295 A] (b) The Control order
is designed to ensure availability of cement at a uniform prise throughout
India irrespective of the distance from the place of manufacture and clause 8
of the order provides a maximum price of Rs. 214.65 per metric tonne for.
destination railway station at which a producer may sell cement manufactured by
him. It was at this maximum price of Rs. 214.65 per metric tonne for.
destination railway station that, in pursuance of this clause, the assessee
sold cement to various purchasers.
The price was clearly inclusive of freight.
[292 D-E] li' (c) Under the scheme of the Control order the freight is paid by
the producer who then recovers it from the purchaser. Clause 9 clearly
contemplates that the for destination railway station price would be realised
by the producer, four the excess of such price over the retention price and
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, there-
fore, to be realised by the producer from the purchaser and that postulates
that it is the producer who pays the freight to the railway authorities. The
proviso to clause. (9) makes this doubly clear by providing that "the
expenditure incurred by the producer on freight.... shall be reimbursed to the
producer and again clause (II) uses the expression" ....paying or
equalising the expenditure incurred by the producer on freight". [294 A-C]
(d) When the producer pays the freight, he does so because, as between him and
the purchaser, he is liable to pay the freight and he then recovers it as part
of the price. [294 D-E] 278 (e)If the obligation to pay the freight were on the
purchaser, the amount of freight would obviously be deducted from the for.
destination railway station price in the invoice and only the balance would be
realised by the assessee. There would be no question of the assessee realising
the amount of freight from the purchaser because the purchaser would have paid
the freight in discharge of the own liability and the assessee would have no
claim to recover it from the purchaser. Then, the terms of clause 9 proviso to
that clause and claue 11 of the Control order would not be satisfied. It would
not be possibie to give effect to clause 9, if what is realised by the assessee
is not the for. destination railway price but that price less the amount of
freight. The assessee also would not be able to 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. [294 E-G] (f ) 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 for. 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 deemed to be excluded by. it. [294 H, 295 A]
3. (a) The definition of Sale Price in
section 2(p) of the Rajasthan Sales Tax Act, 1954 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 and therefore, the concept of real
price or actual price retainable by the dealer would be irrelevant. The test
would be. what was the consideration that passed from the purchaser to the
dealer for the sale of the goods. The only relevant question to ask being what
was the amount paid by the purchaser to the dealer as consideration for the
sale and not as to what was the net consideration retainable by the dealer, it
would be immaterial to enquire as to how the amount of consideration was made
up, whether it included excise duty or sales tax or freight. [286 D, F-G] The
amount of sales tax payable by a dealer, whether included in the price or added
to it as a separate item as is usually the case, forms part of the "sale
Price". It is payable by the purchaser to the dealer is part of the
consideration for the sale of the goods and hence falls within the first part
of the definition. And so would be the case regarding the amount of freight and
handling charges.
It would be payable by the Purchaser not
under any statutory or other liability but as part of the consideration for
sale of the goods and it would therefore form part of "sale price"
within the meaning of the first part of the definition. [287 A-D, 288 D-F] M/s.
George oakes (P) Ltd. v. The State of Madras, XII S.T.C. (S.C.) 476; Dyer
Meakin Breweries Ltd. v. Sales Tax Officer., Ernakulam, XXVII S.T.C. (S.C.) 120
applied.
Sri Sundararajan & Co. Ltd. v. The State
of Madras (VIII S.T.C. Mad. 105); Paorika Ltd. and Anr. v. Board of Trade
(1944) 1 All. E.R. 372; Love v. Norman Wright (Builders) Ltd. [1944] 1 All.
E.R. 618; referred to.
279 (b) In a contract of sale for.
destination railway station, the delivery of At goods to the purchaser would be
complete at the destination railway station and till then the risk would
continue to remain with the dealer. The agreed price being inclusive of the
freight, it would be a matter of indifference to the purchaser as to what was
the amount of freight paid by the dealer. 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 'freight to pay' and request the purchaser to
pay the freight at the time of taking delivery of the goods from the railway at
the destination railway station and give the purchaser credit for the amount of
the freight against the agreed price. The latter would merely be a convenient
mode of paying the agreed price. Though the purchaser can very well refuse to
accept the railway receipt which is not 'freight prepaid', but freight to pay',
he ordinarily, as a reasonable businessman would, accept such a railway receipt
and pay the amount of freight o l behalf of the dealer. When the purchaser,
pays the amount of freight, in such a case.
it would be as part of the agreed price and
not as freight vis-a-vis the dealer. The amount of freight paid by the purhaser
and shown in the bill as deducted from the agreed price would, therefore,
clearly form part of 'sale price' and fall within the first part of the
definition. [288 G-H, 289 A-E] (c) In a case, where the contract of sale is not
for.
destination railway station, but the price
alone is so, the contract would not have all the incidents of for.
destination railway station 'contract', but merely
the price would be stipulated on that basis The terms of such a contract may
provide that the delivery shall be complete when the goods are put on rail and
thereafter it shall be at the risk of the purchaser. Such a stipulation would
make the railway agent of the purchaser for tailing delivery of the goods. The
freight in such a case would be payable by the purchaser though the price
agreed upon is for. destination railway station. The price of the goods
receivable by the dealer would. in that even, be the for. destination railway
station-price less the amount of freight payable by the purchaser That would be
the consideration payable by the purchaser to the dealer for the sale of the
goods and the amount of freight being payable by The purchaser would not be
included in the 'sale price' within the meaning of the first part of the
definition. The position would be the same even if the dealer pays the freight
and obtains railway reeeipt "freight pre-paid" and claims the full for.
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 disburse(l by the dealer
and hence it would not form part of the 'sale price'. [289; G-H, 290 A-C]
Hyderabad Asbestos Central Products Ltd. v. State of Andhra Pradesh XXIV S.T.C.
(S.C.) 487; Tungabhadra Industries Ltd. Kurnool v. Commercial Tax Officer
Kurnool (XI STC 827); explained.
4. The second part of the definition enacts
an inclusive clause and 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 anything done
by the dealer in respect or the goods at the time of or before the delivery
thereof'. is to be regarded as part of the 'sale price', even if it does not
fall within the first part of the definition. But there is an exception carved
out of this inclusion Not 280 all sums charged for something done by the dealer
in respect of the goods at the time of or before the delivery thereof are
covered by the inclusive clause. The cost of freight or delivery or the cost of
installation certainly represents an amount charged for transportation or
installation of the goods at the time of or before the delivery thereof and
would, there for, fall within the inclusive clause on its plain terms but it is
taken out by the exclusion clause, "other than the cost of freight or
delivery or the cost of installation in case where such cost is separately
charged".
[295 C, F] (b) This exclusion clause does not
operate as an exception to the first part of the definition. it merely enacts
an exclusion out of the inclusive clause and takes out something, which would
otherwise be within the inclusive clause. Obviously, therefore, this exclusion
clause can be availed of by the assessee only it the State, seeks to rely on
the inclusive clause 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'.
In the instant case, since the amount of the freight forms part of the 'sale
price' within the meaning of the first part of the definition, 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. [295 F-H, 296 A] (c) Even if the exclusion
clause were read as an exception to the first pal-t of the definition which,
cannot be done, it cannot avail the assessee. It is only there the cost of
fl-eight 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 fright 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
have no application. [296 A-C] Observation:
(a) In respect of the assessee's several
transactions of cement with the Central Government through the Director General
of Supplies and Disposals, the opinion given by the law Department of the
Government of India viz., "that freight was not part of 'sale price'
within the meaning of the definition of that term and hence no sales tax would
be payable by the assessee on the amount of frieght`' was not.
correct and was unjustified. [296 E-H] (b) As
this statement misled the assessee into not claiming the amount of sales tax on
the freight component on the price from the Central Government in the
circumstances fairness and justice demand that the Central Government, should
pay to the assessee the amount of sales tax on the freight component of the
price in respect of transactions of sale of cement entered into by the assessee
with them under the provisions of the control order. [297 A-C] 281
CIVIL APPELLATE JUDRISDICTION: Civil Appeal
No. 1122 of 1976.
From the Judgment and order dated 10-9-1976
of the Rajasthan High Court in D. B. Civil Writ Petition No. 1080 of 1976.
V. M. Tarkunde, V. K. Shinghal, N. N. Goswamy
and Arvind Minocha for the appellant in C.A. No. 1122 of 1976.
F. S. Nariman, Y. S. Chitale A. K.
Srivastava, V. Bhasin, C. V. Francis and Vineet Kumar for the appellant in C.A.
No. 1122 of 1976 S. J. Sorabjee, L. N. Sinha, S. M. Jain, S. C. Bhandari and B.
B. Singh for the respondents in both the appeals.
Anantha Babu and A. Subba Rao for the
intervener in C.A. No. 1122 of 1976 The Judgment of the Court was delivered by
BHAGWATI, J. These appeals by special leave raise an interesting question of
law relating to the applicability of the definition of "sale price"
in section 2(p) of the Rajasthan Sales Tax Act, 1954 and 2(h) of Central Sales
Tax Act, 1956. The question is whether in sales of cement effected under the
Cement Control order 1967, the amount of freight forms part of the "sale
price" so as to be exigible to Sales Tax under these Acts. The facts
giving rise to these appeals are in material respects identical and hence it
would be sufficient if we state the facts of Civil Appeal No. 1122 of 1976
which was argued as the main appeal before us The appellant in this appeal is
Hindustan Sugar Mills Ltd. (hereinafter referred to as the assessee). The
assessee owns a cement factory known as Udaipur Cement Works at Udaipur in
Rajasthan and it manufactures and sells cement to purchasers both inside and
outside Rajasthan. The appeal relates to assessment of the assessee to sales
tax under the Rajasthan Sales Tax Act, 1954 and the Central Sales Tax Act"
1956 for the assessment years 1971-72 and 1972-73. During these assessment
years the sale of cement was controlled under the Cement Control order, l 967
(hereinafter referred to as the Control order). The Control order was issued by
the Central Government in exercise of the powers conferred by sections 18G and
25 of the Industries (Development and Regulation) Act, 1951. Clause (7) of the
Control order provided that the ex-factory prices admissible to the producer
for the different varieties of cement shall be as specified in the Schedule and
the Schedule, as it stood at the material time, specified a retention price of
Rs. 161.40 per metric tonne for cement manufactured by all producers other than
282 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".
Clause (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 respect of such
transaction by way of sale of cement effected by him, pay within one month of
the close of the month in which 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 realised by him 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) a selling agency commission calculated
at the rate of Rs. 3.00 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 or the containers under the first proviso to clause 8: r
Provided that the expenditure incurred by the producer on freight by the
cheapest mode of transport or where any other mode of transport has been
specified by the Central Government under clause 4, by such mode of transport
in respect of such transactions shall be reimbursed to the producer by the Controller
from out of the Cement Regulation Account referred to in clause 11.
* * * * * 283 11 . Cement Regulation Account
A (1) The Controller shall maintain an account to be known as the Cement
Regulation Account to which shall be credited the amounts paid by the producer
under clause 9 and such other sums of money as the Central Government may,
after due appropriation made by Parliament by law in this behalf, grant from
time to time.
(2) The amount credited under sub-clause (l)
shall be spent only for the following purposes, namely:
(i) paying or equalising the expenditure
incurred by the producer on freight in accordance with the provisions of this
order;
(ii) equalising concession, if any, granted
in the matter of price for supplies to Government or for purposes of export
under the third proviso to clause (iii) expenses incurred by the Controller in
discharging the functions under this order subject to such limits, if any, as
may be laid down by the Central Government in this behalf." Clause (14)
which is the last clause laid down the procedure for making claims for payment
from the Cement Regulation Account. It provided that "every producer shall
make an application regarding his claim for any reimbursement towards
equalising freight or equalising concession in the matter of export price to
the Controller who may, in settling the 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 any
where 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 alongwith selling
agency commission the rate of Rs. 3.00 per metric tonne, packing charges and
excise 2-526SCI/78 284 duty. This result was achieved by providing that the producer
should hand over to the Controller the excess of the "free on rail
destination railway station" price including packing charges and excise
duty realised by him over the retention price, selling agency commission,
packing charges and excise duty and he should then be re-imbursed the amount of
expenditure actually incurred by him on freight by the cheapest mode of
transport. This would leave, with the producer the retention price together
with the selling agency commission, packing charges and excise duty and also
reimburse him the actual freight paid by him.
During The relevant assessment years, the
assessee entered into diverse contracts of sale of cement with purchasers at
the price of Rs. 214.65 per metric tonne 'free on rail destination railway
station" plus packing charges and excise duty. These contracts were on the
terms and conditions set out in the form of 'General terms and conditions of
supply" adopted by the assessee. A copy of the "General terms and
conditions of supply'` was handed over to us by the learned counsel appearing
on behalf of the assessee at the hearing of the appeals and it was not disputed
on behalf of the State that these were the general terms and conditions on
which contracts were entered into by the assessee with the purchasers. Clauses
5, 8 and l l of the "General terms and conditions of supply" were strongly
relied upon on behalf of the assessee and we shall, therefore, set them out in
extenso:
5. Although the price of cement is on the
basis of FOR. destination railway station consignments will nevertheless be
despatched "freight to pay" and credit afforded in our Bill for the
amount of freight payable.
The purchaser should accordingly arrange to
pay Railway freight/Road transport charges at the destination at the time of
taking delivery
8. Once the consignment is handed over to the
Carrier and a receipt is obtained, the responsibility of the Company ceases.
The Company does not accept any liability for any delay. shortage, damage or
loss of goods in transit. Claim should be lodged with the Carriers by the
Buyers directly
11. In respect of any claim for over charge
of freight, the purchaser shall put up claim with the concerned Railway
authorities.
The assessee, in fulfilment of these
contracts, despatched cement to the purchasers at various destinations by rail
and the railway receipts were made out on the basis of "freight to
pay". The invoices sent by the assesse,- 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 285
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 railway or the carriers concerned". The purchasers
received the railways receipts from the banks against payment of the amounts of
the invoices and thereafter took delivery of the cement despatched by the
assessee after making payment of the railway freight.
The question arose in the assessment of the
assessee to sales tax under the Rajasthan Sales Tax Act, 1954 and the Central
Sales Tax Act, 1956 as to whether the amount of freight deducted from the free
on rail destination railway station price (hereinafter for the sake of brevity
referred to as FOR.. destination price) in the invoices made out by the assessee
and paid by the purchasers formed part of the "sale price" within the
meaning of the definition of that term in section 2(p) of Rajasthan Sales Tax
Act, 1954 and section 2(h) of the Central Sales Tax Act, 1956. The Sales Tax
Authorities took the view that the amount of freight formed part of the
"sale price" and was, therefore, liable to be included in the
turnover of the assessee for the purpose Of assessment of Sales Tax. The assessee
challenged the correctness of this view by filing a writ petition in the High
Court of Rajasthan but the High Court agreed with the view taken by the Sales
Tax Authorities and held that since under clause 8 of the Control order, the
price payable by the purchasers was FOR. destination price, the amount of
freight included in it formed part of the "sale price".
The assessee thereupon preferred Civil Appeal
No. 1122 of 1976 after obtaining special leave from this Court.
It will thus be seen that Civil Appeal No.
1122 of 1976 is directed against the judgment of the Rajasthan High Court which
has taken a view against the assessee. The other appeal, namely, Civil Appeal
No. 1310 of 1976 which has been heard along with Civil Appeal No. 1122 of 1976
has been filed by the assessee directly against an adverse order made by the
assessing authorities but the question in that appeal is the same as in Civil
Appeal No. 1122 of 1976. It must be conceded straightaway that the question is
not free from difficulty 286 and there is a sharp divergence of opinion amongst
different High Courts, with an almost equal number of High Courts ranging on
either side. But fortunately there are two decisions of this Court which throw
some light on this question. We shall refer to them in due course.
Though we are concerned in these appeals with
assessments made under both Rajasthan Sales Tax Act, 1954 and Central Sales Tax
Act, 1956, it would be sufficient to refer only to the provisions of the
Rajasthan Sales 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 turn over, subject to the provisions of
that Act. "Taxable turnover" is defined in section 2(s) to mean that
part of the "turnover" which remain 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 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".
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.
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 287 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
addition to the coffers of the dealer, as it would go to reimburse him in
respect of the excise duty already paid by him on the manufacture of the goods.
But even so, it would be part of the 'sale
price' because it forms a component of the consideration payable by the
purchaser to the dealer. It is only as part of the consideration for the sale
of the goods that the amount representing excise duty would be payable by the
purchaser.
There is no other manner of liability,
statutory or otherwise, under which the purchases would be liable to pay the
amount of excise duty to the dealer. And, on this reasoning, it would make no
difference whether the amount of excise duty is included in the price charged
by the dealer or is shown as a separate item in the bill. In either case, it
would be part of the 'sale price'. So also, the amount of sales tax payable by
a dealer, whether included in the price or added to it as a separate item as is
usually in case, forms part of the 'sale price'. It is payable by the purchaser
to the dealer as part of the consideration for the sale of the goods and hence
falls within the first part of the definition. This position is now well
settled as a result of the decision of this Court in M/s George Oakes (Pvt.)
Ltd. Versus The State of Madras & ors. (XII STC 476) whether the view taken
by Madras High Court in Sri Sundararajan & Co. Ltd. Versus The State of
Madras (VIII STC 105) was approved. There S. K. Das, J., speaking on behalf of
the Court, approved of the following observations of Lawrence, J., in Paprika
Ltd. & Anr. Versus Board of Trade (1944) 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 the price is expressed as 'x' plus purchase tax." The learned Judge
also quoted with approval what Goddard, L.J., said in Love. Norman Wright
(Builders) Ltd. [(1944) 1 All E.R. 6181:
"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 288
offers goods for sale, it is for him to quote a price which includes the tax if
he desires to pass it on to the buyer. If the buyer agrees to the price, it is
not for him to consider how it is made up or whether the seller has included
tax or not.'` and summed up the position in the following words:
"So far as the purchaser is concerned, he
pays for the goods what the seller demands, namely, the price eve though it may
include tax. That is the whole consideration for the sale and there is no
reason why the whole amount paid to the seller by the purchaser should not be
treated as the consideration for the sale and included in the turnover."
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 the 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 he. payable by the purchaser not under any
statutory or other liability 'out as part of the consideration for the sale of
the goods and it would, therefore, Form part of 'sale price' within the meaning
of the first part of the definition. This position is also well settled having
regard to the decisions of this Court in Dyer Meakin Breweries Ltd.
v. sales Tax officer, Ernakulam (XXVII STC
120).
We may now take another example which is very
much near to the one which we have already discussed. The dealer may, instead
of transporting the goods from his factory or his place of business and selling
them there, enter into a contract of sale FOR.. destination railway 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 distination railway- station and till then the risk
continues to remain with 289 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 freight to pay" and request the purchaser
to pay the freight at the time of taking delivery of the goods from the railway
at the destination railway station and give the purchaser credit for the amount
of the freight against the agreed price. The latter would merely be a
convenient mode of paying the agreed price. Since it is the obligation of the
dealer to deliver the goods free on rail destination railway station, the
dealer is liable to pay the freight s between him and the purchaser and the
purchaser can very well refuse to accept the railway receipt which is not
"freight pre-paid" but "freight to pay". But he may, ordinarily
as a reasonable businessman he would, accept such railway receipt and pay the
amount of freight on behalf of the dealer. When the purchasers pay the amount
of freight in such a case, it would be; as part of the agreed price and not as
freight vis-a-vis the dealer. The amount of freight paid by the purchaser and
shown in the bill as deducted from the agreed price would, therefore, clearly
form part of "sale price" and fall within the first part of the
definition.
This would plainly and indubitably be the
position where the con- tract of sale entered into by the dealer is FOR..
destination railway station. But here it is necessary to bear in mind a rather
important distinction.
There may be a case where the contract of
sale may not be FOR.. destination railway station, but the price alone may be
so. Where such is the case, the contract does not have all the incidents of a FOR.
destination railway station contract, but merely the price is stipulated on
that basis.
The terms of such a contract may provide that
the delivery shall be complete when the goods are put on rail and thereafter It
shall be at the risk of the purchaser. Such a stipulation would make the
railway agent of the purchaser for taking delivery of the goods. The freight in
such a case would be payable by the purchaser though the price agreed upon is FOR..
destination railway station. The price of the goods receivable by the dealer
would, in 290 that event, he the FOR.. destination railway station price less
the amount of freight payable by the purchaser. That would be the consideration
payable by the purchaser to the dealer for the sale of the goods and the amount
of freight being payable by the purchaser would not be included in the 'sale
price' within the meaning 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 FOR.. 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
(XXIV STC 487) 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 lo 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 1.. assessment of the appellant to sales tax whether the
amount of freight formed part of the 'sale price' and was, therefore,
includible in the turnover of the appellant. The terms of the contracts with
the customers were in a printed form and clauses (4) and (16) thereof provided
as follows: (4) The prices of the said productions supplied to the stockists
shall be the current general gross list price charged by the company Free on
rail, less such discount as may be fixed by the company from time to time (16)
" the date of delivery shall mean the date of the railway receipt and in
the case of consignment sold free on rail destination, the railway freight
shall be nevertheless payable by the stockists at the destinations and the
amount of freight should on the railway receipt shall be deducted from the
invoice of the company`'. It will be seen that under clause (4) the price of
the goods was stipulated to be "the current general gross list price
charged by the company free on rail", but clause (16) made it clear that
"the date of delivery shall mean the date of the railway receipt" and
though the goods may be sold free on rail destination, "the railway
freight shall nevertheless be payable by the stockists at the destinations and
the amount of freight shall be deducted from the invoice of the company"
The combined reading of clauses (4) and (16) clearly 291 showed that it was only
the price which was FOR.
destination and the delivery to the customers
was complete as soon as the. goods were put on rail and payment of freight was
the obligation of the customers as between them and the appellant. That is why
Shah, J., speaking on behalf of the Court said: "If clause (4) stood alone
the price charged by the company may be deemed to be the catalogue rate less
the discount payable to the purchasers. But by clause (16) the purchasers
clearly undertook to pay railway freight which was deducted from the invoice
made out by the company. By clause (16) the company received the catalogue rate
less the railway freight as price of the goods sold. We are unable to agree
with the High Court that "the term relating to the price in the contract
between the company and the stockists envisaged by this clause [clause (16)]
implies a obligation on the part of the company to pay the railway
freight". In our judgment, under the terms of the contract, there is no
obligation 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 Versus Commercial Tax officer Kurnool (XI
STC 827). What happened in this case was that the appellant sold and dispatched
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 Rule 5(1) (g) of the
turnover and Assessment Rules which provided that in determining the net
turnover of a dealer, he shall be entitled to a deduction of "all amounts
falling under the following two heads, when specified and charged for by the
dealer separately, without including them in the price of the goods sold: (i)
freight;(ii) This Court held that the deduction claimed was not permissible
since the conditions for the applicability of Rule 5(1) (g) were not satisfied.
It was pointed out that it was clear from the
contents of the specimen invoice produced by the appellant that "the
appellant has charged a price inclusive of the railway freight and would
therefore be outside 292 the terms of Rule 5(1) (g) which requires that in
order to enable dealer to claim the deduction it should be charged for
separately and not included in the price of goods sold.
The conditions of the rule not having been
complied with, the appellant was not entitled to the deduction in respect of
freight." Here the freight was payable by the appellant because the price
was inclusive of the freight and there was no stipulation in the contract, as
in the Hyderabad Asbestos Cement Company's case, that the delivery to the
purchaser shall be complete when the goods are put on rail or that the payment
of freight shall be the obligation of the price. And it did not make any
difference to this position that the freight was not initially paid by the
appellant but was paid by the purchaser and given credit for against the agreed
'freight inclusive' price in the invoice.
Now, in the light of this discussion, let us
turn to examine the facts of the present appeals. The Control order here
becomes very mate rial. It is a statutory order having binding force and effect
and it must govern the transactions of sale of cement entered into by the
assessee with the purchasers. The Control order is designed to ensure
availability of cement at a uniform price throughout India irrespective of the
distance from the place of manufacture and clause (8) provides a maximum price
of Rs. 214.65 per metric tonne FOR. destination railway station at which a
producer may sell cement manufactured by him. It was at this maximum price of
Rs. 214.65 permetric tonne FOR.
destination railway station that, in
pursuance of this clause, the assessee sold cement to various purchasers. The
price was clearly 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 railway. If there
were over- charge 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 invoice produced by the assessee also made
293 it clear that the responsibility of the assessee for shortage, loss, delay
or damage shall cease as soon as the goods are delivered at the Work Siding and
all such claims may be preferred by the purchaser against the railway and in
case excess freight has been charged, the purchaser shall be entitled "to
lodge claim with the railways". It would, thus, be seen that according to
these provisions 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. This would by the position apart from the provisions of the Control
order and on this position, there can be doubt, for reasons already discussed,
that the amount of freight would not form part of the 'sale price'. But we have
to consider the impact of the proivsions of the Control order, for these
provisions having statutory force and authority have overriding effect and the
terms and conditions of the contract to the extent to which they conflict with
these provisions must be held to be excluded.
Let us, therefore, examine the impact of the
relevant provisions of the Control order on the terms and conditions of the contract.
lt is clear from the scheme of the Control
order that the price chargeable by a producer is contemplated to be Rs. 214.65
per metric tonne FOR. destination railway station.
This of course is the maximum price at which
a producer may sell cement and theoretically, or course, there is nothing to
prevent him from selling it at a lower price, but it is assumed by the Central
Government that in a seller's market where there is scarcity of supply, the
producer will sell at the maximum price permitted to him under the Control
order and that is the basis on which the machinery of Cement Regulation Account
is worked out in the Control order. This machinery would become unworkable and
at the least it would require the Central Government to subsidies the Cement
Regulation Account in a large way, if every producer were to sell cement at a
price lower than Rs. 214.65 per metric tonne FOR. destination railway station.
It is, therefore, obvious that though the Control order merely provides the
maximum price of Rs. 214.65 per metric tonne For.
destination railway station at which a
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 for 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 294 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, exclude them.
Clause (9) clearly contemplates that the For.
destination railway station price would be realised by the producer, for the
excess of such price over the retention price and 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
producer who pays the freight to the railway authorities. The proviso to clause
(9) makes this doubly clear by providing that "the expenditure incurred by
the producer on freight-shall be reimbursed to the producer" and again
clause (11) uses the expression" -paying of equalising the expenditure
incurred by the producer on freight". It is, therefore, clear that under
the scheme of the Control order the freight is paid by the producer and he then
recovers it from the purchaser. But that does not conclude the controversy. The
question still remains: When the producer pays the freight, does he do so
because, as between him and the purchaser, He is liable to pay the freight and
he then recovers it as part of the price or the obligation to pay the freight
is on the purchaser and the producer pays it on behalf of the purchaser and
then recovers it by way of reimbursement.
We are of the view that the former, and not
the latter, represents the correct legal position. If the obligation to pay the
freight were on the purchaser and in fact the purchaser paid the freight, as
happen ed in both the cases before us in respect of every transaction of sale
of cement, the amount of freight would obviously be deducted from the FOR.
destination railway station price in the invoice and only the balance would be
realised by the assessee. There would be no question of the assessee realising
the amount of freight from the purchaser because the purchaser would have paid
the freight in discharge of his own liability and the assessee would have no
claim to recover it from the purchaser. Then how would the terms of clause ( 9
), proviso to that clause and Clause (11) of the Control order be satisfied ?
How would it be possible to give effect to clause (9) if what is realised by
the assessee is not the fpr. 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 flight is payable by the producer and the recovers it from the purchaser at
part 295 the FOR. 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 be prevail, notwithstanding any term or
condition 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 anything done by the dealer in
respect of the goods at the time of or before the delivery thereof' is to be
regarded as part of 'sale price', even if it does not fall within the first
part of the definition. But there is an exception carved out of this inclusion.
Not all sums charged for something done by the dealer in respect of the goods
at the time of or therefore the delivery thereof are covered by the inclusive
clause.
The cost of freight or delivery or the cost
of installation certainly represents an amount charged for transportation or
installation of the goods at the time of or before the delivery thereof and
would, there- fore, fall within the inclusive clause on its plain terms but it
is taken out by the exclusion clause, "other than the cost of freight or
delivery or the cost of installation in case where such cost is separately
charged". This exclusion clause does not operate as an exception to the
first part of the definition.
It merely enacts an exclusion out of the
inclusive clause and takes out something which would otherwise be within the
inclusive clause. Obviously, therefore, this exclusion clause can be availed of
by the assessee only if the State seeks to rely on the inclusive clause 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 296 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 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 have 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 through the Director General of Supplies and Disposals and when the
assessee claimed to recover the amount of sales tax in respect of these
transactions from the Central Government on the basis that freight was part of
'sale price`, the Director General of Supplies and Disposals pointed out to the
assessee that the Law Department of the Government of India had advised them
that freight was not part of 'sale price' within the meaning of the definition
of that term and hence no sales tax would be payable by the assessee on the
amount of freight and the assessee was, therefore, not justified in claiming to
recover the amount of sales tax from the Central Government. The assessee, in
view of this statement made on behalf of the Central Government, did not press
its claim to recover the amount of sales tax on the freight component of the
price from the Central Government. Now, it appears clearly from this judgment
that the opinion given by the Law Department of the Government of 297 India was
not correct and the statement made on behalf of the Government of India that no
sales tax will be payable by the assessee on the amount of freight was
unjustified. There can be no doubt that this statement misled the assessee into
not claiming the amount of sale-tax on the freight component of the price from
the Central Government. We think that, in the circumstances, fairness and
justice demand that the Central Government should pay to the assessee the
amount of sales tax on the freight component of the price in respect of
transactions of sale of cement entered into by the assessee with them under the
provisions of the Control order. It is true and we are aware that there is no
legal liability on the Central Government to do so, but it must be remembered
that we are living in a democratic society governed by the rule of 'law and
every Government which claims to be inspired by ethical and moral values must
do what is fair and just to thus citizen. regardless of legal technicalities.
We hope and trust that the Central Government will not seek to defect the
legitimate claim of the assessee for reimbursement of sales tax on the amount
of freight by adopting a legislatic attitude but will do what fairness and
justice demand. After all, the motto of every civilized State must be:
"Let right be done'.
We accordingly confirm the judgment of the
Rajasthan High Court in Civil Appeal No. 1122 of 1976 and the order of the
Sales Tax authority in Civil Appeal 1310 of 1976 and dismiss both the appeals
with no order as to costs.
S.R. Appeals dismissed.
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