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The State of Tamil Nadu Vs. Chettinad Cement Corporation Limited - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberTax Case No. 180 of 1972 (Revision No. 159 of 1972)
Judge
Reported in[1976]38STC519(Mad)
AppellantThe State of Tamil Nadu
RespondentChettinad Cement Corporation Limited
Appellant AdvocateK. Govindarajan, Additional Government Pleader No. I
Respondent AdvocateG. Natarajan, Adv.
DispositionPetition allowed
Cases ReferredTungabhadra Industries Ltd. v. Commercial Tax Officer
Excerpt:
- - ). in case of transport of cement by road through road transport contractors, they are responsible for safe transit and correct delivery of goods. these provisions, in our opinion, clearly show that the price to be charged is free on rail the destination price and the cost of transport from the place of manufacture to the destination would have to be borne by the producer-seller and not by the buyer. in fact, it is not possible to clearly predicate at to what exactly the amount of price that was included in fixing the selling price at rs. the form prescribed under the cement control order also clearly shows that the total amount realised on sale is the amount from which the aggregate of the amount specified in clause 9 would have to be deducted and the producer could get.....v. ramaswami, j.1. the respondent-assessees are manufacturers of cement. for the assessment year 1969-70, they reported a total and taxable turnover of rs. 1,56,72,484.29 and rs. 1,33,32,751.23. the only point in dispute in this tax revision case related to a sum of rs. 14,04,131.29, which represented the freight charges. on the ground that they have separately specified and charged freight in their invoices, they claimed deduction of this turnover from the taxable turnover. the assessing officer and the appellate assistant commissioner rejected this claim holding that the disputed turnover formed part of the price realised for the cement sold and that, therefore, it is includible in the taxable turnover. but, on a further appeal, the tribunal purporting to follow the decision of the.....
Judgment:

V. Ramaswami, J.

1. The respondent-assessees are manufacturers of cement. For the assessment year 1969-70, they reported a total and taxable turnover of Rs. 1,56,72,484.29 and Rs. 1,33,32,751.23. The only point in dispute in this tax revision case related to a sum of Rs. 14,04,131.29, which represented the freight charges. On the ground that they have separately specified and charged freight in their invoices, they claimed deduction of this turnover from the taxable turnover. The assessing officer and the Appellate Assistant Commissioner rejected this claim holding that the disputed turnover formed part of the price realised for the cement sold and that, therefore, it is includible in the taxable turnover. But, on a further appeal, the Tribunal purporting to follow the decision of the Supreme Court in Hyderabad Asbestos Cement Products Ltd, v. State of Andhra Pradesh ., allowed the appeal and held that the disputed turnover could not be included in the taxable turnover.

2. The supply and distribution of cement is regulated by the Cement Control Order, 1967, promulgated by the Central Government in exercise of their powers under the Industries (Development and Regulation) Act, 1951. Under clause 7 read with the First Schedule to this Order, the Central Government had fixed an ex factory price admissible to the producer for different varieties of cement as the retention price. Clauses 8, 9, 11(1) and 11(2), which are relevant for the purpose of this case, read as follows:

8. Price at which producer may sell. -- No producer shall, himself or by any person on his behalf, sell- --

(a) rapid hardening cement and low heat cement at a price exceeding Rs. 174.00 per metric tonne ;

(b) any other variety of cement at a price exceeding Rs. 151.00 per metric tonne; free on rail destination railway station plus the excise duty paid thereon :

Provided that in the case of packed cement there shall be added to the price referred to in this clause such charges as may be fixed by the Central Government in respect of packings or the containers and the Central Government may fix different charges for different kinds of packings or containers, as the case may be :

Provided further that the Central Government may allow rebate, discount or commission in the price of cement sold to the Government through the Director-General of Supplies and Disposals or intended for export out of India.

Explanation, -- For the purposes of this 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.

9. Payments to Cement Regulation Account. -- 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 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) a selling agency commission calculated at the rate of Rs. 1.25 per metric 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 :

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 transaction shall be reimbursed to the producer by the Controller from out of the Cement Regulation Account referred to in clause 11.

11. Cement Regulation Account. -- (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 (1) shall be spent only for the following purposes, namely:

(i) paying or equalising the expenditure incurred by the producer on freight in accordance wish 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 second proviso to clause 8;

(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.

3. It may be mentioned that at the relevant period in 1969-70, the prices fixed for the variety of cement falling under clause 8(b) was Rs. 129.13 and the sum of Rs. 151.00 which is found in the extracted provision above was introduced only with effect from 15th September, 1973. It may be seen from these provisions that the producers are bound to sell cement at a uniform rate of Rs, 129.13 per metric tonne free on rail the destination to all the dealers, irrespective of the distance of the destination station from the place of manufacture. It is stated that this uniform rate is arrived at after a careful study of the freight variations and finding out a pooled average freight irrespective of the distance.

4. In addition to these provisions, the sale and purchase of cement is also governed by an agreement between the manufacturer-seller and the purchaser, the terms of which are to be found in the purchase order and the terms and conditions of acceptance. The relevant clauses of this acceptance order, which were relied on by the learned counsel for the assessees, are clauses 5, 9, 10 and 14(a). As the construction of these clauses are also involved in the question for consideration, they are extracted below:

5. Delivery. -- In the case of transport by rail cement will be delivered to the consumers at the works railway siding. In the case of transport by road, cement will be delivered at the works site at buyers' risk and responsibility.

9. Price. -- Standard rate ruling on the date of despatch of cement. 10. Transit risk. -- Even though the price is f. o. r. destination (and not ex works or f. o. r. works) the seller's responsibility for any loss of, shortage in/or damage to cement during transit and/or at the destination ceases from the time delivery is made by the works to the carriers and a clean railway receipt obtained from the goods (sic) at the works. A clean railway receipt shall be deemed to include a railway receipt which contains the endorsement 'sender's weight accepted' (s. w. a.) and/or 'loading and unloading of by owners' (1. & w.) but which does not contain the endorsement 'said to contain' (s.c.). In case of transport of cement by road through road transport contractors, they are responsible for safe transit and correct delivery of goods. Complaints, if any, should be preferred with the road transport contractors direct.

14. Freight. -- (a) All consignments whether sold f. o. r. destination or otherwise will be booked 'freight to pay' and the railway freight shall be paid by the buyer to the railway. Credit for the correct freight will be allowed by the seller in the bill but siding or other charges at destination will be payable by the buyer(s) on his/their own account.

5. It is also necessary now to set out a typical form of invoice and the covering letter sent along with that invoice in order to understand the argument of the learned counsel for the assessees. They are as follows :

Chettinad Cement Corporation Ltd., Puliyur(Trichy District, S. India).(Regd. Office, Catholic Centre,6, Armenian Street, Madras-1). Dated: 17-1-1970.M.M. Mohamed Saleh,178, Gandhi Road, Arkonam (N.A. Dist)Dear Sirs,We advise having despatched the following quantity of our 'Chettinad'Brand Portland Cement packed in new/second hand D.W. heavy cess gunny bags under railway risk and encloseR/R No. Inv. No Date Destination755379 18 17-1-70 ArkonamIndentor's name : M.M. Mohamed SalehOrder No. Cs/ms/st/62---------------------------------------------------------------------Wagon C/C Tare No. of Tonnes Tonnes Ry. Receipt Wt. Rate perNo. Bags Kg. actual charged quintalquintal quintal withfreightproportionsRs. P.----------------------------------------------------------------------WRC 21.9 10.8 473 23.650 238.87 239.00 2.2462200----------------------------------------------------------------------MGST. No. 12331 CST. No.3233 Quantity already Despatched Balance todespatched as per this be dis-advice -patched---------------------------------------Nil 23.650 1.350----------------------------------------------------------------------Note : -- Our responsibility ceases from the time delivery is made by theworks to the carriers. Any claim for loss, shortage or damage must be made against carriers.'

The other irrelevant portions are omitted.

The invoice enclosed along with the above covering letter is as follows: 'Chettinad Cement Corporation Limited,6, Armenian Street, Madras. Dated : 17 -- 1 -- 1970

M.M. Mohamed Saleh, 178, Gandhi Road, Arkonam (N.A. Dist.).

Dr. to Chettinad Cement Corporation Ltd.

Interest at the rate of 12 per cent per annum will be charged on all accounts unpaid 15 days from date of delivery. Every care is taken in packing and despatching goods but our responsibility for shortage, loss, delay or damage ceases after delivery at works siding. All such claims should be preferred against the carriers, i. e., railways, road transport contractors, etc.-----------------------------------------------------------------The cheque in respect of this billshould be drawn in favour of or Quantity Metric Tonnesorder duly crossed, account supplied 23.650payee only-----------------------------------------------------------------Mode of transport By Rail Rate per M. T. Amount-----------------------------------------------------------------To value of 'Chettinad' Brand 129.13 3,053.92Portland neat cement.Plus excise duty and surcharge 30.68 725.58--------3,779.50For ARKONAMLess stockist's discount allowedby C. C. C. 1.25 29.56---------- 3,749.94Plus Madras S. T. at 6 per cent on Rs. 3,749.94 225.00Plus Central S. T.Plus charges for packing cement in473 jute bags 25.55 604.26--------- 4,579.20Less freight paid by you 584.00---------3,995.20

Thiru Natarajan, the learned counsel for the assessees, in an able and persuasive argument contended that clause 8 of the Cement Control Order only deals with the price factor, but leaves matters other than the price fixed thereunder for negotiation and agreement between the parties and it does not in any way fetter the rights of the seller to charge freight separately within the maximum price of Rs. 129.13 prescribed under clause 8(b). According to the learned counsel, clauses 5, 10 and 14 of the terms of acceptance which form the contract between the parties and the covering letter read with the invoices showed that the parties agreed for the price to be paid as for ex factory price with the liability on the part of the buyer to pay the freight separately, though the sum total of these figures should not exceed Rs. 129.13 per tonne fixed under the Control Order. In this connection, the learned counsel also relied on the decision of the Supreme Court reported in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh .. Having given our careful and anxious consideration, we are unable to agree with this contention of the learned counsel. Under clause 8 of the Control Order, no producer shall sell the cement at a price exceeding Rs. 129.13 per metric tonne free on rail destination railway station plus excise duty paid thereon. Under clause 9, from the total realised price the aggregate of the retention price, the selling agency commission, the excise duty paid and the cost of packing should be deducted and the balance should be remitted to the Cement Regulation Account created under clause 11 of the Order. The proviso to clause 9 states that the expenditure incurred by the producer on freight shall be reimbursed to him by the Controller. These provisions, in our opinion, clearly show that the price to be charged is free on rail the destination price and the cost of transport from the place of manufacture to the destination would have to be borne by the producer-seller and not by the buyer. In fact, it is not possible to clearly predicate at to what exactly the amount of price that was included in fixing the selling price at Rs. 129.13 since even a dealer purchasing and taking delivery, ex factory, had to pay the same rate per metric tonne similar to a person who is far away from the place of manufacture. Except to say that in fixing the free on rail destination price, the freight element had also been taken into account, it cannot be said that the price represented the ex factory price plus the actual freight. The clauses in the agreement between the parties relied on by the learned counsel also do not show that there was any variance so far as the payment of price is concerned. Clauses 5 and 10 extracted above only deal with the risk in transport. By agreement of parties, they provided for a deeming delivery to the purchaser at the works railway siding and fixed the responsibility for the loss or damage during transit on the purchaser. Since clauses 7, 8 and 9 of the Control Order deal with only the price factor, these clauses in the agreement which provide for the risk during transit, is in no way inconsistent with the provisions. Clause 14 also, in our opinion, provides for a liability on the part of the purchaser to meet the freight charges in the first instance with an obligation on the part of the seller to give credit for the same in the bill for the goods sold. We are unable to agree with the learned counsel for the respondents that clause 14(a) permits the assesses to charge a price less the freight and pass on the liability to pay freight to the purchaser. Since clause 8 of the Cement Control Order prohibits a producer from selling at a price exceeding Rs. 129.13 per metric tonne free on rail the destination, the parties could not agree for a variation of that clause. We have, therefore, to interpret clause 14(a) in the agreement in the light of the provisions of the Cement Control Order, So interpreted, we have no doubt that under clause 14, the purchaser had agreed to meet the freight charges in the first instance and not for a price excluding the freight. The invoice and the covering letter also do not help the learned counsel for the assessees. It is true that in the covering letter, the freight 'to pay' is separately mentioned and in the invoice also from the total amount payable, freight paid is deducted. But this, in our view, is only to facilitate the easy working of the proviso to clause 9 of the Cement Control Order. We have noticed already that the expenditure incurred by the producer on freight shall be reimbursed to him as provided in the proviso to clause 9. We have also noticed that in certain cases where delivery has to be effected locally, the producer might not have incurred any expenditure at all on freight. In order to claim reimbursement, the freight had to be shown separately in the covering letter of the invoice. The form prescribed under the Cement Control Order also clearly shows that the total amount realised on sale is the amount from which the aggregate of the amount specified in clause 9 would have to be deducted and the producer could get reimbursement only of the amount of actual freight incurred. On a reading of .these provisions, therefore, we are of the view that the price at which the producer could have sold and in fact agreed to sell is Rs. 129.13 per metric tonne free on rail the destination railway station and not free on rail the despatching station.

6. The learned counsel for the assessees strongly relied on the decision of the Supreme Court in Hyderabad Asbestos Cement Products Ltd, v. State of Andhra Pradesh . In that case, the assessee who was a manufacturer of asbestos cement sheets, in order to meet the competition in the trade, voluntarily maintained a uniform catalogue rate all over the country in respect of the goods manufactured by him. The goods were despatched to out-station customers under railway receipts with freight 'to pay'. The invoices were made at the catalogue rate and the purchasers paid the amount of the invoices less the freight paid by them. The result of it was the net price realised by the company was the catalogue rate less the railway freight charged in respect of the goods transported to the destination. Clauses (4) and (16) of the terms of the contract on which the relationship of the parties were determined read as follows :

(4) The price 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 ; but the terms and the times of delivery and the payments therefor shall be in the absolute discretion of the company who may vary the same from time to time.

(16) The conditions of any railway receipt shall be binding on the stockists and the date of delivery shall mean the date of the railway receipt and in the case of consignments sold free on rail destination, the railway freight shall be nevertheless payable by the stockists at the destinations and the amount of freight shown on the railway receipt shall be deducted from the invoice of the company.

7. Though the Supreme Court observed that if Clause (4) stood alone, the price charged by the company might be deemed to be the catalogue rate, in view of Clause (16) it was held :

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 the sale of goods is the invoice amount less the freight.

8. It may also be pointed out that in repelling the argument that the invoice showed free on rail destination price and that, therefore, the price was inclusive of the railway freight, the Supreme Court observed that the form in which the invoice is made out is not determinative of the contract between the company and its customers. Thus, the Supreme Court held that the freight is not included in the price solely on the ground that clause 16 specifically provided for the liability to pay the freight on the part of the purchaser and not the seller. We have already noticed that under the Cement Control Order, an all-inclusive price free on rail destination was fixed irrespective of the fact whether there was any actual incurring of expenditure on freight in any particular case. The producer is also made specifically liable to pay the freight. We are, therefore, of the view that the decision in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh . is not applicable. We may also add that this was the view taken by the Patna High Court in Commissioner of Commercial Taxes v. Ashoka Marketing Ltd. [1973] 32 S.T.C. 411., by the Madhya Pradesh High Court in Birla Jute Mfg. Co. Ltd. v. Commissioner of Sales Tax [1972] 29 S.T.C. 639 and by the Mysore High Court in State of Mysore v. Panyam Cements and Mineral Industries Ltd. [1974] 33 S.T.C. 407. The learned counsel also relied on the decision of the Andhra Pradesh High Court in K.C.P. Limited v. Government of Andhra Pradesh [1972] 29 S.T.C. 507. It is true in this decision, though it related to a case coming under the Cement Control Order, a Division Bench of the Andhra Pradesh High Court applied the decision in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh . and held that the transport charges are not includible in the taxable turnover. We may point out that there is not much of discussion and even if it were to be taken as an authority, with great respect to the learned Judges, we differ from the same. The decision of a learned single Judge of this court in Ramco Cement Distribution Co. P. Ltd. v. Deputy Commercial Tax Officer, Rajapalayam [1974] 33 S.T.C. 180, also proceeded on the assumption that the decision in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh . was applicable and that, therefore, that could not also be called in assistance by the assessees. It may also be mentioned that the uniform catalogue rate maintained by the company in the Asbestos case . was one prepared voluntarily and not under any law or regulation. It was, therefore, open to them in individual cases to modify or agree for a modification of the prices. Clause 16 of the agreement in that case would, therefore, have to be considered as a modification of the uniform catalogue rate prescribed. On the other hand, the price payable to be on the basis of free on rail destination as provided under the Cement Control Order is binding on the parties and could not be varied even by mutual consent though, of course, the price could be reduced. We are, therefore, of the view that the decision in Asbestos Cement case is not applicable to the facts of the present case.

9. It was then contended by the learned counsel that the assessees were only collecting the freight on behalf of the Controller, which is the Cement Corporation of India Limited, and remitting it in the Cement Regulation Account as provided under clause 11 and since the amount was collected by the assessees on behalf of the Cement Controller, it could not be included in the taxable turnover of the assessees. It was his case that he was entitled only to the retention price, excise duty and the cost of package and that is provided in clauses 7, 8 and 9 of the Control Order and that the liability to pay the freight charges is on the purchaser and that amount which the purchaser is obliged to pay, the producer is collecting on behalf of the Cement Controller and remitting to the Cement Regulation Account, and if in any case an expenditure is incurred by the assessee on account of freight, he should be reimbursed as provided under clause 9. In other words, the liability of the purchaser to pay the freight to the Cement Controller is collected by the assessee and that could only be on behalf of the Cement Controller and, to the extent the assessee himself incurs the freight, he is entitled to a reimbursement. In this connection, he also relied on the decision in Joint Commercial Tax Officer v. Spencer & Co. : AIR1975SC1801 . We are clearly of the opinion that this argument of the learned counsel is untenable. As we have already stated, though the free on rail destination price fixed under clause 8 takes within it the element of freight, no collection of freight is made with reference to the actual charge in respect of the transaction. Even a person who takes delivery of the same ex factory had to pay the same price thereby showing that the purchaser is not asked to pay any freight separately as if dissecting the total price fixed for free on rail destination into retention price, excise duty and packing charges into one compound and the freight differently, one payable to the seller and the other payable to the Cement Controller. Further, under the provisions in clause 9 the liability to pay the freight is on the seller and not on the purchaser. Therefore, no question of the seller collecting the amount on behalf of the Cement Controller would arise at all. The decision in Joint Commercial Tax Officer v. Spencer & Co. : AIR1975SC1801 . related to a case of tax collected under Section 21-A of the Prohibition Act. That section provided a 50 per cent tax on sale of foreign liquor and the tax is payable by the purchaser. The section also provided that the seller had to collect the amount and remit the identical amount collected to the Government. The Supreme Court in these circumstances said that the seller was acting as the agent of the Government in collecting the tax under Section 21-A. Since factually there is no basis for fixing the liability to pay the freight on the purchaser, this decision is of no assistance to the learned counsel.

10. A further attractive argument was next advanced by the learned counsel for the assessees. He submitted that though the Control Order prescribes a price free on rail destination, still he could contravene that provision and charge his customer with an ex factory price making the purchaser liable to pay the freight. In such a case, according to the learned counsel, he might be charged for violating the provisions of the Cement Control Order, but could not be said that even in a case where he charges ex factory price and freight separately, the freight is to be included in the taxable turnover. In support of this argument, the learned counsel cited the passage of Rowlatt, J., in Mann v. Nash (1932) 16 Tax Cas. 523. In dealing with the claim that a portion of the profits derived from the business of automatic machines, the use of which had been held to be illegal was immune from taxation on the ground that it had been earned by unlawful means, Rowlatt, J., observed:

The great mainstay of Mr. Field's argument, quite rightly from his point of view, was the case of Duggan (1929) I.R. 406 decided in the Irish Free State, and that decision of the Supreme Court seems to have gone upon this principle, that no construction could be admitted which recognised that the State should come forward and seem to take a profit from what the State prohibited, because the State ought to have prevented it; and it was argued, if I may venture to say so, in a somewhat rhetorical style : Does the State keep its revenue eye open and its eye of justice closed I must say, I do not Feel the force of that observation at all. Would it have made any difference, I ventured to ask in the argument, if the State had kept both its eyes open and prosecuted the man for the lottery and taxed him for the profits at the same time That would at any rate have protected the State from the reflections which were made upon it in the words I have quoted. But, in truth, it seems to me that all that consideration is misconceived. The revenue representing the State, is merely looking at an accomplished fact. It is not condoning it; it has not taken part in it; it merely finds profits made from what appears to be a trade, and the revenue laws happened to say that the profits made from trades have to be taxed, and they say: 'Give us the tax.' It is not to the purpose in my judgment to say: 'But the same State that you represent has said they are unlawful;' that is immaterial altogether and I do not see that there is any contact between the two propositions.

It was said in the Irish case (1929) I.R. 406 that allegans suam turpitudinem non est audiendus. I cannot see that the State are alleging their own turpitude; it is the appellant who is alleging his own turpitude. The State says : 'It is a business;' the appellant says : 'It is an unlawful one;' he is alleging his own turpitude.

It is said again: 'Is the State coming forward to take a share of unlawful gains ?' It is mere rhetoric. The State is doing nothing of the kind; they are taxing the individual with reference to certain facts. They are not partners; they are not principals in the illegality, or sharers in the illegality; they are merely taxing a man in respect of those resources. I think it is only rhetoric to say that they are sharing in his profits, and a piece of rhetoric which is perfectly useless for the solution of the question which I have to decide.

11. Even though the learned counsel for the assessees asserted that the realisation of the ex factory price and the freight separately is an accomplished fact, on the records available we are unable to accept the contention that the assessees collected only the ex factory price. The invoice extracted above shows that they had charged the free on rail destination price, calculated sales tax on such amount and collected the same along with the charges for packing. They had only given credit for payment of the freight by the purchaser. Even in form, the assessees had not collected the ex factory price and making the purchaser to pay the freight charges. The clauses in the acceptance of the purchase order also show that the assessee was bound to give credit for the payment of the freight and not that he is to charge the ex factory price. In fact, the purchaser seems to have no discretion to choose his own mode of transport. Whether he takes delivery ex factory or at a far off place, he is liable to pay the price as fixed under clause 8 of the Cement Control Order. We do not agree with the learned counsel that he had in violation of the Control Order charged only the ex factory price and that, therefore, the freight would have to be excluded from the taxable turnover.

12. The next part of the argument of the learned counsel is based on Rule 6(c) of the Tamil Nadu General Sales Tax Rules, 1959. That rule provided that in determining the taxable turnover '(c) 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; (iii) charges for delivery' shall be deducted from the total turnover. According to the learned counsel, the freight was specified and charged by the dealer separately and, secondly, the freight is a post sale charge and, therefore, not included in the price of the goods sold. It was his case that the assessee had collected the freight through the carrier under a separate bill and, therefore, he shall be deemed to have specified and charged freight separately. The question of specifying and charging separately would arise only if it had not been included in the price of the goods sold. Therefore, the learned counsel contended that the freight charge is a post sale liability of the purchaser and not included in the price. In this connection, he relied on explanation (3) to Section 2(n) and clauses 5 and 10 of the agreement between the parties. Section 2(n) defines a sale and the explanation (3) to that definition reads as follows :

The sale or purchase of goods shall be deemed, for the purposes of this Act, to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State --

(i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made.

13. According to the learned counsel, the element of time of sale is also contemplated under this provision and read in conjunction with clauses 5 and 10 of the agreement, which are extracted above, show that the sale was completed when the goods were put on rail in the despatching station. This contention of the learned counsel is also untenable. The purpose of explanation (3) to Section 2(n) is to fix the situs of sale for the purpose of taxation and the question as to when the sale is completed was outside the scope of explanation (3). Clauses 5 and 10 of the agreement also could not be interpreted as concluding the sale when the goods were put on rail in the despatching station. These provisions only 'deem' a delivery to the consumer at the works railway siding and fixes the responsibility for the loss or damage during transit on the purchaser. The deemed delivery referred to in clause 5 is, in our opinion, only for the purpose of fixing the responsibility for loss or damage during transit on the purchaser. The fiction created under clause 5 could not be extended beyond the purpose for which it was created. We are, therefore, of the opinion that the freight could not be stated to be a post sale charge not included in the sale price. In fact, the invoices prepared show free on rail destination price. In a similar case, Tungabhadra Industries Ltd. v. Commercial Tax Officer : [1961]2SCR14 , where a dealer specified in the bill of sale the total amount of the price of goods sold, then deducted from the amount the railway freight and showed the balance as the sum on which the sales tax was computed, the Supreme Court held that the dealer had charged the price inclusive of the railway freight and that he would not be entitled to a deduction under Rule 5(l)(g) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, corresponding to Rule 6(c) of the Tamil Nadu General Sales Tax Rules, 1959. Therefore, it could not be said that the respondenf-assessees had specified and charged for separately the freight without including the same in the price of the goods sold.

14. Yet another argument of the learned counsel for the assessees is that freight is a discount coming under paragraph (iii) to explanation (2) to Section 2(r) read with Rule 5-A(a). Certainly, the assessees are not giving any discount of freight to the purchaser. On the other hand, they collect the full amount and only give credit to the same in the invoices prepared by them. This is not a case of discount from the sale price which the assessees are entitled to deduct from the taxable turnover.

15. We are, therefore, of the opinion that the Tribunal went wrong in deleting the disputed turnover from the taxable turnover. We accordingly allow the tax revision case with costs. Counsel's fee Rs. 250.


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