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Gordon Woodroffe and Company (Madras) Private Limited Vs. the State of Tamil Nadu - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberTax Case No. 339 of 1975 and Revision No. 57 of 1975
Judge
Reported in[1979]44STC485(Mad)
AppellantGordon Woodroffe and Company (Madras) Private Limited
RespondentThe State of Tamil Nadu
Appellant AdvocateS.V. Subramaniam, Adv. for ; Subbaraya Aiyar, ;Padmanabhan and ;Ramamani, Advs.
Respondent AdvocateK. Venkataswami, Additional Government Pleader
Cases ReferredGordon Woodroffe & Co. (Madras) P. Ltd. v. State of Tamil Nadu
Excerpt:
.....came to the conclusion that where a dealer specified in the bill of sale the total amount of the price of the goods sold, then deducted from this amount the railway freight and showed the balance as the sum on which sales tax was computed, the dealer had charged a price inclusive of the railway freight and he would not be entitled to the deduction under rule 5(1)(g). the facts of the case are not very clear from this pronouncement of the supreme court obviously because the facts were clearly stated in the judgment of the high court. , sundry items of scraps, car spare parts, condemned frigidaire and sewing machine. ansari [1976]3scr661 and contended that the volume, frequency, continuity and regularity of transactions of sale and purchase must be satisfied in order that a person could..........be attracted, there must be a local purchase of raw hides and skins and a local sale of the tanned hides skins. this was what was meant and dealt with is clear from the following sentence in that decision:if the dealer is able to prove the above fact with reference to his account books, then the assessing officer is obliged to revise the assessment and bring to tax such of those raw hides and skins as are still in stock as such with the dealer under item 7(a) and treat the rest of the stock converted into dressed skins and sold during the year under item 7(b) . . . 15. 'under item 7(b)' can only refer to sales of the nature and character indicated under item 7(b) of the second schedule, which must necessarily relate to what is mentioned in column (3), which refers to point of levy. under.....
Judgment:

P. Govindan Nair, C.J.

1. This is a revision taken by the assessee to sales tax from the order of the Sales Tax Appellate Tribunal. Counsel on behalf of the revision petitioner urged three points before us. We shall deal with them seriatim.

2. The first submission was that the Tribunal erred in fixing the turnover of the revision petitioner by including the freight charge. The exclusion of the turnover relating to freight was urged in two ways. Reliance was placed first on Rule 6(c)(i) of the Tamil Nadu General Sales Tax Rules, 1959. It was also submitted that, apart from Rule 6(c)(i), 'freight' did not form part of the price of the goods sold and, therefore, cannot form part of the turnover either. Rule 6 provided that, in determining the taxable turnover, the amounts specified therein shall, subject to the conditions specified therein, be deducted from the total turnover of a dealer. The particular clause with which we are concerned states:

(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; . . . shall be excluded from the total turnover.

3. This rule, on a reading of it proceeds on the basis, as is clear from what is stated earlier, that freight would form part of the total turnover because the direction is that freight be deducted from the total turnover of the dealer. There is some ambiguity in this regard. To be included in the turnover, freight must necessarily form part of the price for which the goods were sold. The latter part of the rule insists, however, that freight should not be included in the price of the goods sold and it must be specified and charged for by the dealer separately. The expression is 'without including them in the price of the goods sold'. To give sense to this rule, we have to understand this as meaning that even in cases where the freight formed part of the price, it can be excluded from the total turnover in cases where it is specified and charged for separately and by not including it in the price of the goods sold. In other words, by merely mentioning in the invoice the price of the goods sold separately and by charging for freight separately, even if the two together really formed part of the price of the goods sold, the exemption can be claimed. The submission of counsel is that these conditions have been satisfied in this case. We are not dealing with this argument of counsel because we feel that the argument on the second point has to be accepted in view of the pronouncement of the Supreme Court in the decision in Hyderabad Asbestos Cement Products Ltd. v. State of A.P. The facts considered by the Supreme Court are identical to that with which we have to deal with here. That the invoice included the cost as well as the freight is admitted. It is not also separately shown there. Reliance has been placed on the terms of business. The clause relating to deliveries provides thus:

The conditions of any railway receipt shall be binding on the buyer and 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 buyer at the destination and the amount of freight shown on the railway receipt shall be deducted from the invoice of the company.

4. There was a similar provision in the agreement of sale which was construed by the Supreme Court in Hyderabad Asbestos Cement Products Ltd. v. State of A.P. , the terms of the contract as contained in Clauses (4) and (16) are extracted, which are in these terms:

. . . (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.

5. The Supreme Court referred to the definition of 'turnover' in Section 2(s) of the Andhra Pradesh General Sales Tax Act and Section 5 of that Act as well as the expression 'total turnover'. It is stated that 'total turnover' is the aggregate of the consideration received for the sale or purchase of goods inclusive of any sums charged by the dealer for anything done in respect of the goods sold at the time of or before the delivery of the goods. After adverting to the terms of the contract and the provisions in the statute, the Supreme Court observed:

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 stockist envisaged by this clause [Clause (16)] implies an 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

6. In view of a provision similar to Clause (16) of the agreement construed by the Supreme Court, in the case before us, we too have to hold that the price did not include the freight that was payable by the buyer though it was stated that it was 'free on rail destination'.

7. However, it is contended by the counsel on behalf of the revenue that it is the decision of the Supreme Court in Tungabhadra Industries Ltd. v. Commercial Tax Officer [1960] 11 S.T.C. 827 that must be applied and that case is distinguishable from the one before us. The Supreme Court was considering therein whether Rule 5(1)(g) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, was attracted or not. The Supreme Court came to the conclusion that where a dealer specified in the bill of sale the total amount of the price of the goods sold, then deducted from this amount the railway freight and showed the balance as the sum on which sales tax was computed, the dealer had charged a price inclusive of the railway freight and he would not be entitled to the deduction under Rule 5(1)(g). The facts of the case are not very clear from this pronouncement of the Supreme Court obviously because the facts were clearly stated in the judgment of the High Court. Only the questions of law were discussed. When we turn to the facts disclosed, as seen from the judgment of the High Court, it is evident that there was no term of contract in that case similar to Clause (16) of the agreement considered by the Supreme Court in Hyderabad Asbestos Cement Products Ltd. v. State of A.P. and similar to the term regarding 'deliveries' in Clause (6) of the terms of business in the case before us. The following sentence from the decision of the High Court in Tungabhadra Industries Ltd. v. Commercial Tax Officer [1955] 6 S.T.C. 259 makes the position clear:

If, on the other hand, the price stipulated for a commodity is inclusive of the freight on the understanding that the goods would be delivered at the place of the buyer free of freight, as seems to be the case here, it will form an integral part of the turnover.

8. Evidently, therefore, in the case in Tungabhadra Industries Ltd. v. Commercial Tax Officer : [1961]2SCR14 , the goods were delivered at the place of buyer free of freight. This is a vital distinction between the case in Tungabhadra Industries Ltd. v. Commercial Tax Officer : [1961]2SCR14 and the case before us which is on all fours with the decision in Hyderabad Asbestos Cement Products Ltd. v. State of A.P. We, therefore, follow the latter decision and hold that the amount of freight is not includible in the total turnover of the assessee as the freight did not form part of the price payable for the sale.

9. The second contention raised by the counsel with which we are concerned relates to scrap. The assessee is engaged in the business of manufacture of hides and skins and other items. They have sold various items such as drums and containers, gunny bags, iron scraps, brass scraps, etc., sundry items of scraps, car spare parts, condemned frigidaire and sewing machine. All these items of sale related to goods that were handled by the assessee is not disputed. Prima facie, the position is as indicated in State of Tamil Nadu v. Burmah Shell Co. Ltd. : [1973]2SCR636 decided by the Supreme Court.

10. The counsel for the revision petitioner, however, relied on the decision of the Supreme Court in Board of Revenue v. Ansari : [1976]3SCR661 and contended that the volume, frequency, continuity and regularity of transactions of sale and purchase must be satisfied in order that a person could be said to be carrying on the business of selling goods. The question therein was whether the forest department of the Government of Andhra Pradesh was carrying on the business of selling various items of forest produce. The court, after considering the facts, came to the conclusion that the Government cannot be said to be carrying on the business. No such question arises before us.

11. Admittedly, the assessee is carrying on a business. If its activity relating to the sale of the commodities, which we have mentioned above, amounts to an activity incidental to the business under the terms of the definition of 'business', as amended, and contained in Section 2(d)(ii), it (the assessee) will be carrying on a business and, when the definition of the term 'dealer' contained in Section 2(g) is read with the definition of the word 'business', it is clear that the assessee would be a dealer and under Section 3, the assessee will be liable to tax. Section 2(d)(ii) mentions 'any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern'. It was with reference to this provision that the Supreme Court in State of Tamil Nadu v. Burmah Shell Co. Ltd. : [1973]2SCR636 observed:

The sale of scrap in these appeals, which, as we have said earlier, consisted of spoiled drums, hose pipes, etc., were all held to be connected with the business of the company. This finding is a finding of fact but even otherwise the very nature of the particular scrap prima facie would indicate that they are connected with the business of the company. The assessee being an oil company has to use oil drums, hose pipes, jerry cans, etc., as part of its trading activity and any sale of these unserviceable goods as scrap is a transaction connected with its trade or commerce.

12. The sale of items, to which we have already referred to, stands on the same footing. Drums and containers, gunny bags, iron scraps, brass scraps, etc., sundry items of scraps, car spare parts, sewing machine, etc., also formed part of what became useless for the purpose of the business of the assessee and are connected with the business of the assessee and the sale of those items will be a transaction connected with the business and will form part of the business of the assessee. The price received for those items also would have to be included in its turnover. We, therefore, negative this contention advanced on behalf of the assessee by the counsel.

13. The only remaining item with which we are concerned relates to raw hides and skins admittedly purchased by the assessee. It is also admitted that the assessee was the last purchaser of those raw hides and skins. After purchasing the raw hides and skins, they were tanned by the assessee and it is said that those tanned hides and skins were sold in inter-State transactions.

14. From these facts, the counsel contended that when once raw hides and skins had been converted into tanned hides and skins, the tax imposed on raw hides and skins by item 7(a) of the Second Schedule to the Tamil Nadu General Sales Tax Act, 1959, is shifted to the latter transaction of sale of the tanned hides and skins. The assessee got inspiration for this contention from the decision of this Court in Sadak Thamby & Co. v. Appellate Assistant Commissioner of Commercial Taxes [1969] 24 S.T.C. 468. We are not called upon, with great respect, to consider the correctness or otherwise of the decision for we think that decision related to a case where both items 7(a) and 7(b) of the Second Schedule to the Act were attracted. For items 7(a) and 7(b) to be attracted, there must be a local purchase of raw hides and skins and a local sale of the tanned hides skins. This was what was meant and dealt with is clear from the following sentence in that decision:

If the dealer is able to prove the above fact with reference to his account books, then the assessing officer is obliged to revise the assessment and bring to tax such of those raw hides and skins as are still in stock as such with the dealer under item 7(a) and treat the rest of the stock converted into dressed skins and sold during the year under item 7(b) . . .

15. 'Under item 7(b)' can only refer to sales of the nature and character indicated under item 7(b) of the Second Schedule, which must necessarily relate to what is mentioned in column (3), which refers to point of levy. Under that heading, it is mentioned 'at the point of first sale in the State'. This means that item 7(b) will be attracted only in cases where dressed hides and skins are sold in the State and, in order that item 7(b) may be attracted, there must be first sale in the State. Such a contingency does not arise in this case. So, we need not consider the judgment in Sadak Thamby & Co. v. Appellate Assistant Commissioner of Commercial Taxes [1969] 24 S.T.C. 468.

16. More appropriate is the decision of this Court reported in Gordon Woodroffe & Co. (Madras) P. Ltd. v. State of Tamil Nadu [1977] 40 S.T.C. 130. This Court came to the conclusion in this decision that tanned hides and skins being only the subject-matter of inter-State sales with which it was concerned, they were not subject to any tax under item 7(b) since item 7(b) dealt with only local sales, and the assessee was not entitled to exemption under Notification G.O. No. 3602, Revenue, dated 28th December, 1963. This Court held that tanned hides and skins being a different commodity from raw hides and skins, there is no question of the notification being made applicable.

17. Whatever that be, the liability to pay tax from the last purchase of raw hides and skins is attracted immediately on the last purchase having been effected. Even if those raw hides and skins are tanned thereafter, we are not able to discern any provision in the Act or the Rules which would enable the assessee to contend that the tax chargeable on the purchase of raw hides and skins on the basis that the dealer was the last purchaser in the State can be removed or substituted. We, therefore, negative this contention put forward on behalf of the assessee.

18. In the above discussion, in respect of all the three points raised by the revision petitioner, we have held in favour of the assessee on the first point relating to 'freight' and we have held against the assessee in relation to the turnover represented by what we call 'scrap' and with regard to the liability to tax by the purchase of hides and skins. The revision petitioner has won on one point and has lost on the other two points. We direct the parties to bear their respective costs.


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