Karnataka High Court
Visvesvaraya Iron & Steel Ltd. vs Deputy Commissioner Of Commercial ... on 20 September, 1990
Equivalent citations: [1991]83STC305(KAR)
JUDGMENT M.P. Chandrakantharaj Urs, J.
1. These three sales tax revision petitions arise out of the common order dated March 31, 1984, passed by the Karnataka Appellate Tribunal in Sales Tax Appeal Nos. 123, 124 and 125 of 1983. The questions raised for our determination in these revision petitions are also common. They are as follows :
"1. Whether, on the facts of the case, the Tribunal wrongly applied the ratio of the Madras decision reported in [1977] 39 STC 443 (Natarajan and Sons v. State of Tamil Nadu) and failed to correctly apply the ratio of the decision of the Honourable Supreme Court of India (Hindustan Sugar Mills Ltd. v. State of Rajasthan) in a situation where the nature of the transition between the parties negatived the intention to effect sale of the container together with the contents and this has resulted in denying to the appellant the deduction it was entitled to under Rule 6(4)(ff) of the Rules ?
2. Whether, on the facts of the case, the exercise of power under section 25-A of the Act was illegal and impermissible when there was no apparent mistake on the face of the record ?"
2. The fact leading to these revision petitions may be stated as follows :
These revision petitions relate to three different assessment years, 1972-73, 1973-74 and 1974-75. The petitioner-assessee is M/s. Visvesvaraya Iron & Steel Ltd., Bhadravati, which, among other things, is a manufacturer of cement. For the relevant assessment years, the assessee-company claimed deduction under rule 6(4)(ff) of the Karnataka Sales Tax Rules, 1957, of the cost of packing material together with the labour charges for packing provided thereunder. That came to be allowed by the Assistant Commissioner of Commercial Taxes (Assessment), Mysore, by his order dated February 25, 1976, with reference to the year 1973-74. However, his successor-in-office found such allowance or deduction out of the total turnover of the amount spent by the assessee-company on packing material in the sale of cement was impermissible and constituted an error of law and, therefore, proposed to rectify the same under sector 25-A of the Karnataka Sales Tax Act, 1957. Notice in that behalf calling upon the assessee-company to show cause was issued and the assessments concluded were reopened and rectified in the light of the decision rendered by the High Court of Madras in the case of Natarajan and Sons v. State of Tamil Nadu [1977] 39 STC 443 in which the High Court of Madras had held that sale of kerosene in tins impliedly included the sale of the container and as such the cost of container was not liable to be computed out of the total turnover under rule 6(cc)(i) of the Tamil Nadu General Sales Tax Rules, 1959, which is in pari materia with Rule 6(4)(ff) of the Karnataka Sales Tax Rules.
3. We see from the order of the Appellate Tribunal, which dismissed the appeals before it, that the same proposition was laid down by the Madras High Court earlier in the case of Madras Cements Limited v. State of Madras [1973] 31 STC 221. It would be useful to extract the passage relied upon by the Tribunal in the course of its judgment and it is as follows :
"....... Where a manufactured product has to be necessarily bottled, packed or bagged after the sale and the dealer undertakes to transport the goods and deliver the same to the buyer or where the expenditure for packing is incurred as an incident of the sale, then the packing charges shown separately in the bills should be excluded from the taxable turnover. But if the charges for packing, bottling or bagging are a component of the price of the commodity itself and the expenditure is incurred by the dealer as a necessary concomitant of trade prior to the sale and before the goods are made available to the customer then such expenses would not come within the meaning of charges for packing and - delivery."
4. It is common knowledge that during the relevant assessment years, cement was declared to be a controlled commodity and its sale and distribution were controlled by order made by the Government of India under the provisions of the Industries (Development and Regulation) Act, 1951. Under the provisions of the order so made, price of cement was fixed from time to time and that price was uniform throughout India. The components of such sale price itself was provided in the order. One such component of the price fixed under the Cement Control Order, 1967, was the cost of the packing material. Therefore, it is obvious that cement was envisaged as a controlled commodity and it could not be sold without containers for consumption of the general public. In that view of the matter, sale of cement in bags impliedly included the sale of the bags themselves for which the consumer had paid. If that is the correct position, pressing into service rule 6(4)(ff) to compute out the turnover relating to the cost of packing material was clearly an error of law which could be rectified under section 25-A of the Act. If that power is exercised and the assessment rectified (we may mention here, due to some unfortunate error, the rectified assessment order of the original assessing authority has not been produced and in its place the original assessment order, which was rectified, has been produced), the second question really does not arise for our consideration at all.
5. In regard to the first question Mr. A. N. Jayaram, learned counsel for the petitioner, placed strong reliance upon certain observations made by the Supreme Court in the case of Hindustan Sugar Mills Ltd. v. State of Rajasthan . We do not think those observations have any relevance to the facts of the case. In Hindustan Sugar Mill's case , the Supreme Court was essentially concerned with whether freight charges could be a matter of contract between the manufacturer/dealer of cement and the purchaser having regard to the Cement Control Order and the provisions thereunder. If one of the components for fixation of price was the freight charge fixed by the Government, then that could not be passed on to the purchaser, as the same was foisted on the manufacturer and made liable to bear that charge despite contracting contrary to the provisions of law. Therefore, it came to the conclusion on the facts of the case that the plea that freight charges should be excluded from the taxable turnover, as it did not form part of the sale price, was negatived by the Supreme Court. It is from the very same case we take support, because clause (9) of the Cement Control Order specifically provided for four components to arrive at the price at which cement should be sold by the manufacturer. They were :
"(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 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.
6. Therefore, pursuant to the Cement Control Order, the assessee-company was supplying the containers (the cement bags) along with the cement and the sale of cement resulted in the incidental sale of the bags as well impliedly. Therefore, once the cost of bags had been recovered from the purchaser as part of the sale price, then there was no way by which it could be excluded from the sales turnover of the assess-company in regard to sale of cement.
7. Therefore, we do not find any error in the order of the appellate authorities as well as the original assessing authority which rectified the order under section 25-A.
8. We, therefore, dismiss these revision petitions.
9. In the circumstances of the case, there will be no order as to costs.
10. Petitions dismissed.