Karnataka High Court
Narayani Rao vs Commissioner Of Commercial Taxes In ... on 20 January, 1994
Equivalent citations: ILR1994KAR506
Author: Shivaraj Patil
Bench: Shivaraj V. Patil
JUDGMENT Shivaraj Patil, J.
1. This civil revision petition is filed under section 23 of the Karnataka Sales Tax Act, 1957 (for short "the Act") to revise the order dated April 29, 1988, passed by the Karnataka Appellate Tribunal, in S.T.A. No. 985/86.
2. The facts of the case, briefly stated, are the following : One U. R. Venkat Rao, husband of the petitioner, was carrying on business in silica sand. He was a registered dealer under the provisions of the Act on the file of the Commercial Tax Officer, III Circle, Mangalore. He expired on March 3, 1985. It is thereafter the petitioner came on record as legal representative and the assessment proceedings were continued in her name in respect of the business carried on by her husband.
The assessment order relates to the period July 1, 1981 to June 30, 1982. While concluding the assessment, the assessing authority allowed exemption in respect of freight charges amounting to Rs. 2,83,004.48 stating that the said amount was collected as freight charges in respect of the sales made within the State representing loading, unloading and transport charges. The assessee had collected this amount by raising debit bills separately. Although this amount was not shown in the sale bills, it forms part of the total turnover. There were written agreements between the assessee and the buyers according to which price per tonne, was fixed at extraction site and transport charges for effecting delivery at buyer's premises were separately fixed. The assessee quoted the sale price at the place of extraction and transportation of the goods was the responsibility of the buyer. However, the assessee had undertaken to transport the goods at the instance of the buyer pursuant to the agreement. The dealer had charged and collected freight separately by debit note without including the same in the sale price of the goods. The transport charges were incidental to the sale and it could not be considered as inward freight or expenditure incurred before the sale or component of the price of the goods sold. Hence, the amount of transport charges collected was eligible for deduction under rule 6. Stating thus the assessing authority granted the exemption.
The Deputy Commissioner, Commercial Taxes (Administration), Mangalore Division, Mangalore - the revising authority suo motu initiated the revisional proceedings under section 21 of the Act on the ground that the assessing authority was at fault in granting the exemption in respect of the freight charges. Accordingly, the revisional authority issued a notice under section 21(2) of the Act. The petitioner filed the statement of objections against the proposed action of the revisional authority. However, the revisional authority confirmed the proposed action by passing the order under section 21 of the Act as per annexure D dated July 9, 1986 and redetermined the taxable turnover by adding back the freight charges, which was exempted by the assessing authority.
The petitioner being aggrieved by the order of the revisional authority preferred an appeal before the Karnataka Appellate Tribunal assailing the correctness of the said order. The Tribunal by its order dated April 29, 1988, dismissed the appeal and confirmed the order passed by the revisional authority. Hence, this revision petition.
3. This petition was heard by the Division Bench of this Court. The Division Bench by the order dated March 6, 1992, referred the question to the Full Bench for the reasons stated therein. The said order of reference reads thus :
"The judgment of this Court in Webbs Sales and Service (P) Ltd. v. Commissioner of Commercial Taxes [1969] 24 STC 84 was held to have been impliedly overruled, by the decisions of the Supreme Court in Dyer Meakin Breweries Ltd. v. State of Kerala and D. C. Johns B Sons (P) Ltd. v. Sales Tax Officer [1971] 27 STC 120, in the judgment of a Division Bench of this Court in Agro Private Limited v. State of Mysore [1974] 34 STC 1. Having regard to the divergence of views taken by the two Division Benches, in the case of Webbs Sales and Service [1969] 24 STC 84 (Mys) and in the case of Agro Private Limited [1974] 34 STC 1 (Kar) a reference was made to the Full Bench.
2. The question that the Full Bench considered, in Arvind Motors v. State of Karnataka [1985] 59 STC 337, read thus :
'Whether the Division Bench decision of this Court in Webbs Sales and Service (P.) Ltd. v. Commissioner of Commercial Taxes, Bangalore [1969] 24 STC 84 has been impliedly overruled by the decisions of the Supreme Court in Dyer Meakin Breweries Ltd. v. State of Kerala and D. C. Johar & Sons (P.) Ltd. v. Sales Tax Officer, Eranakulam [1971] 27 STC 120.
The Full Bench answered the question in the affirmative.
3. The Supreme Court has now delivered the judgment in Vinod Coal Syndicate v. Commissioner of Sales Tax [1989] 73 STC 317, which, prima facie, appears to take a divergent view from that taken in the cases of Dyer Meakin Breweries Ltd. and D. C. Johar & Sons (P) Ltd. [1971] 27 STC 120 (SC).
4. The judgment in Vinod Coal Syndicate [1989] 73 STC 317 (SC) construes a provision in the U.P. Sales Tax Act, which is akin to the provision in rule 6(4)(f) of the Karnataka Sales Tax Rules, 1957, and holds :
'Plainly, the Legislature intended that where the cost of freight was charged separately, that amount could not be included in the turnover of a dealer.' This statement of the law is of wide amplitude and appears to be not in conformity with the view taken by the Supreme Court earlier which appeared to restrict the exemption to freight incurred before sale.
5. The point squarely arises in the case on hand. Having regard to the fact that we perceive a difference of views in the judgments of the Supreme Court and the fact that the earlier view of this Court was overruled by the judgment of the Full Court, we think it appropriate that we should refer to the Full Bench the question that we now state :
Whether the exemption under rule 6(4)(f) of the Karnataka Sales Tax Rules, 1957, is available to a dealer in all circumstances, or is restricted in the manner laid down in the judgments of the Supreme Court in the cases of Dyer Meakin Breweries and D. C. Johar & Sons [1971] 27 STC 120 ?
A Full Bench shall be constituted for the purpose.
6. The revision petitioner shall prepare a third set for the purpose.
7. It is not necessary to make a reference of the connected matters (S.T.R. Ps. Nos. 60, 61 and 62 of 1988) to the Full Bench, but Mr. S. P. Bhat, learned counsel for the revision petitioners therein, shall be entitled to address the Full Bench."
4. The Full Bench of this Court, to which one of us (Shivaraj Patil, J.) was a party, by the order dated June 29, 1992 [Reported as Narayani Rao v. Commissioner of Commercial Taxes in Karnataka [1992] 87 STC 112 (Kar) [FB]]. answered the question as under :
The exemption under rule 6(4) of the Karnataka Sales Tax Rules, 1957, is not available to a dealer irrespective of the particular circumstances of the case. The availability of the deduction under the said rule has to be tested in the manner laid down by the judgments of the Supreme Court in Dyer Meakin and D. C. Johar & Sons [1971] 27 STC 120."
5. Sri E. R. Indrakumar and Sri S. P. Bhat, learned counsel for the petitioner, made submissions at length and cited a few decisions in support of their contentions. They urged that the revisional authority as well as the Tribunal seriously erred in holding that the sale was completed at the buyer's place after weighment of silica sand, as such the freight charges though charged separately, they being pre-sale expenditure were the component of the sale price and the assessee was not entitled for exemption of freight charges under rule 6(4) of the Rules. Their submission was that the sale was completed at the extraction site; the sale price was fixed per tonne and arrangement of transport of goods sold, were made by the dealer at request, as the agent of buyers at their risk, as can be seen from the terms of the agreement. Thus, according to them the silica sand was sold at the extraction site fixing the price per tonne and thereafter the goods were to be transported on behalf of the buyers at their risk for the freight charges to be paid by them separately. Hence, in the light of the aforementioned order of the Full Bench of this Court and testing the rule of exemption of freight charges in the manner laid down by the decisions of the Supreme Court in Dyer Meakin Breweries Ltd. and D. C. Johar & Sons [1971] 27 STC 120, the petitioner is entitled for exemption in respect of the freight charges under rule 6(4) of the Rules. According to the learned counsel the terms of the contract, intention of the parties and actual transactions that have taken place should have been taken into account. Thus, they claimed exemption in regard to the freight charges in terms of rule 6(4)(f) of the Rules. Hence, the orders of the revisional authority and the Tribunal were wrong and the order of the assessing authority was perfectly valid and justified.
6. Sri C. V. Kumar, learned Government Pleader, made submissions supporting and justifying the orders of the revisional authority as well as that of the Tribunal, which is called in question. He submitted that the weighment took place at the buyer's place and the buyers even could have rejected the goods, if they were not of the quality specified or expected.
7. We have carefully considered the arguments advanced by the learned counsel for the petitioner as well as the learned Government Pleader for the respondents.
8. In view of the answer of the Full Bench to the question referred, the exemption under rule 6(4) of the Rules is not available to a dealer irrespective of the particular circumstances of the case. The availability of exemption under the said rule has to be tested in the manner laid down by the two judgments of the Supreme Court stated in the answer itself. Hence, the facts and circumstances of the case on hand are to be considered in the light of the said two judgments of the Supreme Court to say whether exemption under rule 6(4) of the Rules is available or not.
9. The facts which are not in dispute are that there were written agreements between the assessee and the buyers in regard to the sale of silica sand, according to which price per tonne of silica sand was fixed at the extraction site; transportation of the goods was the responsibility of the buyer at his risk; the assessee had undertaken to transport the goods at the instance of the buyer, as his agent; the dealer had charged and collected freight separately by raising debit notes without including the same in the sale price of the goods; the buyers agreed to pay transportation charges separately from the place of extraction to the factory Of the buyers and goods were made available to the buyers at the extraction site.
10. The learned counsel for the petitioner as well as the learned Government Pleader cited a few decisions in support of their respective contentions, but we think it is not necessary to refer to all the decisions in view of the answer given by the Full Bench to the question referred, whether the exemption under rule 6(4) of the Rules is available to the dealer in the case on hand has to be tested in the manner laid down by the judgments of the Supreme Court in Dyer Meakin and D. C. Johar & Sons [1971] 27 STC 120.
11. The Full Bench of this Court has stated that the test applied by the Supreme Court in Dyer Meakins' case and D. C. Johar & Sons' case [1971] 27 STC 120 is the basic test. If the cost incurred by the dealer is incidental to his acquisition of goods, being part of his expenditure, it forms a component of the price when he sells the goods. If the cost of freight is charged by the dealer for the transportation of the goods, which is for and on behalf of the purchaser, it will be a case of post-sale expenditure, to which benefit of rule 6(4)(f) will be available. Cost of freight incurred for the inward journey of the goods to the dealer is not deductible, but freight outwards is deductible.
12. In Dyer Meakin's case it is stated that rule 9(f) of the Kerala General Sales Tax Rules, 1963, which rule is similar to rule 6(4) of the Rules, seeks to exclude only those charges which are incurred by the dealer either expressly or by necessary implication for and on behalf of the purchaser, after the sale, when the dealer undertakes to transport the goods and delivers the same. The expenditure incurred by the dealer, which he bad to incur before sale and to make the goods available to the intending customer at the place of sale, is not intended to be excluded.
13. In D. C. Johar & Sons' case [1971] 27 STC 120 the Supreme Court followed the decision in Dyer Meakin's case .
14. The case of Shree Rani Sati Mining Traders v. Sales Tax Officer [1983] 53 STC 322 (Orissa) in our view fully supports the case of the assessee on hand. The Division Bench of the Orissa High Court in the said case having referred to the decisions in Dyer Meakin's case and D. C. Johar & Sons' case [1971] 27 STC 120 (SC) has held that when the ores were shifted from the assessee's pit-head, they were already earmarked for supply to the purchaser against existing contracts. The claim made towards the cost of onward freight or delivery charges separately charged was admissible for deduction.
15. In the aforementioned case the petitioner was a registered dealer under the Orissa Sales Tax Act dealing in dolomite and limestone after raising them from its mines. The Sales Tax Officer on a verification of the accounts of the petitioner in that case found that the assessee had sold minerals to M/s. Hindustan Steel Ltd., but omitted to 7pay sales tax on that part of the turnover which represented transport charges from the pit-head to the work site. Though the Sales Tax Officer found that the assessee had separately charged the freight, he did not agree to give deduction stating that the transport charges incurred by the dealer were prior to delivery of goods to the purchaser and that the transport charges formed part of sale price. The High Court, noticing the facts, that from the assessee's place of business, the goods which constituted ores, were carried to the site of the purchaser and delivery was effected there; there being a weigh-bridge within the premises of the purchaser physical appropriation was following weighment and that when the ores were shifted from the assessee's pit-head, they were already earmarked for supply to the purchaser against existing contracts, found; that the Sales Tax Officer was wrong in refusing to allow the deduction claimed by the assessee towards freight or delivery charges; agreed with the submissions advanced on behalf of the assessee. This judgment in our view fully supports the case of the assessee.
16. The Deputy Commissioner, Commercial Taxes (Administration), Mangalore Division, Mangalore - the revising authority as well as the Karnataka Appellate Tribunal, in our view, committed an error in finding fault with the exemption given by the assessing authority under rule 6(4)(f) of the Rules. They thought that the sale was complete only after the delivery of the goods after weighment, till such delivery of the goods expenditure incurred including the transportation charges was a pre-sale expenditure although separately charged and that it was a component of the sale price, as such they held that the assessee was not entitled for exemption under rule 6(4)(f) of the Rules. Having applied the tests in the manner laid down by the judgments of the Supreme Court in Dyer Meakin and D. C. Johar & Sons [1971] 27 STC 120 to the facts of the case, we hold that the exemption under rule 6(4)(f) of the Rules was available to the assessee.
17. For the reasons stated, on the facts and circumstances of this case, we hold that :
(1) The Tribunal was not correct in law in confirming the revisional order stating that the transportation charges were includible in the turnover of the petitioner.
(2) The Tribunal was not right in holding that the sales were deemed to have taken place at the buyer's place and as such the transportation charges formed part of the petitioner's turnover.
(3) The Tribunal was not justified in law in holding that the freight charges were incurred before the sale was concluded.
(4) The order passed by the Tribunal is not sustainable in law.
18. In the result, this revision petition is allowed. The order dated April 29, 1988, passed by the Karnataka Appellate Tribunal, Bangalore, in S.T.A. No. 985 of 1986, confirming the order dated July 9, 1986, passed by the Deputy Commissioner, Commercial Taxes (Administration), Mangalore Division, Mangalore, in SMR. No. 108/85-86 (MI), is set aside and the order dated January 21, 1986, passed by the assessing authority - Commercial Tax Officer, III Circle, Mangalore, for the assessment year 1981-82 is restored.
19. Petition allowed.