Bombay High Court
National Co-Operative Consumers ... vs State Of Maharashtra, Maharashtra ... on 15 February, 1995
Author: D.K. Trivedi
Bench: D.K. Trivedi
JUDGMENT Dr. B.P. Saraf, J.
1. Both these references arise out of a common order of the Tribunal. The disputes relate to assessment for the period July 1, 1972 to June 30, 1973, both under the Bombay Sales Tax Act, 1959 and the Central Sales Tax Act, 1956. Two questions have been referred. On pertains to the determination of the sale price under the Bombay Sales Tax Act, 1959 ("Bombay Act" or "Act") and the other under the Central Sales Tax Act, 1956 ("Central Act"). The questions are as follows :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in including the sum of Rs. 1,08,320 in the turnover of sales on the ground that it constitutes part of the sales price within the meaning of section 2(29) of the Bombay Sales Tax Act, 1959 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in including the sum of Rs. 20,928 in the turnover of sales on the ground that it constitutes part of the sale price within the meaning of section 2(h) of the Central Sales Tax Act, 1956 ?"
2. The controversy pertains to the includibility of the amounts mentioned in the questions, which had been collected by the assessee in addition to the price of the goods, as "State Federation commission" at the rate of one and one half per cent of the sale price of the goods in the "sale price" of those goods. According to the assessee it does not form part of the sale price within the meaning of section 2 (29) of the Bombay Act and section 2(h) of the Central Act. The Sales Tax Officer treated it as a part of the sale price and included the amount collected by the assessee on that account in its turnover under both the Acts. The appeals of the assessee against the above action of the Sales Tax Officer were rejected both by the Assistant Commissioner of Sales Tax and the Maharashtra Sales Tax Tribunal. Hence this reference at the instance of the assessee.
3. The material facts, relevant for the determination of the controversy, are as follows :
The assessee, National Co-operative Consumers Federation of India Limited, is a co-operative society (hereinafter referred to as "the assessee") sponsored by the Government of India. The assessee-society lifts confiscated goods from Central Excise and New Customs House and distributes the same to the State Federations or their constituents throughout India. With a view to keep the prices under control and with a view to encourage co-operative movement in India, the assessee-society is also allowed to import dry fruits, textiles and other goods and to distribute the same to the State Federations or their constituents. Normally, the State Federations themselves supply these goods to the wholesale consume societies, department stores, etc., in their respective States. With a view to maintain price stabilisation at the State level, the State Federations charge from their constituents, i.e., the wholesale consumer societies, department stores, etc., in the State a commission known as State Federation commission, which is calculated at one and one half per cent of the sale price for the services rendered by it. Sometimes, the assessee-society distributes the goods directly to the wholesale consumer societies, etc., as per instructions of the respective State Federations and in such cases it includes in its invoices the amount payable by such purchasers to the State Federations a State Federation commission in addition to the price of the goods. The amounts so received by the assessee for and on behalf of the State Federations are credited by it to the accounts of the respective State Federations and remitted to them at the end of the year. For the period July 1, 1972 to June 30, 1973, the assessee had included in its invoices in respect of sales falling under the Bombay Act a sum of Rs. 1,08,320 as State Federation commission. The Sales Tax Officer, while assessing the assessee under the Bombay Act, had that this amount formed part of the sale price of the goods supplied by the assessee to the wholesale consumer societies, etc., and included the same in its taxable turnover. Similarly, in respect of inter-State sales effected by it, for the same period, the assessee had included a sum of Rs. 20,928 in its invoices as State Federation commission. The Sales Tax Officer in his assessment of the assessee for the said period under the Central Sales Tax Act, 1956, included the said amount of Rs. 20,928 in the taxable turnover of the assessee for the very same reason that it formed part of the sale price of the goods supplied by the assessee. The assessee's contention before the Sales Tax Officer was that the amount of State Federation commission was not includible in its taxable turnover as it did not form part of the sale price. It was contended by the assessee that the said amount of State Federation commission was payable to the respective State Federations by the wholesale consumer societies or department stores to whom the goods were supplied by the assessee at the instance of the respective State Federations. It was also contended that the said amount was not payable to the assessee. It was collected by the assessee for and on behalf of the respective State Federations merely for convenience of collection. It was for that reason that the said amount was credited to their accounts forthwith and remitted to them thereafter. It was argued that the amount of commission was not recovered by the assessee on its own account. It was contended that the assessee had acted only as a clearing house for the purpose of collecting the said amount for and on behalf of the State Federations. The Sales Tax Officer, however, did not accept any of these contentions of the assessee and held that the amounts in question formed part of the sale price and were, therefore, includible in the taxable turnover of the assessee. The assessee appealed to the Assistant Commissioner of Sales Tax (Appeals), who dismissed the appeals and confirmed the orders of the Sales Tax Officer. Further appeals of the assessee were also dismissed by the Maharashtra Sales Tax Tribunal ("the Tribunal"). Aggrieved by the order of the Tribunal, the assessee applied for reference to this Court under section 61(1) of the Act. The Tribunal has accordingly referred the questions set out above to us for opinion.
4. We have heard Mr. R. V. Patel, learned counsel for the assessee and Mr. K. J. Presswala for the Revenue and perused the order of the Tribunal. The sole controversy in this case is whether the "State Federation commission" collected by the assessee could be included in its turnover under the Bombay Act or the Central Act. To resolve the same, it is necessary to ascertain the true nature and character of the commission. The admitted position is that generally the goods were supplied by the assessee to the State Federations at the specified prices and the State Federations, in turn, distributed or supplied the same to their constituents, viz., wholesale consumer societies. At times, the State Federations collected indents from consumer co-operative societies and passed on the same to the assessee. In such cases, the consumer societies directly lifted the goods from the assessee, who is the National Federation. For the above services, the State Federations were entitled to get a commission of one and one half per cent of the sale price from the consumer societies and were entitled to collect the same from them. However, instead of doing that, as a matter of convenience, the State Federations requested the assessee to collected the above amount of commission from the consumer societies at the time of supplying goods to them in terms of the indents forwarded by them for and on their behalf and to pass on the same to them. In compliance with the above request of the State Federations, the assessee added in its invoices, in addition to the price of the goods, the amount of commission due from the purchasers to the State Federations. As this amount was collected by the assessee for and on behalf of the State Federations, it was not included by the assessee in the price of the goods and hence sales tax was charged on the value of the goods without taking into consideration the amount of State Federation commission - added in the invoices. Obviously, though the amount of State Federation commission was collected by the assessee from the consumer co-operative societies, etc., under instructions from the State Federations along with the price of the goods, it did not form a part of the sale price but represented the amount due to the State Federations as their commission for procuring orders, which the consumer societies were obliged to pay by virtue of existing arrangement between such societies and the State Federations. The assessee acted merely as an agent for collecting the said amount for the State Federations, which they themselves were entitled to collect in the normal course, even without the agency of the assessee. It is thus obvious that the assessee functioned merely as a collecting agent of the State Federations or as a conduit through which "State Federation commission" passed from the consumer societies to the State Federations. It never formed part of the consideration for the sale of the goods by the assessee and hence did not form part of the "sale price" either under the Bombay Act or the Central Act.
5. We are fully supported in our above conclusion by the ratio of the decision of the Supreme Court in Food Corporation of India v. State of Kerala [1988] 68 STC 1. In the above case, under an agreement with the Kerala Government for the distribution of certain articles and commodities covered by the Kerala Rationing Order, 1966, the Food Corporation of India was required to collect administrative surcharge and price equalisation charge from the retailers due to the Government in accordance with the rates fixed by the Government from time to time. The question was whether in the assessment of the Food Corporation to sales tax, the administrative surcharge and the price equalisation charge could be included in its turnover. The Supreme Court observed that under the agreement, the administrative surcharge and the price equalisation charge were the liabilities of the retailers to the Government and the assessee functioned merely as a collecting agent or a conduit through which the collections of administrative surcharge and price equalisation charge passed from the retailers to the Government. It was, therefore, held that the two items never formed part of the price of the articles or the commodities and could not be included in the assessee's turnover.
6. The Supreme Court also referred to the decision of the Kerala High Court in Thannirangad Service Co-operative Society Ltd. v. State of Kerala [1980] 46 STC 464 and observed that the said decision did not lay down the correct position in law. In the case before the Kerala High Court, the assessees, two co-operative societies, were appointed by the civil supplies department of the State Government as authorised agents for procuring paddy from agriculturists and selling it to the ration shops. The assessees collected amounts by way of administrative surcharge and price equalisation charge from their purchasers (ration shop retail dealers) and included this amount in the sale bills issued to the purchasers as part of the price of the goods sold. Under the scheme promulgated by the State Government, whereunder levy and collection of administrative surcharge and price equalisation charge was provided for, the assessees were bound to pass on to the State Government all such amounts which they realised from their purchasers. The above scheme, was however, only an executive order and not a statutory scheme. The question that arose for consideration of the High Court was whether the amounts collected by the assessee would come within the scope of the expression "turnover" as defined under section 2(xxvii) of the Kerala General Sales Tax Act, 1963. The Kerala High Court held that the amount collected by the assessee from the purchasers by way of administrative surcharge and price equalisation charge formed part of the assessees' turnover and, therefore, were liable to sales tax. The reason for arriving at the above conclusion given by the High Court was that the said amounts were collected by the assessees from the purchasers as part of the purchase price charged for the goods. It was observed : "It may be that under the scheme promulgated by the State Government, whereunder levy and collection of administrative surcharge and price equalisation charge is provided for, the assessee is bound to pass on to the State Government, all such amounts which he realises from his purchases. But, admittedly, that is not a statutory scheme, but is only an executive order. For the purpose of determining liability to tax under the Act, we are concerned only with the question whether these amounts were collected by the assessee from the purchasers as part of the price. The facts disclosed by the records show beyond doubt that these amounts were collected by the assessee from the purchasers as part of the purchase price charged for the goods. Such being the position, we have no hesitation to hold that the Tribunal was perfectly right in taking the view that the amounts so collected by the assessee from the purchasers by way of administrative surcharge and price equalisation charge form part of his turnover liable to be brought to tax". The Supreme Court in Food Corporation of India v. State of Kerala [1988] 68 STC 1, did not approve the above judgment of the Kerala High Court and overruled the same by saying that it did not lay down the correct position in law.
7. We find that the ratio of the decision of the Supreme Court in Food Corporation of India v. State of Kerala [1988] 68 STC 1 clearly applies to the facts of the present case. Here also, the assessee was required to collect the State Federation commission from the consumer societies, etc., in accordance with the instructions of the State Federations. In fact, under the arrangement between the State Federations and the consumer co-operative societies, the consumer co-operative societies, etc., were liable to pay the said amount to the State Federations for the services rendered by them. They would have paid the same directly to the State Federation or State Federation could have collected the same directly from them. It was only for the sake of convenience of collection, that the assessee was asked to collect the same from the purchaser, consumer co-operative societies along with the price of the goods which the assessee did. The assessee, in fact, acted merely as a collecting agent for the State Federations for collection of the State Federation commission. It never formed part of the consideration for the sale of the goods by the assessee to the purchasers. It, therefore, could not be included in the assessee's turnover.
8. Counsel for the Revenue also referred to the decision of this Court in Sun-N-Sand Hotel Private Ltd. v. State of Maharashtra [1969] 23 STC 507. The question for consideration in the above case was whether service charges realised by the hotel from the customers constituted part of the sale price. Considering the facts and circumstances of the case, this Court held that such charges constituted part of sale price. We have carefully considered the above decision which in our opinion has no application to the facts of the present case. The facts of the present case are akin to the facts of the decision of the Supreme Court in Food Corporation of India v. State of Kerala [1988] 68 STC 1 and the ratio of the said decision squarely applies.
9. In view of the above, we answer both the questions referred to us in the negative and in favour of the assessee.
10. In the facts and circumstances of the case, we make no order as to costs.
11. Reference answered in the negative.