Patna High Court
Commissioner Of Commercial Taxes vs Ashoka Marketing Limited on 17 July, 1973
Equivalent citations: [1973]32STC411(PAT)
Author: N.L. Untwalia
Bench: N.L. Untwalia
JUDGMENT N.L. Untwalia, C. J. 1. At the instance of the Commissioner of Commercial Taxes, Bihar, the Commercial Taxes Tribunal has stated a case and referred the following question of law for determination by this court under Section 25(1) of the Bihar Sales Tax Act, 1947 (hereinafter called the Act). Whether, in the facts and circumstances of the case, the Tribunal was justified in holding that the railway freight did not form part of the sale price ? For the assessment year 1958-59, the assessee-company which is a registered dealer dealing in cement had filed a return excluding from the gross turnover the amount of railway freight shown separately in the bills and paid by the purchasers. The Assistant Commissioner of Commercial Taxes, Shahabad, accepted the returned figure and assessed the tax accordingly in his assessment order dated 16th December, 1963. The Commissioner of Commercial Taxes, however, proceeded to revise the assessment suo motu and, accordingly, issued a notice under Section 24(4) of the Act read with Rule 36(5)(a) of the Bihar Sales Tax Rules, 1949. The notice was issued on 21st March, 1966. Before the Commissioner, a stand was taken on behalf of the assessee that the various amounts of railway freight paid by the purchasers and excluded by the assessee from its invoices could not be exigible to sales tax. The assessee stated that in the past in relation to the assessment years prior to the assessment year in question the railway freight had not been treated as a part of the price and sales tax had not been charged on that. The Commissioner of Commercial Taxes overruling the objection of the assessee passed the order dated 31st August, 1966 and held that the railway freight was a part of the sale price and the whole of the amount was chargeable to sales tax. He, therefore, remanded the case to the Assistant Commissioner of Commercial Taxes, Shahabad, for disposal in accordance with the direction given in that order. The assessee went up before the Commercial Taxes Tribunal in Revision Case No. 298 of 1966. The Tribunal has set aside the order of the Commissioner by its judgment dated 8th July, 1967 and held that freight will not form part of the sale price. At the instance of the Commissioner, a reference has been made to this court on the question of law already stated. 2. The dealer was selling and despatching cement to its various customers in accordance with the restrictions imposed by the Cement Control Order, 1956. At the relevant time the said Control Order had fixed a uniform rate of Rs. 117.50 per ton to be charged by the dealer from his customers. The uniform price was fixed as f.o.r. destination. What actually happened, as it appears from the order of the Tribunal, was that the dealer in its invoice used to show the total amount at the rate of Rs. 117.50 per ton including the ' Central excise but from the said total amount the amount of freight payable was deducted. The freight was ultimately paid by the purchaser. 3. Before I proceed to state the further facts of the case, I may mention that the dealer used to show in its invoice sales tax at the specified rate on the gross value minus the commission only, in other words, the sales tax was being charged by the dealer on the total price including the railway freight. When in the past the amount of railway freight was excluded from the total price for the purpose of charging sales tax, a view was taken by the department that the amount of tax illegally charged by the dealer on the amount of railway freight paid by the purchasers could be realised from the dealer in accordance with Section 20A of the Bihar Sales Tax Act, 1959. The assessee attacked the said proceeding unsuccessfully in the High Court but ultimately succeeded in the Supreme Court, the decision of which is reported in Ashoka Marketing Ltd. v. State of Bihar [1970] 26 S.T.C. 254 (S.C.). I have merely stated these facts to show the different stands taken by the assessee as also by the department in connection with these disputed items. But so far as the present reference is concerned, unfettered by the various stands of the parties, it will have to be seen as to what is the correct position in law. 4. From a copy of the invoice which is noticed in the judgment of the Tribunal, it will be seen that the railway receipt used to be sent by the assessee to its customers through bank and one of the terms mentioned in the invoice is : Although the prices are on f.o.r. destination railway station basis, our responsibility for any loss, shortage, damage or delay in transit or at destination ceases (?) once the goods are delivered to the carriers (Railway, etc.) and a receipt is obtained. All claims on these accounts should be preferred against the carrier concerned. 5. In the Act "turnover" has been defined in Section 2(i) to mean : the aggregate of the amounts of sale prices received and receivable by a dealer in respect of sale or supply of goods.... The definition of "sale price" is given in Clause (h). Only Sub-clause (i) is important and must be quoted: the sale or supply of any goods, less any sum allowed as cash discount according to ordinary trade practice, but including any sum charged for anything done by the dealer in respect of the goods at the time of, or before delivery thereof, other than the cost of freight or delivery or the cost of installation when such cost is separately charged. The first part and the main part of the definition says that sale price is the amount payable to the dealer as valuable consideration, namely, the price, as is popularly known, charged for the goods sold or supplied. Sub-clause (i) permits the deduction from the sale price of any sum allowed as cash discount according to ordinary trade practice and permits the inclusion of any sum charged for anything done by the dealer in respect of the goods at the time of, or before delivery thereof. Railway freight not separately charged and included in the total price or the cost of delivery or the cost of installation included in such price has got to be taken within the ambit of the definition of sale price. But if such freight or cost is separately charged by the dealer from his customer then the amount is to be excluded from the total amount charged by the dealer from his customer. I shall explain my view-point here by taking an example. A dealer, suppose, is asked by his customer to despatch certain goods by rail. Goods are such that freight has to be pre-paid. The dealer charges, say, Rs. 1,000 as the price of the goods from his customer plus Rs. 100 as railway freight and realises the total sum of Rs. 1,100 from his customer. If the said sum of Rs. 1,100 is shown in the invoice and realised as a consolidated amount then the sale price for the purpose of charging sales tax will be Rs. 1,100. But, if in the invoice the sum of Rs. 100 is shown separately or otherwise the sum of Rs. 100 is charged separately then the sale price would be Rs. 1,000 only. 6. In the instant case the position was different. It was not a case where the assessee paid any railway freight before despatching the goods; it did not charge railway freight from its customer separately. What it did was. that it sold goods fixing the rate on f.o.r. destination, the clear meaning of which is that the price of cement per ton which the buyer was obliged to pay to the dealer was at the rate of Rs. 117.50 and that was inclusive of the railway freight from the despatching station to the destination station irrespective of the amount of the railway freight. If the dealer would have pre-paid the railway freight, there would not have arisen any question of deducting the said railway freight from the total price of the cement supplied, calculated at the rate of Rs. 117.50 per ton because the said rate was inclusive of the railway freight. In such a situation, it is abundantly clear to me that the matter could not be agitated with reference to the second part of Sub-clause (i) of Clause (h) of Section 2 of the Act. But that apart, the question which has presented some difficulty before us is whether, on the facts and in the circumstances of this case, the railway freight which was paid by the customer was a part and parcel of the price paid or payable to the dealer on account of the cement supplied by it or whether it was an obligation of the customer over and above his obligation to pay certain price to the dealer. If the price fixed and charged by the dealer would have been f.o.r. despatching station or f.o.r. factory gate, then there is no difficulty in taking the view that the price charged would have been the price calculated at that rate and the railway freight paid by the customer would have been a payment to the railway over and above the price paid by him to the dealer. But it is difficult to accept as correct the view expressed by the Tribunal that the price charged by the dealer was, on the facts of this case, f.o.r. despatching station. It must be clearly borne in mind that in either of the two situations just discussed by me the actual payment of railway freight is by the customer. In one case, it is as obligation to pay over and above the price which he has paid to the dealer. In the other, he pays it as a part of the price because the price charged by the dealer is inclusive of the freight. It matters little whether the railway freight was paid by the dealer when it despatched the goods and charged the full price from the customer or it sent through bank railway receipt to the customer and the customer paid railway freight. What is significant to note is that the price fixed by the Cement Control Order was f.o.r. destination stations. That was the price which was being charged by the dealer. Obviously when freight was not pre-paid, the amount of freight had to be deducted from the total price. But that does not mean that the total price charged by the dealer was reduced to that extent. It was merely a convenient mode of payment of the price by the customer to the dealer. A major portion of it was paid when the customer took delivery of the railway receipt from the bank on the honouring of the demand draft and a minor portion was paid as a part of the price, no doubt, to the railway administration at the time of delivery of the goods. It would bear repetition to say that the dealer was, under the Cement Control Order, to charge a uniform price which included not only its cost of production but also the railway freight. The amount of railway freight was bound to vary, depending upon the distance of the destination station from the despatching one. But for the purpose of charging sales tax the varying amounts were not to cause any difference because the amount which was payable to the dealer as valuable consideration for the sale of cement was the total price calculated at the rate of Rs. 117.50 per ton. 7. I now proceed to discuss the relevant decisions on the point both of the Supreme Court and of the various High Courts cited at the Bar. The learned Commissioner of Commercial Taxes followed the decision of the Nagpur High Court in Commissioner of Sales Tax, Madhya Pradesh v. Anwarkhan Mahboob Co. [1956] 7 S.T.C. 197. It appears from the discussion of an identical point in the judgment of the court from paragraph 12 onward that the facts of the case before the Nagpur High Court were similar to the ones in the instant case. The railway freight in that case was included in the price quoted to the purchaser but in the invoice it had been excluded because the freight had to be paid by him. According to the definition given in the relevant statute which was under consideration before the Nagpur High Court, an argument was advanced that such a freight ought to be excluded from the price. This argument was repelled and it was observed : That the dealer gave the purchaser credit for the amount paid in respect of the railway freight does not make any difference to the legal position. This is shown also by the consideration that the dealer would be bound to give credit to the purchaser for any sums paid in advance towards the price of the goods to be supplied. Whether a part of the price is paid earlier or, say, later in the form of railway freight makes no difference. 8. The Tribunal has followed a Bench decision of this Court reported in Tata Iron & Steel Co. Ltd. v. The State of Bihar [1957] 8 S.T.C. 26. Question No. (7) which was relevant one in that judgment was in these terms : Whether the addition of the amount of railway freight collected by the petitioner along with the price of materials sold by him had been legally included in his turnover and taxed under the Bihar Sales Tax Act ? The enunciation of the principle of law in that regard was: If the cost of freight or delivery is separately charged by the petitioners, the taxing authorities are not legally right in including the cost of freight in the taxable turnover of the assessee. The matter was left for decision of the departmental authorities as to whether the cost of freight had been separately charged by the assessee in that case. In my opinion, this decision is of no help to the assessee in this case as, here, the question for consideration which, strictly speaking, falls for our decision is a distinctly different one. It was not the claim of the dealer in this case that it had separately charged the railway freight from its customer. The railway freight was charged as a part of the price and a portion of the price in the shape of railway freight was paid by the customer on delivery of the goods. 9. A similar question arose for consideration before the Supreme Court in the case of Tungabhadra Industries Ltd. v. Commercial Tax Officer [1960] 11 S.T.C. 827 (S.C.). Rule 5(1)(g) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, provided that from the gross turnover of a dealer was to be deducted the amount of freight when it was specified and charged for by the dealer separately without including it in the price of the goods sold. An invoice of an identical kind fell for consideration before the Supreme Court and it was held: From the contents of this invoice it would be seen that the appellant has charged a price inclusive of the railway freight and would therefore be outside the terms of Rule 5(1 )(g) which requires that in order to enable a dealer to claim the deduction it should be charged for separately and not included in the price of goods sold. Under our definition of "sale price", I have pointed out that if a freight is separately charged by the dealer then it cannot form part of the sale price, but if the price charged is inclusive of the railway freight, then whole of the price comes within the main definition of "sale price". There is no question of taking out from it the railway freight paid by the customer. The decision of the Supreme Court in Tungabhadra Industries case [1960] 11 S.T.C. 827 (S.C.) does help the contention put forward by the learned Advocate-General on behalf of the Commissioner of Commercial Taxes, although it is not a direct authority on the point because the question which falls for determination in the instant case was not directly canvassed or decided in that case. 10. Learned counsel for the assessee placed strong reliance upon a decision of the Supreme Court in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh [1969] 24 S.T.C. 487 (S.C.). This decision appears to be very much in favour of the assessee at first sight-almost covering its case squarely; but on a close scrutiny a vital point of distinction is to be found. The terms of contract in Hyderabad Asbestos Cement case [1969] 24 S.T.C. 487 (S.C.) were known. Clause (16) of the contract provided that in all cases where the consignments were sold free on railway destination, railway freight had to be paid by the customer at the destination and the amount of freight shown on the railway receipt had to be deducted from the invoice of the company. Interpreting such a term of the contract, Shah, J., as he then was, said : 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. When argument was put forward on hehalf of the department with reference to an identical invoice, it was repelled in these words : But the form in which the invoice is made out is not determinative of the contract between the company and its customers. Although on perusal of numerous invoices, the Tribunal deduced a term of the contract between the parties, which was, more or less, akin to Clause (16) of the contract under consideration in Hyderabad Asbestos Cement case [1969] 24 S.T.C. 487 (S.C.), the point of distinction remains that the dealer, in the absence of any binding obligation like the one engrafted in Clause (16), could pay the freight himself and not deduct the amount from the price. The invoices by themselves did not necessarily lead to the conclusion that the price received by the company for sale of goods was the invoice amount less freight. As a matter of fact, the amount received by the dealer in this case was the price shown in the invoice less the freight. But the crucial question to be decided is whether the amount of freight went to reduce the price or whether the freight paid by the customer was a part of his obligation to pay the balance of the price. I think that payment of railway freight by the customer at the time of delivery of the goods cannot always mean that it is a payment towards the payment of price. Ordinarily and generally, if the invoice is made in the form it was found to have been made in Hyderabad Asbestos Cement case [1969] 24 S.T.C. 487 (S.C.), which was almost on identical lines to the one noticed by the Tribunal in the present case, the price of the goods charged would be the total price f.o.r. destination station. There may be a few exceptional cases on their particular facts where an inference may be possible to be drawn that the railway freight went to reduce the quantum of price. And, perhaps the case of Hyderabad Asbestos Cement [1969] 24 S.T.C. 487 (S.C.) before the Supreme Court was one of such an exception. 11. The decision of the Supreme Court in Hyderabad Asbestos Cement [1969] 24 S.T.C. 487 (S.C.) was distinguished by a Bench of the Madhya Pradesh High Court in Birla Jute Manufacturing Co, Ltd. v. Commissioner of Sales Tax [1972] 29 S.T.C. 639. Although I do not feel inclined to agree with all the points of distinction made by A.P. Sen, J., between the case of Birla Jute [1972] 29 S.T.C. 639 and Hyderabad Asbestos Cement [1969] 24 S.T.C. 487 (S.C.) and I say so respectfully, I agree with the ultimate opinion of the learned Judge that in a case of this kind the correct view to take is that the railway freight paid by the customer forms part of the price charged by the dealer when the price charged is f.o.r. destination. The decision of the Supreme Court has not altered this position and has not laid down any principle of law of universal application. That decision must be appreciated with the special facts of that case as discussed and pointed out by me above. 12. Learned counsel for the assessee cited before us a decision of the Andhra Pradesh High Court in K.C.P. Ltd. (Ramakrishna Cements) v. Government of Andhra Pradesh [1972] 29 S.T.C. 507. The Andhra Pradesh High Court has merely followed the decision of the Supreme Court in Hyderabad Asbestos Cement case [1969] 24 S.T.C. 487 (S.C.) and if I may say so with very great respect without noticing the crucial and vital points of distinction between that case and the kind of case which was being dealt with by the Andhra Pradesh High Court and which falls for consideration before us. 13. In United Timber Corporation v. Commissioner, Sales Tax [1972] 29 S.T.C. 646, following the decision of the Supreme Court in Tungabhadra Industries case [1960] 11 S.T.C 827 (S.C.) when the bills issued by the assessee were found to have been drawn up on the same terms as the bills which were considered by the Supreme Court in Tungabhadra Industries case [1960] 11 S.T.C 827 (S.C.), it was held that the price will be inclusive of the freight as neither the freight could be held to be not a part of the price nor could it be held to be separately charged by the assessee. The decision of the Supreme Court in Hyderabad Asbestos Cement case [1969] 24 S.T.C. 487 (S.C.) was distinguished. I respectfully agree with the view of the Allahabad High Court. 14. For the reasons stated above and on a due consideration of all the aspects involved in the question under reference, I have come to the conclusion that it must be decided in favour of the Commissioner of Commercial Taxes and against the assessee. It is accordingly held that, on the facts and in the circumstances of this case, the Tribunal was not justified in holding that the railway freight did not form part of the sale price. In the circumstances, there would be no order as to costs of this reference. S.K. Jha, J.
15. I agree.