State Taxation Tribunal - Tamil Nadu
Ram Oxygen (P) Ltd. vs Joint Commissioner (Ct) on 5 February, 2001
Equivalent citations: [2004]134STC240(TRIBUNAL)
ORDER
L. Palamalai, Administrative Member
1. This tax appeal case is against the order of the Joint Commissioner (SMR) of Commercial Taxes, Chennai in Ref. No. N2/51709/89 dated September 19, 1991. The assessment relates to the year 1986-87. The issue involved in this case is the inclusion of a turnover of Rs. 10,87,632 relating to freight charges along with the value of gas and assessed to tax in the suo motu revision order of the Joint Commissioner.
2. In the first appeal, the appellant contended before the appellate authority that gas filled in cylinders has been sold at ex-factory price, that for reasons of safety, caution and convenience, as per the request of the customers, the lorry hire charges, for despatch of gas cylinders and freight charges incurred for getting back the empty gas cylinders, are collected from the customers by billing for the expenses in a separate invoice. During hearing, it was contended by the authorised representative of the appellant that the commodity, namely, gas sold by the appellant is a highly inflammable material requiring utmost care and caution in its handling and therefore, the appellant undertook to deliver the cylinders at the premises of the buyer clients and for which, a separate invoice has been raised towards services rendered and the amount collected included services for getting back the empty cylinders. The Appellate Assistant Commissioner accepting this argument and also noting that the freight charges have been charged for separately without including with the ex-factory price in the invoices, allowed the claim of exemption.
3. This order was set aside in the suo motu revision order by the Joint Commissioner. In the suo motu revision notice, the Joint Commissioner observed that no orders or contract were produced at the time of appeal, in respect of collection of freight and handling charges. Further, in all these cases, the deliveries to the buyers were made free on rail factory basis. Further, as against the cost of gas for Rs. 10,08,401.89, the collection of freight, etc., amounted to Rs. 11,96,640.99. Further, the ownership of the cylinders rested with the appellant till the empty cylinders were got back from the" buyers. Thus, the Joint Commissioner observed that the sale price was inclusive of the freight and handling charges and therefore, the claim allowed by the Appellate Assistant Commissioner, was incorrect. In the objections to the show cause notice, the assessee contended that the freight charges were composite in nature to cover delivery of cylinders with gas to customers and also for transport of empty cylinders from customers to the factory. Further, the Central excise authorities have accepted the price of goods at Rs. 3 per cubic metre, as charged in the sale invoices. Therefore, the Joint Commissioner was not justified in proposing to revise the order of the Appellate Assistant Commissioner. In the written arguments, which is available at page 22 of the typed-set, it was stated that if there was any partial leakage of gas due to valve mistake, etc., and if it was noticed after delivery to the party, an allowance for gas portion alone is given and not on freight charges. Thus, the freight charges separately billed for are not to be included in the price of the gas sold. In the suo motu revision order, the Joint Commissioner observed that though two separate bills were raised on the same date, one for the cylinder and another for the freight and handling charges, only a consolidated sum was realised towards the actual reimbursement of freight, insurance and handling charges and the said charges are inclusive of empty cylinders received back by the assessee for onward transportation to the factory premises of the assessee. During inspection by the officers, it was found that the entire amount for value of gas and freight charges, have been debited against the parties account and the parties effected payment as per their convenience. The Joint Commissioner further observed that though the assessee undertook delivery of the gas cylinders at buyers' site, the freight charges have been recorded separately in the bills. A sample bill as given by the Joint Commissioner, reads as follows :
Bill 2750 dated 31.3.88 1029.00
49 Cylinders. 3.-00 51.45
343 Bed on 5% (15% - 10% ADV Bed
on Bed) 2.57
ST at 10% 108.50
1181.32
Bill 2674 dt 31.3.88
Being freight, insurance and handling
charges for cylinder 48 1552.68
On a perusal of the contract, the Joint Commissioner noted that the contract is FOR destination, namely, that the goods shall be delivered at buyers' premises. Therefore, it was held that merely by bifurcating the sale price as value of gas and freight charges, no deduction could be claimed in terms of the decision of the Madras High Court in the case of State of Tamil Nadu v. Parry and Company reported in [1976] 38 STC 122. The Joint Commissioner further observed that the freight amount calculated has no relevance to the actual transportation cost, having regard to the distances involved. Finally, on facts, the Joint Commissioner concluded that the assessee transported the goods for delivering the goods at buyers' site and therefore, the price of the gas cylinder should include the cost of delivery also. Accordingly, a turnover of Rs. 10,87,632 for which, relief was granted by the Appellate Assistant Commissioner, was brought to assessment at 10 per cent. Hence, the present appeal.
4. Mr. K.J. Chandran, learned Senior Counsel for the appellant, contended that in respect of the assessment year 1986-87 under the Central Sales Tax Act, involving the same issue in respect of the assessee, pertaining to freight charges, the Madras High Court in T.C. No. 199 of 1992 dated September 29, 1997 Reported as Ram Oxygen Private Limited v. Joint Commissioner (SMR) of Commercial Taxes in [1999] 115 STC 629. held that freight or delivery charges collected separately have to be excluded from the sale price in terms of Section 2(h) of the Central Sales Tax Act, 1956. Therefore, the Joint Commissioner was held to be in error in holding that the freight and other incidental charges, though billed for separately, were to be included in the turnover of the assessee. Thus, the decision of the Madras High Court will squarely apply to the claim for deduction under the Tamil Nadu General Sales Tax Act also and the decision of the Madras High Court is binding on the Taxation Special Tribunal. The terms of sale is ex-works and that at the request of the customers, gas cylinders were delivered at the site of the buyers' premises and for which, separate bills have been raised. This is evident from the correspondence from certain buyers, for which, copies of letters have been filed in the additional typed-set. The Supreme Court in State of Karnataka v. Bangalore Soft Drinks Pvt. Ltd. reported in [2000] 117 STC 413, held that when the supply of soft drinks and collection of freight charges, have been shown separately, the assessee is eligible for exemption in respect of freight charges charged for separately in the bills. In R. Balakrishna Brick Works v. State of Tamil Nadu reported in [1982] 49 STC 251, the claim under Rule 6(c) was allowed, though the delivery of the bricks was to be made at the site of the buyers at their request. This decision squarely applies to the case of the assessee. In the case of K. Kasthuri v. State of Tamil Nadu reported in [1985] 59 STC 141, the decision in State of Tamil Nadu v. Parry and Company [1976] 38 STC 122 (Mad.), relied on by the Joint Commissioner has been distinguished. It was held that only on the special facts of the case, the court decided that there was a bargain between the parties, namely, buyer and seller for payment of a consolidated price for the delivery of the goods at site. In the present case, it has been clearly established that there are two bargains, namely, one for sale of gas and another for freight charges for delivering the goods at the site of the buyers and to get back the empty cylinders. The decision of the Special Tribunal in T.C. (R). Nos. 2954 and 2955 of 1997 dated January 5, 2001 Reported in [2003]132 STC 337 in the case of Indian Oxygen Ltd. v. Commercial Tax Officer also is not applicable to the present case, inasmuch as that case was decided based on interpretation of various terms and conditions of the contract. The present case of the assessee is a simple agreement clearly showing sale of gas at ex-factory price and collection of freight charges separately by raising invoices based on the request of the customers. Further, the intention of the party is not contemplated in law, so as to determine the character of the transaction. In fine, the claim of the assessee has to be allowed, by following the ratio of the Madras High Court's decision in the case of the assessee pertaining to freight charges in T.C. No. 199 of 1992 dated September 29, 1997. Reported as Ram Oxygen Private Limited v. Joint Commissioner (SMR) of Commercial Taxes [1999] 115 STC 629
5. Mr. M. Venkateswaran, learned Senior Standing Counsel referred to the decision of the Madras High Court in T.C. No. 199 of 1992 dated September 29, 1997 and urged that the claim under the Central Sales Tax Act was allowed, because the definition in Section 2(h) of the Central Sales Tax Act specifically excludes cost of freight or delivery charge, if separately charged. Therefore, it was held that what has been excluded in the definition itself cannot be made a part of the sale price. However, in the present case under the Tamil Nadu General Sales Tax Act, 1959, exemption in terms of Rule 6(c) of the Tamil Nadu General Sales Tax Rules could be allowed only if the freight and delivery charges have not been included in the price of the goods sold, though charged for separately. This case of the assessee is similar to the case of Indian Oxygen Limited decided in T.C. (R). Nos. 2954 and 2955 of 1997 dated January 5, 2001 Reported in [2003] 132 STC 337 by the Special Tribunal. As held in the case of Indian Oxygen Ltd., the consideration of price payable by the customer includes not only the value of goods, but also the charges incurred to deliver the goods at the site of the customers and get back the empty cylinders. Therefore, by merely bifurcating the sale price, the exemption cannot be claimed, as rightly concluded by the Joint Commissioner, by following the ratio of the decision of the Madras High Court in the case of State of Tamil Nadu v. Parry and Company reported in [1976] 38 STC 122.
6. We have considered the contentions carefully and perused the records.
"Rule 6.--The tax or taxes under Section 3, 4 or 5 shall be levied on the taxable turnover of the dealer. In determining the taxable turnover, the amounts specified in the following clauses shall, subject to the conditions specified therein, be deducted from the total turnover of a dealer--
(a).................
(b).................
(c) all amounts falling under the following three heads when specified and charged for by the dealer separately, without including them in the price of the goods, sold,--
(i) freight ;
(ii) (omitted) ;
(iii) charges for delivery ;"
7. Thus, to claim the benefit of exemption pertaining to freight, the dealer not only should have specified and charged for freight separately, but such charges should hot have been included in the price of the goods sold. Though the Joint Commissioner observed that no contracts were produced even before the appeal, in the additional typed-set, certain copies of letters have been furnished indicating the terms of sale, wherein the price is shown as ex-works at Thekkalur and that the gas cylinders will be delivered at the site of the customers as per the request made by them, for which, supplementary bill will be raised. As rightly admitted by the assessee at the time of first appeal, the liquefied gas has to be supplied in secured cylinders only, Even after supply, the assessee has to return empty cylinders in good condition. As rightly admitted by the assessee, the charges collected as freight charges related to expenses incurred for the delivery of the goods to the customers at the premises and to bring back the empty cylinders from the premises. In the additional typed-set at page 1, the terms for supply of oxygen in cylinders read as follows :
"Rate : Rs. 3 per cu.m. (excise duty and tax will be charged extra as applicable at the time of taking delivery.) The above price is ex-our works at Thekkalur, Avanashi Taluk. Since you require the cylinder to be delivered through our own transport arrangement at your factory, we would like to mention that a separate supplementary bill will be raised for freight, insurance, handling and other incidental expenses."
8. Though it has been indicated that charges for transport arrangement will be charged for separately and that the price is ex-works at Thekkalur, the fact remains that if there was any leakage of gas due to defective valve, then, the customer will be reimbursed as admitted by the assessee in the written arguments before the Joint Commissioner in the suo motu revision. Therefore, the claim of ex-factory falls to ground. Thus, it is quite clear that the price quoted for gas cylinder is inclusive of the collection and freight charges. It is quite clear that the appellant bifurcated the price of the gas supplied as ex-works price and freight charges. Mere bifurcation of the charges in the invoices will not help an assessee to claim exemption, as rightly held by the Supreme Court in the case of Hindustan Sugar Mills Ltd. v. State of Rajasthan reported in [1979] 43 STC 13. The following passage is relevant ;
"It is not intended to apply to a case where the cost of freight is part of the price but the dealer chooses to split up the price and claim the amount of freight as a separate item in the invoice. Where the cost of freight is part of the price, it would fall within the first part of the definition and to such a case, the exclusion clause in the second part has no application."
9. Further, in the nature of trade, necessarily the gas has to be supplied in safe cylinders to the customers as admitted by the assessee and therefore, the obligation continues till the return of the empty cylinders to the appellant. Thus, the whole scheme clearly shows that the intention of the parties was to supply gas cylinders at the customers' place and to get back the empty cylinders to the factory. Therefore, the entire charges including freight charges are to be included in the price, because such charges are payable by the customers to the dealer as part of the consideration for the sale of goods. Therefore, even if such charges are shown separately in the invoices, still such charges have to be added to the price of the goods, as the character of the payment for the supply of goods does not change.
10. In R. Balakriskna Brick Works v. State of Tamil Nadu reported in [1982] 49 STC 251, the Madras High Court observed as follows :
"The question of separately charging for transport will not arise at all in a case where the contract between the parties is for delivery of the bricks at the site of the kiln. The question of transport charges will crop up only in a case where the contract between the parties involves delivery of the bricks at the work-spot of the customer. It is only in that context that the application of Rule 6(c) becomes pertinent."
11. In State of Karnataka v. Bangalore Soft Drinks Pvt. Ltd. reported in [2000] 117 STC 413 (SC), the issue related to supply of soft drinks by a manufacturer to a wholesale dealer and collection of freight charges and octroi charged for separately in the bills in pursuance of the contract, which specified price ex-works. The claim was disallowed on the ground that the agreement was a sham and therefore, the assessee was not entitled for the deduction in respect of freight charges and octroi. However, the High Court held that the contract clearly showed the delivery of the goods in another capacity as a carrier of the goods and therefore, in terms of the agreement, the assessee was eligible for exemption in respect of freight charges. This order of the High Court was upheld by the Supreme Court in respect of freight charges, which was the issue before the Supreme Court in a special leave petition. Thus, the finding of the Supreme Court in the above decision was that the agreement was not a sham, as concluded by the Tribunal, so far as it related to the transportation of the soft drinks sold.
12. In Kasthuri v. State of Tamil Nadu reported in [1985] 59 STC 141, the Madras High Court observed that the decision in State of Tamil Nadu v. Parry and Company [1976] 38 STC 122 was based on the special facts of the case, which indicated that the original bargain between the parties was charging the price inclusive of transport charges. In fact, the intention of the parties was referred to in that decision. Similarly, in the case of State of Tamil Nadu v. Sree Kamaraj Waste Paper Store reported in [20001 118 STC 132 (Mad.), the assessing authority and the first appellate authority have taken the view that as the assessee has in the sale bills noted the sale value including the amounts of freight and delivery charges and thereafter deducted the amounts of freight and delivery charges before charging sales tax, the claim towards delivery and freight charges was not to be allowed. The Tribunal, on the other hand, looked at the substance of the transaction and held that the intention of the assessee was to charge the freight and delivery charges separately and that was shown in the bills prepared by him. On that basis, the claim was allowed under Section 2(h) of the Central Sales Tax Act, 1956 and this finding was approved by the Madras High Court in revision. As rightly indicated by the learned Senior Standing Counsel, in the decision reported in T.C. No. 199 of 1992 dated September 29, 1997 Reported as Ram Oxygen Private Limited v. Joint Commissioner (SMR) of Commercial Taxes in [1999] 115 STC 629 of the Madras High Court, in respect of the claim of exemption pertaining to freight charges under the Central Sales Tax Act, the claim was allowed by the High Court with reference to the definition term in Section 2(h) of the Central Sales Tax Act, wherein the definition clearly excluded the cost of freight or delivery charges, if separately charged. However, as indicated by us earlier, for claiming exemption pertaining to freight and delivery charges under the Tamil Nadu General Sales Tax Act, 1959, the assessee has not only to show the charges separately in the bills, but such charges should not have been included in the price of the goods sold. Thus, there is a slight variation in the definition to exclude freight and delivery charges from the sale price under the Central Sales Tax Act and under the Tamil Nadu General Sales Tax Act.
13. As discussed supra, the intention of the parties, in the present case before us, was to supply the liquid gas in safe containers in good condition at the place of the customers and to get back the empty cylinders. Thus, the consideration of price payable by the buyers includes the value of gas as well as the freight charges incurred for despatch of the gas cylinders free on rail and to get back the empty cylinders. In such circumstances, we find that the present case of the assessee is similar to the one decided by us in Indian Oxygen Ltd. v. Commercial Tax Officer in T.C. (R). Nos. 2954 and 2955 of 1997 dated January 5, 2001, though in that case, various terms and conditions of the contract have been elaborately considered by us. Even with reference to the terms and conditions in the present case, we find that there is no change in the basic fact, namely, supply of liquid gas in safe containers at the places of the customers and to get back the empty cylinders. Therefore, we find that the inclusion of the freight charges along with the price of the goods by the Joint Commissioner, is in order, though the freight charges have been shown separately in the sale invoices, inasmuch as the character of the payment by the customers, namely, the sale price does not change in any way, though the appellant has chosen to bifurcate the price as value of gas and freight charges. Thus, a turnover of Rs. 10,87,632 at 10 per cent added for the purpose of assessment along with the gas value by the Joint Commissioner, is quite in order and there is no reason to interfere with the orders of the Joint Commissioner.
14. Accordingly, the tax appeal case is dismissed.
And this Tribunal doth further order that this order on being produced be punctually observed and carried into execution by all concerned.
Issued under my hand and the seal of this Tribunal on the 5th day of February, 2001.