Rajasthan High Court - Jaipur
M/S Dynamic Cables Private Limited vs The Asstt. Commissioner ... on 17 February, 2023
Author: Sameer Jain
Bench: Sameer Jain
[2023/RJJP/003216]
HIGH COURT OF JUDICATURE FOR RAJASTHAN
BENCH AT JAIPUR
S.B. Sales Tax Revision / Reference No. 215/2019
M/s Dynamic Cables Private Limited, F-259-60, Road No. 13,
Vkia, Jaipur Through Its Managing Director Shri Ashish Mangal
S/o Late Shri K.m. Mangal, Aged 44 Years R/o A-30, Subhash
Nagar, Shastri Nagar, Jaipur
----Petitioner
Versus
The Asstt. Commissioner, Commercial Taxes Anti Evasion Zone 1
Jaipur
----Respondent
Connected With S.B. Sales Tax Revision / Reference No. 213/2019 M/s Dynamic Cables Private Limited, F-259-60, Road No. 13, Vkia, Jaipur Through Its Managing Director Shri Ashish Mangal S/o Late Shri K.m. Mangal, Aged 44 Years R/o A-30, Subhash Nagar, Shastri Nagar, Jaipur
----Petitioner Versus The Asstt. Commissioner, Anti Evasion Zone 1, Jaipur
----Respondent S.B. Sales Tax Revision / Reference No. 214/2019 M/s Dynamic Cables Private Limited, F-259-60, Road No. 13, Vkia, Jaipur Through Its Managing Director Shri Ashish Mangal S/o Late Shri K.m. Mangal, Aged 44 Years R/o A-30, Subhash Nagar, Shastri Nagar, Jaipur
----Petitioner Versus The Asstt. Commissioner, Commercial Taxes, Anti Evasion, Zone 1 Jaipur
----Respondent S.B. Sales Tax Revision / Reference No. 216/2019 M/s Dynamic Cables Private Limited, F-259,260 Road No. 13, Vkia, Jaipur
----Petitioner Versus (Downloaded on 11/11/2023 at 04:15:35 PM) [2023/RJJP/003216] (2 of 12) [STR-215/2019] The Assistant Commissioner, Commercial Taxes, Anti Evasion, Zone 1 Jaipur
----Respondent S.B. Sales Tax Revision / Reference No. 217/2019 M/s Dynamic Cables Private Limited, F-259-60, Road No. 13, Vkia, Jaipur Through Its Managing Director Shri Ashish Mangal S/o Late Shri K.m. Mangal, Aged 44 Years R/o A-30, Subhash Nagar, Shastri Nagar, Jaipur
----Petitioner Versus The Asstt. Commissioner, Commercial Taxes Anti Evasion, Zone 1 Jaipur
----Respondent S.B. Sales Tax Revision / Reference No. 218/2019 M/s Dynamic Cables Private Limited, F-259-60, Road No. 13, Vkia, Jaipur Through Its Managing Director Shri Ashish Mangal S/o Late Shri K.m. Mangal, Aged 44 Years R/o A-30, Subhash Nagar, Shastri Nagar, Jaipur
----Petitioner Versus The Asstt. Commissioner, Commercial Taxes, Anti Evasion Zone 1 Jaipur
----Respondent For Petitioner(s) : Mr. Alkesh Sharma with Mr. Ayush Sharma Mr. Himanshu Morwal For Respondent(s) : Mr. Ayush Singh for Mr. Punit Singhvi HON'BLE MR. JUSTICE SAMEER JAIN Judgment/Order 17/02/2023 REPORTABLE (Downloaded on 11/11/2023 at 04:15:35 PM) [2023/RJJP/003216] (3 of 12) [STR-215/2019]
1. With consent of learned counsel for the parties, the instant Sales Tax Revision Petitions (for short "STRs") were taken up for final disposal.
2. These STRs were admitted vide order dated 30/01/2023 on the following questions of law:-
"(i) Whether under the facts and circumstances of the present case, the Rajasthan Tax Board was justified in ignoring the definition of 'sale price' as defined under Section 2(h) of the Central Sales Tax Act, 1956 wherein the Parliament has expressly excluded the cost of freight or the cost of installation in cases where such cost is separately charged from 'sale price'?
(ii) Whether under the facts and circumstances of the present case, the Rajasthan Tax Board was justified in ignoring the submission that if at all the levy of tax on element of freight was to be upheld, then the rate thereon had to be the same as levied on goods against Form "C" in view of the provisions of Section 8(1) of the Central Sales Tax Act, 1956?"
3. It is submitted on behalf of the petitioner-assessee that the petitioner-assessee is carrying on business of manufacturing and sale of PVC Cables, ACSR Conductors and other kinds of cables; and majority of their sales are to the State Electricity Boards across India who purchased the material for generation, transmission and distribution of electric power. It is further submitted that regular assessment was duly carried out under Sections 23/24 of the Rajasthan Value Added Tax Act, 2003 (for short, "RVAT Act") read with Section 9 of the Central Sales Tax (Downloaded on 11/11/2023 at 04:15:35 PM) [2023/RJJP/003216] (4 of 12) [STR-215/2019] Act, 1956 (for short, "CST Act") for the year under consideration. While making regular assessments, the element of freight which was collected separately and not included in the assessor's value for consideration of the purchase order was duly approved. The cause of action arose when a survey was conducted by the Anti Evasion Team on 22/05/2012 and there was a change in opinion of the said authorities, and it was determined that even though the freight and insurance charges are collected separately, but as the same are included in the price charged from the buyer and the delivery is F.O.R. destination, the same is required to be taxed. In the light of said observation, assessment order dated 01/03/2013 was passed and due amount of tax, interest and penalty was imposed under Section 25, 55, 61 of the RVAT Act read with Section 9 of the CST Act.
4. Upon appeal, the penalty was set side but levy of interest was confirmed by the Appellate Authority vide order dated 01/04/2015.
5. The learned Tax Board, against the appellate order dated 01/04/2015, confirmed the levy of VAT on freight and interest on the following analogy:-
"o"kZ 2007&08 ls 2011&12 dh vof/k ds izdj.kksa ds rF;ksa ls ;g fufoZokfnr :i ls Li"V gS fd vihykFkhZ dks Øsrk fo|qr dEifu;ksa@Øsrk O;ogkfj;ksa dks F.O.R. Destination ij eky dh fMyhojh nh xbZ gS ,oa eky dh fMyhojh rd VªkaftV fjLd foØsrk dh gh gSaA vr% mi;qZDr foospukuqlkj izdj.k ds rF;ksa dks n`f"Vxr j[krs gq, ,oa lafonk dh 'krksZ rFkk Åij of.kZr ekuuh; mPpre U;k;ky; ds fu.kZ;ksa esa izfrikfnr fl)kUrksa ds vkyksd esa eky dh F.O.R. Destination Delivery ik;s tkus rFkk eky dh ekxZLFk tksf[ke vihykFkhZ dh gksus ds dkj.k Freight and Insurance jkf'k dks foØ; ewY; dk Hkkx ekuk tkuk iw.kZr% U;k;ksfpr ,oa fof/klEer gS] vr% bl laca/k esa vihyh; vkns'k iqf"V fd;s tkus ;ksX; gSA"(Downloaded on 11/11/2023 at 04:15:35 PM)
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6. Being aggrieved, the present STRs have been filed by the petitioner-assessee.
7. Learned counsel for the petitioner-assessee submitted that as per provisions of Section 2(36) of the RVAT ACT and pari meteria provisions of Section 2(h) of the CST Act, which defines sale price, the cost of freight and other such expenses is specifically excluded from the definition of 'sale price', if the same are separately charged. Learned counsel for the petitioner- assessee submitted that it is an admitted position that in the invoice, the freight an insurance was separately reflected and therefore the respondents had no authority in law to levy tax on the same. Learned counsel further submitted that the freight is not consideration qua the goods, but a service leviable to service tax, which is the exclusive domain of the Union List. Learned counsel further submitted that the learned Tax Board has misinterpreted the judgments and the reliance placed upon such judgments is, therefore, erroneous. In support of his claim, learned counsel have relied upon judgments of State of Karnataka & Anr. Vs. Bangalore Soft Drinks Pvt. Ltd.:
(2000) 117 STC 413 (SC); M/s. Mewar Khanz Udyog Khempur, Udaipur Vs. CTO, Anti Evasion, Udaipur: (1994) 2 STO 384; State of Tamil Nadu Vs. Lloyd Sales Corporation:
(1996) 101 STC 280; Ram Oxygen Pvt. Ltd. Vs. JC: (1999) 115 STC 629; Vinod Coal Syndicate Vs. Commissioner of Sales Tax: (1989) 73 STC 317 (SC); Commercial Taxes Officer Vs. M/s Indian Rayon & Industries Ltd.: (2008) 21 Tax Update 358 (Raj.); M/s. R.S. Industries (Rolling Mill) Ltd. Vs. Commercial Taxes Officer (SB STR No.317/2008, (Downloaded on 11/11/2023 at 04:15:35 PM) [2023/RJJP/003216] (6 of 12) [STR-215/2019] decided on 23/11/2016); Asstt. Commissioner Vs. M/s Rajasthan Cylinder and Containers Ltd. (SB STR No.262/2008, decided on 08/01/2015) and Commercial Taxes Officer Vs. M/s Roca Bathroom Products Pvt. Ltd. (DB STR No.282/2018, decided on 19/01/2022). Alternatively, without prejudice to his main arguments, learned counsel for the petitioner-assessee submitted that if the sale is at concessional rate against Form 'C', then the tax on the freight should be levied at concessional rate. In support of this contention, learned counsel has placed reliance on judgments rendered in Commissioner of Sales Tax Vs. Steel Tubes of India Ltd.: (1984) 55 STC 245 (MP) and Orient Paper Mills Ltd. Vs. State of Orissa: (1975) 35 STC 84 (Orissa).
8. Per-contra, learned counsel for the respondent-Revenue submitted that no question of law worth consideration arises in the present STRs. The concurrent findings given by the authorities below have adjudicated upon the question of facts and have arrived at the only possible logical conclusion. Learned counsel further submitted that the goods were delivered at F.O.R. destination price and till the time of delivery, the freight and insurance charges were to be borne by the supplier/assessee. In transit, as the risk was on behalf of the supplier, the freight cannot be deducted from the 'sale price'. In support of his submissions, learned counsel for the respondent have reliance upon judgment of the Apex Court in Tungabhadra Industries Ltd, Kurnool Vs. Commercial Tax Officer, Kurnool: (1960) 11 STC 827 (SC); Hindustan Sugar Mills Ltd. Vs. State of Raj. & Ors.: (1979) (Downloaded on 11/11/2023 at 04:15:35 PM) [2023/RJJP/003216] (7 of 12) [STR-215/2019] 43 STC 13 (SC); and India Meters Ltd. vs State of Tamil Nadu: (2010) 9 SCC 423.
9. Heard the arguments advanced by respective sides, scanned the record of the STRs and considered the judgments cited at Bar.
10. Before adverting to the merits of the case, it is necessary to reproduce and analyze the definition of 'sale price'. Accordingly, Section 2(36) of the RVAT Act and Section 2(h) of the CST Act are reproduced as under:-
"Section 2 - Definitions (of CST ACT)
(h) "sale price" means the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charged;
Provided that in the case of a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract, the sale price of such goods shall be determined in the prescribed manner by making such deduction from the total consideration for the works contract as may be prescribed and such price shall be deemed to be the sale price for the purposes of this clause.
Section 2 - Definitions (of RVAT ACT) (36) "sale price" means the amount paid or payable to a dealer as consideration for the sale of any goods less any sum allowed by way of any kind of discount or rebate according to the practice normally prevailing in the trade, but inclusive of any statutory levy or any sum charged for anything done by the dealer in respect of the goods or services rendered at the time of or before the delivery thereof, except the tax imposed under this Act;
Explanation I.-In the case of a sale by hire purchase agreement, the prevailing market price of the goods on the date on which such goods are delivered to the buyer under such agreement, shall be deemed to be the sale price of such goods;
Explanation II.-Cash or trade discount at the time of sale as evident from the invoice shall be excluded from the sale price but any ex post facto grant of discounts or incentives or rebates or rewards and the like shall not be excluded;
Explanation III.-Where according to the terms of a contract, the cost of fright and other expenses in respect of the transportation of goods are incurred by the dealer for or on behalf of the buyer, such cost of freight and other expenses shall not be included in the sale price, if charged separately in the invoice;
Emphasis supplied"
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11. On perusal of the provisions of Section 2(36) of the RVAT Act and Section 2(h) of the CST Act, as referred above, it is beyond doubt that as per the Explanation III of Section 2(36) of the RVAT Act, the cost of freight, and other related expenses like insurance, would not be included in the sale price if the same are charged separately in the invoice, even if the same are included by the dealer for or on behalf of the buyer. Similarly, as provided under Section 2(h) of the CST Act, the cost of freight, when the same is separately charged in the invoice, would not form part of the sale price. The provisions of both related Acts, whose authorities are common, have to be interpreted in harmonious, peaceful and in the intended manner. Hence, on bare perusal of the provisions of sale price, it can safely be concluded that:-
(i) Sale price is the consideration for the sale of goods;
(ii) The freight and insurance charges are deductible and would not come under the definition of 'sale price' even if borne by the dealer on behalf of buyer, if it is reflected/charged separately in the invoice.
12. Learned authorities below and learned Tax Board have drawn a conclusion that as the delivery of goods is at FOR destination, i.e. at the doorsteps of the buyer, and because transit risk is borne by the assessee/dealer/seller, the assessable price/sale price will included freight. However, such a conclusion is beyond the scope of the provisions of Section 2(36) of the RVAT Act and Section 2(h) of the CST Act and if affirmed, would frustrate the plain language as well as the intent of the legislation for the following reasons:-
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(i) Because freight is a service and not consideration in lieu of goods, as enunciated by the Finance Act, 1994;
(ii) Because once on the freight the provisions of Finance Act, 1994 are made applicable, the same constitute Item in the Union List and is thus outside the purview of State subject;
(iii) Because the intent behind Explanation-III of Section 2(36) of RVAT Act is to prevent manipulation/tampering with the sale price.
The condition of reflecting freight separately was incorporated with a view to prevent manipulation/tampering with the sale price which can be done by exaggerating the freight. It was never the intention of the legislature to include the amount of actual freight in the assessable value of goods. Therefore, separate reflection of freight on invoice was pre condition of deduction qua freight.
13. The reliance place upon the judgment of Tungabhadra Industries Ltd, Kurnool (supra), by learned counsel for the respondent-Revenue is misconceived and erroneous as in the said case, the provisions pertained to legislation of State of Andhra Pradesh and Tamil Nadu wherein freight was included in the price of goods and not separately reflected.
14. The judgment of Hindustan Sugar Mills Ltd. (supra), relied upon by learned counsel for the respondent-Revenue, is also distinguishable as the said case pertained to commodity cement, which was under the control order. The control order is under different statute which has an overriding effect over the definition of sale price and therefore, the Apex Court has taken a deviated view, but at the same time with the caveat that answer to question qua exclusion of freight would clearly be in favour of the assessee if we have regard to the terms and conditions of the (Downloaded on 11/11/2023 at 04:15:35 PM) [2023/RJJP/003216] (10 of 12) [STR-215/2019] contract without taking into account the provision of the control order. The relevant part of the judgment of Hindustan Sugar Mills Ltd. (supra), is reproduced below:
"10. This would plainly and indubitably be the position where the contract of sale entered into by the dealer is for destination railway station. But here it is necessary to bear in mind a rather important distinction. There may be a case where the contract of sale may not be for destination railway station, but the price alone may be so. Where such is the case, the contract does not have all the incidents of a for destination railway station contract, but merely the price is stipulated on that basis. The terms of such a contract may provide that the delivery shall be complete when the goods are put on rail and thereafter it shall be at the risk of the purchaser. Such a stipulation would make the railway agent of the purchaser for taking delivery of the goods. The freight in such a case would be payable by the purchaser though the price agreed upon is for destination railway station. The price of the goods receivable by the dealer would, in that event, be the for destination railway station price less the amount of freight payable by the purchaser. That would be the consideration payable by the purchaser to the dealer for the sale of the goods and the amount of freight being payable by the purchaser would not be included in the 'sale price' within the meaning of the first part of the definition. The position would be the same even if the dealer pays the freight and obtains railway receipt "freight prepaid" and claims the full for destination railway station price in the bill. The amount representing freight would not be payable as part of the consideration for the sale of the goods but by way of reimbursement of the freight which was payable by the purchaser but in fact disbursed by the dealer and hence it would not form part of the 'sale price'. Now, in the light of this discussion, let us turn to examine the facts of the present appeals. The Control Order here becomes very material. It is a statutory order having binding force and effect and it must govern the transactions of sale of cement entered into by the assessee with the purchasers. The Control Order is designed to ensure availability of cement at a uniform price throughout India irrespective of the distance from the place of manufacture and Clause (8) provides a maximum price of Rs. 214.65 per metric tonne for destination railway station at which a producer may sell cement manufactured by him. It was at this maximum price of Rs. 214.65 per metric tonne for destination railway station that, in pursuance of this clause, the assessee sold cement to various purchasers. The price was clearly inclusive of freight. But the question is : who, under the terms of the contract, was liable to pay the freight, the assessee or the purchaser? Was the contract one for delivery at destination railway station or was it a contract in which delivery to the purchaser would be complete as soon as the goods are put on rail at the place of despatch ? The answer to this question would clearly be in favour of the assessee if we have regard only to the terms and conditions of the contract without taking into (Downloaded on 11/11/2023 at 04:15:35 PM) [2023/RJJP/003216] (11 of 12) [STR-215/2019] account the provisions of the Control Order. Clause (8) of the "General Terms and Conditions of Supply" incorporated in the contract provided that once the goods are handed over to the railway and a railway receipt is obtained, the responsibility of the assessee shall cease and the risk shall pass to the purchaser and, therefore, if there is non-delivery or shortage or delay in delivery, it is the purchaser who, according to this clause, shall be entitled to make a claim against the railway. If there were over-charge of freight then again under Clause (11) it is not the assessee but the purchaser who would be entitled to lodge a claim with the railway authorities. The specimen invoice produced by the assessee also made it clear that the responsibility of the assesses for shortage, loss, delay or damage shall cease as soon as the goods are delivered at the Work Siding and all such claims may be preferred by the purchaser against the railway and in case excess freight has been charged, the purchaser shall be entitled "to lodge claim with the railways". It would, thus, be seen that according to these provisions the delivery of the goods to the purchaser would be complete as soon as they are put on rail at the Work Siding and the risk then passes to the purchaser and payment of freight would be the responsibility of the purchaser. This would be the position apart from the provisions of the Control Order and on this position, there can be doubt, for reasons already discussed, that the amount of freight would not form part of the 'sale price'. But we have to consider the impact of the provisions of the Control Order, for these provisions having statutory force and authority have overriding effect and the terms and conditions of the contract to the extent to which they conflict with these provisions must be held to be excluded."
In view of the above, the judgment of Hindustan Sugar Mills (supra) is distinguishable.
15. Time and again, the Apex Court, in Baroda Electric Meters Ltd. Vs. Collector of Central Excise: 1997 (94) E.L.T. 13 (SC); Escorts JDB Ltd. Vs. Commissioner o Central Excise, Delhi-II : 2002 (146) E.L.T. 31 (SC) and other judgments cited by the petitioner-assessee (supra), has held that the freight separately invoiced will not form part of the 'sale price' as defined in Section 2(h) of the CST Act and Section 2(36) of the RVAT Act. The literal translation of the said provisions is unambiguous and specifically excludes freight from sale price if it is separately charged/invoiced.
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16. Even the Division Bench of this Court has categorically held, in M/s Roca Bathroom Products Pvt. Ltd. (supra), that freight cannot be added in the assessable value if the same is separately reflected in the invoice.
17. The arguments advance by the Revenue that the freight and insurance are borne by the dealer and are till F.O.R. destination and thus leviable to VAT is entirely untenable and against the literal translation of definition of sale price.
18. For the reasons stated above and relying upon the judgments cited by the petitioner (supra), this Court holds that the questions of law framed above are answered in favour of the petitioner-assessee and against the respondent-Revenue. As a result, the freight charges being reflected separately in the invoice are held to be permissible deductions. The consequential relief to the petitioner-assessee be given accordingly within a period of 90 days.
19. All these STRs are allowed. Pending applications, if any, stands disposed of.
(SAMEER JAIN),J JKP/42-47 (Downloaded on 11/11/2023 at 04:15:35 PM) Powered by TCPDF (www.tcpdf.org)