Madras High Court
State Of Tamil Nadu vs Cauvery Cotton Trading Company on 10 July, 1995
JUDGMENT Abdul Hadi, J.
1. The Revenue has filed this tax case (revision) under section 38 of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the Act"), against the order of the Tribunal below in M.T.A. No. 952 of 1986, which reversed the concurrent decision of the assessing officer and the Appellate Assistant Commissioner in relation to a turnover of Rs. 1,00,000 representing the baling charges incurred by the assessee while selling cotton and deleted the penalty levied both under section 12(5)(iii) and 12(5)(ii) of the Act. The relevant assessment year is 1984-85.
2. The first of the two questions involved in this revision relates to the abovesaid turnover of Rs. 1,00,000 in relation to the baling charges incurred by the assessee while selling cotton. According to the assessee, the said charges are not includible in the "turnover" under section 2(j) of the Central Sales Tax Act read with section 2(h) of the said Act, which defines the term "sale price" and hence not chargeable to Central sales tax.
3. As already indicated while the first two authorities have held that those charges are includible in the turnover and chargeable to tax, the Tribunal has decided differently, holding that those charges are not chargeable to Central sales tax. The reasoning of the Tribunal can be seen from the following passage in the order of the Tribunal :
"According to the appellants, the said charges have been charged for separately in the sale bill and there is no proof that the baling charges have been incurred prior to the completion of sale. But the specific plea of the Revenue is that baling charges are pre-sale charges. As correctly argued by the learned counsel for the appellants that there is no proof on the side of the Revenue to the point that the baling charges have been incurred prior to the completion of sale. Furthermore, we are able to see from the bills that baling charges have been charged separately. There is proof on the side of the appellants to the point that baling charges are in the nature of labour charges for baling the cotton. Therefore, we are of the view that baling charges cannot be assessed to tax and as such same is deleted from the taxable turnover."
4. The argument of the Additional Government Pleader (Taxes), representing the Revenue, is that the abovesaid baling charges are part of the sale price, coming within the very first part of definition of the term "sale price" under section 2(h) of the Act. She also contends that even if the said baling charges come within the latter part of the definition of the term "sale price" which is an inclusive clause therein, the said baling charges are assessable to tax under the Act since those baling charges would not come under the second division of the abovesaid latter part of the definition and which is actually an exclusive clause carved out, from the abovesaid inclusive. Further according to her, the said baling charges are only pre-sale charges or in other words, the said charges have been incurred prior to the completion of the sale and hence cannot be exempted from tax. According to her, simply because those baling charges are billed separately, they cannot be exempted from tax. She also points out that the Tribunal erred in observing that there is no proof on the side of the Revenue to show that the said charges have been incurred prior to the completion of the sale. In this regard, she points out that the onus is not on the Revenue, but is only on the assessee to prove that the said charges have been incurred not prior to the completion of sale, but only subsequently. She also points out that the Tribunal erred in holding without any evidence that there is proof on the side of the assessee that the said baling charges are in the nature of labour charges for baling the cotton. She relied on the decisions in Hindustan Sugar Mills Ltd. v. State of Rajasthan , Ramco Cement Distribution Co. Pvt. Ltd. v. State of Tamil Nadu [1993] 88 STC 151 (SC), Commissioner of Sales Tax v. Rai Bharat Das & Bros. , Dyer Meakin Breweries Ltd. v. State of Kerala , Dalmia Cement (Bharat) Ltd. v. State of Tamil Nadu [1991] 83 STC 442 (Mad.); (1992) 1 MTCR 362 (Mad.) and State of Tamil Nadu v. V. V. Vanniaperumal & Co. [1990] 76 STC 203 (Mad.) [FB].
4A. There was also an attack by the learned counsel for the Revenue against the deletion by the Tribunal of the penalty levied by the authorities below it under section 12(5)(ii) and 12(5)(iii) of the Act. We shall first deal with the abovesaid question relating to the assessability to tax of the abovesaid baling charges and then proceed to deal with the said penalty question.
5. In relation to the assessability to tax of the abovesaid baling charges, the argument of learned counsel for the respondent-assessee is that whether the said baling charges were pre-sale charges or post-sale charges is not relevant and according to him, what is relevant is whether the said charges would come under the term "turnover" defined under section 2(j) of the Central Sales Tax Act read with the term "sale price" defined under section 2(h) of the Act. According to him, the abovesaid baling charges are not part of the "sale price" since the assessee only sold cotton simpliciter and the charges for baling of the cotton is only in the nature of labour charges incurred by the assessee in packing the cotton sold. He also argued that the trade practice in the cotton trade would also establish the said contention. In this connection he also relied on Srinivasa Timber Depot v. Deputy Commercial Tax Officer [1969] 23 STC 158 (Mad.), whose decision was also approved in State of Tamil Nadu v. Srinivasa Timber Depot [1991] 8O STC 393 (SC). He also relied on the decision in Deputy Commissioner v. Sri Ram Cotton Pressing Factory (P.) Limited [1977] 39 STC 277 (Mad.). Therefore, according to him, the said baling charges would not come under the term "turnover" read with the term "sale price".
6. We have considered the rival submissions. Let us first deal with the relevant provisions of the Central Sales Tax Act. Section 6 charges to tax "sales of goods..........in the course of inter-State trade or commerce.........". Section 8 prescribes the rates of tax on the abovesaid sales wherein the relevant rates are applied on the dealer's turnover. Section 8A says, inter alia, "in determining the turnover of a dealer..........the following deduction shall be made from the aggregate of the sale price.....". The term "turnover" is defined under section 2(j) to mean "the aggregate of the sale prices received and receivable by him (dealer) in respect of sales of any goods in the course of inter-State trade or commerce........". In turn, the term "sale price" is defined under section 2(h) of the Act to mean "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."
7. In (Hindustan Sugar Mills Ltd. v. State of Rajasthan), while extracting the definition of "sale price" as found in the Rajasthan Sales Tax Act, 1954 and observing that the said definition is identical with the abovesaid definition found in the Central Sales Tax Act, observed as follows :
"This definition is in two parts. The first part says that 'sale price' means the amount payable to a dealer as consideration for the sale of any goods. Here, the concept of real price or actual price retainable by the dealer is irrelevant. The test is, what is the consideration passing from the purchaser to the dealer for the sale of the goods. It is immaterial to enquire as to how the amount of consideration is made up, whether it includes excise duty or sales tax or freight. The only relevant question to ask is as to what is the amount payable by the purchaser to the dealer as consideration for the sale and not as to what is the net consideration retainable by the dealer.
Take for example, excise duty payable by a dealer who is a manufacturer. When he sells goods manufactured by him, he always passes on the excise duty to the purchaser. Ordinarily, it is not shown as a separate item in the bill, but it is included in the price charged by him. The 'sale price' in such a case could be the entire price inclusive of excise duty because that would be the consideration payable by the purchaser for the sale of the goods. True, the excise duty component of the price would not be an addition to the coffers of the dealer, as it would go to reimburse him in respect of the excise duty already paid by him on the manufacture of the goods. But, even so, it would be part of the 'sale price' because it forms a component of the consideration payable by the purchaser to the dealer. It is only as part of the consideration for the sale of the goods that the amount representing excise duty would be payable by the purchaser. There is no other manner of liability, statutory or otherwise, under which the purchaser would be liable to pay the amount of excise duty to the dealer. And, on this reasoning, it would make no difference whether the amount of excise duty is included in the price charged by the dealer or is shown as a separate item in the bill. In either case, it would be part of the 'sale price'.
8. In the said Supreme Court case, the question was whether the relevant freight charges formed part of "sale price" within the meaning of the first part of the said definition and the Supreme Court came to the conclusion that it formed part of the sale price within the meaning of the said first part.
8A. Thereafter, the Supreme Court also observed as follows with reference to the second part of the abovesaid definition of the term "sale price" :
".....The second part enacts an inclusive clause. It says that 'sale price' includes '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 case where such cost is separately charged'. Therefore, 'any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof' is to be regarded as part of 'sale price', even if it does not fall within the first part of the definition. But there is an exception carved out of this inclusion. Not all sums charged for something done by the dealer in respect of the goods at the time of or before the delivery thereof are covered by the inclusive clause. The cost of freight or delivery or the cost of installation certainly represents an amount charged for transportation or installation of the goods at the time of or before the delivery thereof and would, therefore, fall within the inclusive clause on its plain terms but it is taken out by the exclusion clause, 'other than the cost of freight or delivery or the cost of installation in case where such cost is separately charged'. This exclusion clause does not operate as an exception to the first part of the definition. It merely enacts an exclusion out of the inclusive clause and takes out something which would otherwise be within the inclusive clause. Obviously, therefore, this exclusion clause can be availed of by the assessee only if the State seeks to rely on the inclusive clause for the purpose of bringing a particular amount within the definition of 'sale price'. But if the State is able to show that the particular amount falls within the first part of the definition and is, therefore, part of the 'sale price', the exclusion clause cannot avail the assessee to take the amount in question out of the definition of 'sale price'."
9. Further in [1993] 88 STC 151 at page 163 (Ramco Cement Distribution Co. Pvt. Ltd. v. State of Tamil Nadu) the following observation of the Supreme Court is significant :
"The position in regard to packing charges as well as the excise duty on packing charges is also no different. As pointed out by this Court in the Hindustan Sugar Mills case [1979] 43 STC 13 and in Commissioner of Sales Tax v. Rai Bharat Das & Bros. , packing charges form part of 'sale price' because the expression 'any sum charged for anything done by the dealer in respect of the goods' used in the definition in section 2(h) of the Central Sales Tax Act, 1959, squarely covers such charges, as packing is an integral element of the transaction of sale and packing charges are an integral part of the sale price."
10. Following [1979] 43 STC 13 (Hindustan Sugar Mills Ltd. v. State of Rajasthan), this Court also in [1991] 83 STC 442; (1992) 1 MTCR 362 [Dalmia Cement (Bharat) Ltd. v. State of Tamil Nadu] has held that packing of the goods in gunny bags is a necessary concomitant of the sale agreement and the labour charges for packing squarely come within the first part of the sale price as defined under section 2(h) of the Central Sales Tax Act.
11. Viewed in the above light, it is clear to us that the abovesaid baling charges in the present case would certainly come under the first part of the definition of the term "sale price" and hence chargeable to tax under the Act. No doubt, if, as contended by learned counsel for the respondent-assessee, there is a separate agreement for the assessee selling cotton alone in the present case, and, yet another agreement to do baling of it, the charges for doing the said baling cannot be charged to sales tax under the Act. But, there is no such proof in the present case. In such a case, the burden of proof is only on the assessee if it wants to claim exemption as contended by it. Simply because the abovesaid baling charges have been charged separately in the bills, it cannot be concluded that there is such a proof as mentioned above. The assessee has not placed any proof to show that the agreement was only to sell cotton alone and that the work of baling cotton was de hors the said agreement to sell. The observation of the Tribunal that there is proof that the baling charges are in the nature of labour charges, is misleading. First of all even assuming they were in the nature of labour charges, they may yet form part of the definition of the term "sale price", either in the first part of it, taking into account the terms of the agreement to sell between the parties, or, at least in the second part of the said definition, if the ingredients of the said second part are satisfied.
12. The decision relied on by learned counsel for the assessee, viz., [1969] 23 STC 158 (Mad.) (Srinivasa Timber Depot v. Deputy Commercial Tax Officer) will not support him. There the lot cooly charges were found to have been collected de hors the sale and hence held to be not forming part of the turnover and that is why in [1991] 80 STC 393 (SC) (State of Tamil Nadu v. Srinivasa Timber Depot) the Supreme Court gave its approval to the said Madras decision. Further, though learned counsel for the respondent sought to urge that there was some trade practice, by which the abovesaid baling charges were incurred by the seller, de hors the sale, there is no proof at all for such a trade practice. Here also, the onus is only on the assessee to prove so.
12A. The other decision relied on by learned counsel for the respondent, viz., (1977) 39 STC 277 (Mad.) [Deputy Commissioner v. Sri Ram Cotton Pressing Factory (P.) Limited] has no application to the present case. There, the assessee was not selling cotton as in the present case. But, it only engaged in the business of pressing cotton waste brought by its customers and in the course of its business, it purchased hessian cloth and hoop iron and utilised the same in the packing of cotton waste pressed by it. Only in that connection, this Court found that there was no express contract for sale of the abovesaid packing materials like hessian cloth and hoop iron and that the department did not prove that there was any contract, for the sale of the abovesaid packing materials. Only in that context, this Court held that the charges incurred for the abovesaid packing cannot be charged to sales tax.
13. Now, alternatively, even assuming that the abovesaid baling charges come under the latter part of the definition of the term "sale price", viz., the abovesaid inclusive clause, the said charges are chargeable to tax unless the assessee could come under the abovesaid exception, carved out of the abovesaid inclusive clause. But, in the present case, there was no such argument by the learned counsel for the assessee.
13A. Dealing with the expression "any sum charged for anything done by the dealer in respect of the goods sold at the time of or before the delivery thereof" found in Explanation (2) to the definition of the term "turnover" under section 2(r) of the Act [which is same as the expression used in the abovesaid inclusive clause of section 2(h) of the Central Sales Tax Act], this Court has also held in the abovesaid [1969] 23 STC 158 (Srinivasa Timber Depot v. Deputy Commercial Tax Officer) that the said Explanation can only relate to something done by the dealer in respect of the goods at the time of or before its delivery which involves transfer of property in them for consideration. In other words, that something done would be only prior to sale, that is prior to the transfer of property in the goods sold, to the purchaser and not subsequent thereto. In the former case, the charges incurred are said to be pre-sale charges and in the latter case post-sale charges.
13B. Thus in our view, only in the case of applicability or otherwise of the abovesaid inclusive clause appearing in section 2(h) of the Central Sales Tax Act, the question of pre-sale or post-sale charges would arise. Thus, in [1990] 76 STC 203 [FB] (State of Tamil Nadu v. V. V. Vanniaperumal & Co.) also this Court has held that packing charges were deductible only when packing was done subsequent to the sale. But, in the present case, there is also no proof that the said baling was done subsequent to the sale of cotton. Here again, be onus of proof is only on the assessee.
14. The net result is, the order of the Tribunal, in so far as the abovesaid turnover of Rs. 1,00,000 is concerned, is erroneous in law. Accordingly the said decision of the Tribunal relating to the assessability of the abovesaid turnover of Rs. 1,00,000 to tax has to be set aside.
15. Then, coming to the question relating to the above referred to penalty under section 12(5)(iii) of the Act, originally the assessing officer by his order dated June 11, 1986, levied a penalty of Rs. 5,500 since the abovesaid baling charges were not included even in the revised return submitted by the assessee (on January 27, 1986, that is, long after the close of assessment year 1984-85). Thus, on the footing that the said return submitted was "incomplete" as said in section 12(4)(iii) of the Act, the said penalty was levied under section 12(5)(iii). However, this penalty was reduced by the Appellate Assistant Commissioner to Rs. 3,000. No doubt, the assessee, before the assessment is completed, filed a revised return. (While the original returns disclosed a turnover of Rs. 72,22,347, the abovesaid revised return disclosed a turnover of Rs. 80,85,823). But, in the revised return too, it did not include the abovesaid baling charges as part of its turnover. Therefore, learned Additional Government Pleader (Taxes) contended that the assessee was not acting bona fide and hence the abovesaid penalty of Rs. 3,000 as held by the Appellate Assistant Commissioner must be sustained. In this connection, the decision in State of Tamil Nadu v. Indian Silk Traders [1994] 94 STC 157 (Mad.) [App.] was also brought to our notice. It no doubt has held that while the element of deliberateness, wilfulness or the blameworthy conduct on the part of the assessee may not be necessary for invoking section 12(5) of the Act, the bona fides of the assessee have to be gone into before imposing penalty. But, learned counsel for the respondent argues that simply because in the revised return also, the assessee did not include the abovesaid baling charges as part of its turnover, it cannot be concluded that there was no bona fide on the part of the assessee, since the assessee could have genuinely thought that the said charges were not includible in its "turnover" and hence, would not have the same included in the "turnover" returned as per the revised return. In this connection, he relied on the decision in Bhavani Mills Limited v. State of Tamil Nadu [1994] 94 STC 120 (Mad.) will have any application to the present case (sic). There, even at the time of the checking of accounts, the assessees had voluntarily made a statement of sales and paid the tax voluntarily and on the date of passing of the assessment order, there was no tax to be paid by the assessee, on the turnover in question, which have been omitted to be shown in the returns. But, in the present case, even in the revised return filed the abovesaid baling charges were not included in it. While so, we see force in the argument of learned Additional Government Pleader (Taxes) and the penalty levied by the Appellate Assistant Commissioner to the extent of Rs. 3,000 has to be sustained.
16. In so far as the penalty under section 12(5)(ii) of the Act, the Tribunal has held that the said penalty levied at Rs. 12,952 and confirmed by the Appellate Assistant Commissioner is not justified on the ground that the assessee has filed a revised return, which has been acted upon by the department. On this question, learned counsel for the respondent relied on State of Tamil Nadu v. Dunlop India Ltd. [1992] 87 STC 508 which is said to have been followed by another Division Bench of this Court subsequently. In the said case, the levy of penalty under section 12(5)(ii) was held to be not called for on the following reasoning :
".........There is no time-limit prescribed for filing the revised return. In the absence of any time-limit prescribed for filing the revised return under the Act or the Rules, the question that the revised return has been filed belatedly would not arise. That being the position, the levy of penalty under section 12(5)(ii) is not called for."
In view of the said decision in [1992] 87 STC 508 (State of Tamil Nadu v. Dunlop India Ltd.) there is no error in the order of the Tribunal below in so far as the deletion of penalty under section 12(5)(ii) of the Act.
17. The net result is, on the aforesaid question of levying tax on the abovesaid baling charges incurred by the assessee and on the question of levy of penalty under section 12(5)(iii) of the Act, the decision of the Tribunal is set aside. To that extent, the tax case (revision) is partly allowed. No costs.
18. Petition partly allowed.