Bombay High Court
Gujarat Export Corporation Limited vs State Of Maharashtra on 12 January, 1990
Equivalent citations: [1990]77STC110(BOM)
Author: Sujata Manohar
Bench: Sujata Manohar
JUDGMENT Sujata Manohar, J.
1. In all these references the applicant is Gujarat Export Corporation Limited. The applicant at all times material for the reference was a registered dealer under the provisions of the Bombay Sales Tax Act, 1959, as well as under the Central Sales Tax Act, 1956. During the financial years 1973-74 and 1974-75, the applicant imported chemicals. These chemicals were sold by the applicant to various dealers at Bombay.
2. One such contract of sale was between the applicant and Ashok Traders. It is dated 18th April, 1973. This contract has been relied upon, by the consent of parties as the contract which can be considered as representative of all such contracts, for the purposes of these references. The buyers paid the customs duty on the goods and cleared the goods from the customs. The sales tax authorities have included the customs duties so paid in the sale price of the goods. This is disputed by the applicant. The Tribunal has, therefore, referred the following question to us under Section 61(1) of the Bombay Sales Tax Act as a common question in all the references :
"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the customs duty paid by the applicant's buyer-customer formed part of the sale price of the imported goods sold by the applicant to its customer for the purpose of the Bombay Sales Tax Act, 1959, and for the purpose of the Central Sales Tax Act, 1956 ?"
3. The applicants initially contended before the sales tax authorities. that the sales were in the course of import. But this contention was not pressed. They submit that in view of the terms of the contract of sale, customs duties paid by their buyers cannot be included in the sale price.
4. The contract of sale is in the form of a letter from the applicants to their buyers.
Clauses 1, 2, 3, 5, 7 and 8 of the contract are as follows :
1. Value :
We offer you Hexamine to the extent of c.i.f. value Rs. 1,40,000 against import licences.
2. Compensation :
We would be charging you a compensation of Rs. 1,47,000 over and above the c.i.f. value payable on confirmation of sale.
3. Sales tax :
We shall be charging you sales tax applicable at the time of delivery. If desired, the sale will be on high sea's basis.
5. Full payment of the c.i.f. value against intimation of the documents from the bank, plus you will also pay all charges, applicable duties, handling charges, clearing and forwarding charges, etc., to enable us to clear the material. If you require high sea's sale, the bill will have to be retired one week earlier to the arrival of the steamer.
7. Import duty:
Any change in the c.i.f. value and import duty, etc., will be entirely to your account and you will pay the same at the actuals.
8. Brokerage :
2 per cent brokerage on c.i.f. value will be payable to J. Ramniklal & Co., 69 Kazi Syed Street, Bombay-400 009.
5. The applicants, under Clauses 1 and 2 of the contract charged their customers c.i.f. value of the goods imported plus compensation of Rs. 1,47,000 over and above the c.i.f. value. Under Clause 5 of the contract full payment of the c.i.f. value was required to be made against intimation of the documents from the bank. The buyers were also required to pay all charges, applicable duties, etc., for clearing the goods from the customs. Under Clause 7 any changes in the c.i.f. value or in the import duty were on the buyer's account. Under the terms of the contract, therefore, the sale was against delivery of documents. The liability to pay customs duty was on the buyers. It is an accepted position that the goods were in fact cleared from the customs by the buyers themselves on payment of customs duty. In these circumstances it is submitted by Mr. Patel, learned Advocate for the applicant, that the consideration for sale was only the c.i.f. value of the goods, plus compensation and that customs duty which was paid by the buyers on their own account cannot be included in the sale price of these goods.
6. Under Section 2, Sub-section (28) of the Bombay Sales Tax Act, 1959, "sale" is defined to mean "a sale of goods made within the State, for cash or deferred payment or other valuable consideration...............". Under Section 2, Sub-section (29), "sale price" means "the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for anything done by the dealer in respect of goods at the time of or before delivery thereof............". The definitions of these terms under the Central Sales Tax Act are similar.
7. Sale price therefore means the amount of valuable consideration for a sale. It includes sums charged for anything done by the dealer in respect of the goods at the time of or before delivery. The contracts in the present case are c.i.f. contracts. The transaction of sale was complete on payment by the buyer of valuable consideration as per Clauses 1 and 2 of the contract and delivery of the documents to the buyer. The customs duty was paid by the buyer after completion of sale, i.e., at a time when they were the owners of the goods. Ordinarily in these circumstances, customs duty cannot be included in the price of the goods purchased prior to customs clearance.
8. In the case of Mdhabir Commercial Co. Ltd. v. Commissioner of Income-tax, West Bengal reported in [1972] 86 ITR 417, the Supreme Court has observed that under the c.i.f. contract prima facie the property in the goods passes once the documents are tendered by the seller to the buyer or his agent as required under the contract. But, where the seller retains control over the goods by obtaining a bill of lading in his name or to his order, the property in the goods does not pass to the buyer until he endorses the bill of lading to the buyer and delivers the documents to him. If, however, the seller's dealing with the bill of lading is only to secure the contract price, not with the intention of withdrawing the goods from the contract, and he does nothing inconsistent with an intention to pass the property, the property may pass either forthwith subject to the seller's lien or conditional on performance by the buyer of his part of the contract. In the present case from the statement of the case it is not clear whether in fact the bill of lading was endorsed by the applicants in favour of their buyers or not. But the bill of entry was in the name of the applicants since the goods were imported by the applicants. From the statement of the case it is clear that the documents were handed over by the applicants to their purchasers on receipt of the consideration as mentioned in the contract and the sellers have not thereafter done anything which would indicate any intention on their part not to transfer the property to their buyers. The sale was therefore complete at that stage. The goods were cleared thereafter on payment of customs duty by the buyers. The buyers were also liable, under the contract, to pay any variations in the customs duty. In these circumstances, the customs duty cannot be considered as a part of the sale price.
9. It is urged by Mr. Jetly, learned Advocate for the respondent, that the customs duty was paid by the buyers on behalf of the applicant because the bill of entry was in the name of the applicant. Hence it must be included in the purchase price. This contention must be rejected.
10. Under the terms of the contract, the liability to pay the customs duty was cast on the buyers. The buyers were therefore liable to pay the customs duty on their own account and not on account of the sellers. Under the Customs Act, 1962, also they were liable to pay customs duty. Under the Customs Act, 1962, an "importer" is defined extensively under Section 2(26). This section is as follows :
"2(26) 'importer', in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner or any person holding himself out to be the importer."
In the present case the buyers were the owners of the goods at the time when the goods were cleared for home consumption. The buyers were therefore importers within the definition of "importer" under the Customs Act.
11. As "importers", buyers were liable to pay customs duties. Under Section 12 of the Customs Act, duties of customs are leviable on goods imported into or exported from India. Under Section 46, the importer of any goods shall make an entry thereof by presenting to the proper officer a bill of entry for home consumption or warehousing in the prescribed form. Under Section 17 of the Customs Act, after an importer has entered any imported goods under Section 46, the imported goods may, without undue delay be examined and tested by the proper officer and assessed. Customs duties are, therefore, payable by an importer which includes the owner of the goods.
12. As per the prescribed form of the bill of entry, the importer is also required to give a declaration, inter alia, that the particulars in the bill of entry are correct and the contents of the packages are as per the bill of lading. According to Mr. Jetly, such a declaration can only be filed by the actual importer. A buyer from such an importer is, therefore, not an importer for the purposes of payment of customs duties. We are unable to agree. The definition of "importer" under the Customs Act expressly includes the owner of the goods at the time of clearance. There is nothing in the scheme of the Customs Act which requires us to exclude an owner of the goods from the definition of "importer" for the purposes of Section 46 or for the purposes of the forms prescribed under the Bill of Entry Regulations, 1976, which have been framed under Section 167 read with Section 46 of the Customs Act. The owner of the goods, therefore, at the time of clearance of the goods, is liable to pay customs duties in respect of the goods which he owns. In the present case, therefore, the buyers from the applicant who had become the owners of the goods at the time of clearance were liable to pay customs duties before the clearance of the goods in question. In these circumstances, it cannot be said that the customs duties which were paid by the buyers were on behalf of the applicant. They cannot, therefore, be included in the sale price of the goods, for the purposes of the Bombay Sales Tax Act or the Central Sales Tax Act.
13. In the case of McDowell & Company Ltd. v. Commercial Tax Officer, VII Circle, Hyderabad reported in [1977] 39 STC 151 ("the first McDowell case"), the Supreme Court was required to consider whether the excise duty or the countervailing duty paid directly to the treasury by the purchasers of liquor before removing it from the distillery or the bonded warehouse and not included in the sale bills issued by the manufacturer or the owner of the bonded warehouse formed a part of their turnover. The Supreme Court held that excise duties did not form a part of the sale price and were not liable to sales tax. Under the Andhra Pradesh Indian Liquor (Storage in Bond) Rules, 1969, read with the Andhra Pradesh Excise Act, 1968 and the Andhra Pradesh Distillery Rules, 1970, which were applicable in that case, the intending purchasers of Indian liquor were also legally responsible for payment of excise duty. Hence the Supreme Court held that excise duty was paid by the buyers on their own account. The Supreme Court, however, also observed that the excise and countervailing duty which were paid by the purchasers did not go into the common till of the sellers and did not become a part of their circulating capital.
14. These observations of the Supreme Court were considered as not a decisive basis for determining whether such duties would form a part of the turnover of sales or not by the Supreme Court in the second McDowell & Company case (McDowell & Company Limited v. Commercial Tax Officer, . During the period relevant to the second McDowell case , however, the Andhra Pradesh Distillery Rules had been amended in 1981. Under the amended rules the payment of excise duty was the primary and exclusive obligation of the manufacturer. The Supreme Court, therefore, held that if payment of excise duty is made under a contract or arrangement by any other person it would amount to meeting of the obligation of the manufacturer by that person and nothing more. Payment by the purchaser was therefore held to be on account of the manufacturer. Excise duty was therefore held as a part of the price of the goods in question.
15. In the present case the provisions of the Customs Act cast the liability for payment of customs duty on the owner of the goods as well as on the person holding himself out to be the importer of the goods. It includes the buyers in the present case. Under the contract between the parties, the buyer was required to pay the customs duties. The present case, therefore, falls within the ratio of the Supreme Court decision in the first McDowell & Co. case and not under the ratio of the second McDowell & Co. case .
16. Mr. Patel, learned counsel for the applicant, also relied upon the decision of the High Court of Mysore, in the case of P.V. Beedies (Private) Ltd. v. State of Mysore reported in [1963] 14 STC 139. In that case a buyer had purchased tobacco from a dealer for a specified amount, at the time when the tobacco was non-duty paid. The duty was subse-quently paid by the buyer under Section 7 of the Central Excise Rules. The court said that the duty paid by the buyer was not a part of the price and could not be included in the purchase turnover of the buyer. Such duty is part of the price only if it forms part of the consideration for the sale.
17. Mr. Jetly, however, relied upon a decision of the Kerala High Court in the case of Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. Bata India Ltd. reported in [1986] 62 STC 436, under which rubber cess collected from the manufacturers of different rubber products was held to be a part of their purchase turnover. Since this decision of the Kerala High Court has been overruled by the Full Bench of the Kerala High Court in the case of Madras Rubber Factory Limited v. State of Kerala reported in [1989] 74 STC 56, on the ground that under the relevant Rubber Rules, 1955, the liability to pay cess on rubber is cast on the manufacturer alone, we need not examine that case any further.
18. Mr. Jetly also relied upon two cases dealing with freight, namely, Arvind Motors v. State of Karnataka [1985] 59 STC 337 (Kar) [FB] and Commissioner, Sales Tax, U.P., Lucknow v. Vinod Coal Syndicate [1982] 61 STC 24 (All.). Both these cases are based upon a decision of the Supreme Court in the case of Dyer Meakin Breweries Ltd. v. State of Kerala, reported in [1970] 26 STC 248. Under Rule 9(f) of the Kerala General Sales Tax Rules, 1963, while determining the taxable turnover, expenditure incurred by the seller for and on behalf of the purchaser, and after sale expenditure, including expenditure for transport of goods from the place of sale to the buyer's place is excluded from the price. The question was whether freight and expenses incurred by the dealer in order to bring the goods from their place of manufacture to their place of sale could be excluded from the sale price. This was negatived by the Supreme Court, These decisions have no relevance to the questions before us. In connection with inclusion or exclusion of freight from turnover, Mr. Patel, learned Advocate for the applicant, had also relied upon a decision of the Supreme Court in the case of Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh, . This case also has no direct bearing on the question before us.
19. It was submitted by Mr. Jetly that excluding customs duty from the turnover of sales of the applicant would be contrary to the scheme of the Act. When the sales tax is levied as a single point sales tax, the collection of sales tax would be affected by the exclusion of customs duty from the price. We are unable to appreciate this argument. We do not see how the scheme of the Act is in any way affected by the exclusion of the customs duties paid in the circumstances of the present case from the sales turnover of the applicants.
20. The question, therefore, referred to us is answered in the negative and in favour of the assessee.
The respondents to pay to the applicant costs of the references.
Rs. 100 deposited by the applicant to be refunded to them.