1979 (8) TMI 186 - SC - VAT and Sales Tax

Whether in sales of cement effected by the appellant under the Cement Control Order 1967 the amount of freight formed part of the sale price so as to be exigible to sales tax under the Central Sales Tax Act 1956 and the Rajasthan Sales Tax Act 1954? Held that - Appeal allowed. Having regard to the opinion of the Law Department of the Government of India no clause was introduced in the contract with the Director-General of Supplies and Disposals providing for reimbursement of the amount of sales tax to the appellant in case the appellant was liable to pay the same under the Central Sales Tax Act 1956 and the Rajasthan Sales Tax Act 1954. We thought that in the absence of any such clause in the contract there would be no legal liability on the Central Government to pay to the appellant the amount of sales tax on the freight component of the price in respect of transactions of sale of cement entered into by the appellant with the Director-General of Supplies and Disposals

Summary

Issues:
- Interpretation of "sale price" under the Cement Control Order, 1967
- Liability of freight in sales tax under Central Sales Tax Act, 1956, and Rajasthan Sales Tax Act, 1954
- Legal obligation of Central Government to reimburse sales tax on freight component
- Existence of clause in contracts with Director-General of Supplies and Disposals for reimbursement of sales tax
- Review of earlier observations made by the Supreme Court

Interpretation of "sale price" under the Cement Control Order, 1967:
The Supreme Court addressed the issue of whether the amount of freight should be included in the "sale price" for the purpose of sales tax under the Central Sales Tax Act, 1956, and the Rajasthan Sales Tax Act, 1954. The Court held that as per the terms of the Cement Control Order, 1967, the amount of freight formed part of the "sale price" and was liable to be included in the turnover for taxability under both Acts.

Liability of freight in sales tax under Central Sales Tax Act, 1956, and Rajasthan Sales Tax Act, 1954:
The Court discussed the liability of freight in sales tax under the Central Sales Tax Act, 1956, and the Rajasthan Sales Tax Act, 1954. It was noted that the appellant had entered into transactions with the Central Government, claiming reimbursement of sales tax based on freight being part of the "sale price." However, the Law Department of the Government of India advised that freight was not part of the "sale price." The Court emphasized the importance of legal liabilities and fair treatment of citizens in a democratic society.

Legal obligation of Central Government to reimburse sales tax on freight component:
The Supreme Court initially made observations regarding the Central Government's obligation to reimburse sales tax on the freight component, despite acknowledging there was no legal liability. However, upon review, it was found that the Rate Contract with the Director-General of Supplies and Disposals contained a clause stating that sales tax, if legally leviable, would be reimbursed by the Central Government. The Court clarified that the Central Government was indeed obligated to pay the sales tax on the freight component as per the contract terms.

Existence of clause in contracts with Director-General of Supplies and Disposals for reimbursement of sales tax:
The Court highlighted the presence of clause (8)(1) in the Rate Contract with the Director-General of Supplies and Disposals, which mandated reimbursement of sales tax legally leviable from the appellant. This clause imposed a legal obligation on the Central Government to pay the sales tax on the freight component, contrary to the earlier assumption made by the Court.

Review of earlier observations made by the Supreme Court:
Upon realizing the existence of the reimbursement clause in the contracts, the Supreme Court allowed the application for review and decided to delete the earlier observations regarding the Central Government's legal liability to reimburse sales tax on the freight component. The Court emphasized the importance of honoring legal obligations and fair treatment of citizens by the State, without resorting to legal technicalities.