2005 (1) TMI 383 - SC - VAT and Sales Tax

Whether the transportation charges and agent s commission paid by the respondent to the agent together with the cost of raw materials constitute turnover under section 2(s) and is liable to sales tax under section 6-A of the Andhra Pradesh General Sales Tax Act, 1957 (6 of 1957)? Held that - the appeal filed by the State of Andhra Pradesh is allowed. The question of law is answered in the affirmative and in favour of the State. The Control Order was paramount; it had overriding effect and if it stipulated that the freight was payable by the producer, such stipulation must prevail, notwithstanding any term or condition of the contract to the contrary. Therefore, by reason of the provisions of the Control Order, which governed the transactions of sale of cement entered into by the assessee with the purchasers, the amount of freight formed part of the sale price within the meaning of the first part of the definition of that term in section 2(p) of the Rajasthan Act and section 2(h) of the Central Act and was includible in the turnover of the assessee.

Issues Involved:
1. Whether transportation charges and agent's commission paid by the respondent constitute "turnover" under section 2(s) of the Andhra Pradesh General Sales Tax Act, 1957, and are liable to sales tax under section 6-A of the Act.

Detailed Analysis:

1. Transportation Charges and Agent's Commission as Part of Turnover:
The core issue in this appeal is whether the transportation charges and agent's commission paid by the respondent to the agent, along with the cost of raw materials, constitute "turnover" under section 2(s) and are liable to sales tax under section 6-A of the Andhra Pradesh General Sales Tax Act, 1957.

The respondent, a public limited company engaged in manufacturing paper, purchased hardwood from unregistered dealers through agents. These agents were responsible for purchasing the raw materials and delivering them to the respondent's factory, with the total consideration including the cost of raw materials, transportation charges, and the agent's commission.

The Commercial Tax Officer included these charges in the taxable turnover, determining the tax payable to be Rs. 2,42,537. The Appellate Deputy Commissioner upheld this decision, stating that the entire consideration paid by the respondent constituted the purchase value of the raw materials liable to tax under section 6-A.

However, the Sales Tax Appellate Tribunal directed the deletion of transportation charges and agent's commission from the gross and net turnovers, reasoning that these expenses were incurred after the purchase of raw materials and did not form part of the sale consideration.

2. High Court's Summary Dismissal:
The High Court dismissed the revision filed by the appellant on the summary ground that transportation charges and agent's commission were incurred subsequent to the purchase of raw materials and did not represent the sale consideration passing from the buyer to the seller, thus constituting a finding of fact.

3. Supreme Court's Ruling:
The Supreme Court disagreed with the Tribunal and High Court's findings, emphasizing that the total amount paid to the agents, which included transportation charges and commission, should be part of the turnover. The Court referenced the definition of "turnover" under section 2(s) and "total turnover" under section 2(r), which includes all amounts paid as part of the sale consideration.

The Court cited the case of E.I.D. Parry (I) Ltd. v. Assistant Commissioner of Commercial Taxes, where it was held that the total amount of consideration for the purchase of goods includes the price and other amounts representing expenses required for completing the sale. Similarly, in D.C. Johar & Sons (P.) Ltd. v. Sales Tax Officer, Ernakulam, it was established that tax is levied on the aggregate sale price, including freight and handling charges incurred prior to the sale.

The Court concluded that the transportation charges and agent's commission were part of the total consideration paid for the purchase of raw materials and, therefore, should be included in the taxable turnover.

4. Legal Precedents:
The judgment referenced several key cases to support its decision:
- E.I.D. Parry (I) Ltd. v. Assistant Commissioner of Commercial Taxes: Establishing that planting and transport subsidies are part of the purchase price.
- D.C. Johar & Sons (P.) Ltd. v. Sales Tax Officer, Ernakulam: Affirming that freight and packing charges are part of the sale price.
- Dyer Meakin Breweries Ltd. v. State of Kerala: Holding that freight and handling charges incurred before the sale are part of the sale price.
- Hindustan Sugar Mills Ltd. v. State of Rajasthan: Confirming that freight charges under a control order are part of the sale price.
- Greaves Chitram Limited v. State of Tamil Nadu: Stating that transport charges are includible in the sale price if delivery is at the buyer's place.
- Ram Oxygen (P) Ltd. v. Joint Commissioner (CT): Supporting the inclusion of freight in turnover.

Conclusion:
The Supreme Court allowed the appeal filed by the State of Andhra Pradesh, setting aside the orders of the Sales Tax Appellate Tribunal and the High Court. The Court affirmed that transportation charges and agent's commission are part of the turnover and liable to sales tax under section 6-A of the Andhra Pradesh General Sales Tax Act, 1957. The appeal was allowed with no order as to costs.

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