1954 (9) TMI 20 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether sums called 'commission to agents' or 'trade discount' are liable to exclusion from the turnover.
2. Whether the cost of railway freight paid separately by the customer can be considered as 'separately charged' for the purpose of the definition in section 2(h)(i) of the Sales Tax Act.
3. Whether transactions between the petitioner and its selling agents outside the Province were 'sales' within the meaning of the Act.

Issue-wise Detailed Analysis:

1. Commission to Agents or Trade Discount:

The Board allowed the assessee's objection relating to "trade discount" or cash discount, treating both on the same footing. The Board reasoned that there was no distinction between these two under the Sales Tax Act, as such a distinction "would appear to be contrary to the spirit behind the entire section 2(h) of the Act". The Board also considered the "obvious injustice in levying a tax on an amount which not only the dealer has not received, but which he has foregone". Therefore, the Board held that the assessee was entitled to a deduction on that account, forming the subject-matter of the first question raised in Miscellaneous Civil Case No. 65 of 1952. The High Court upheld this view, stating that the facts as stated by the Board indicate that the amount in question was not payable to or receivable by the dealer as a matter of contract between the parties. Thus, the question was answered in the affirmative, in favor of the assessee.

2. Cost of Railway Freight:

The Board of Revenue had differing opinions on whether the amount paid by way of railway freight should be excluded from the sale price. The President of the Board believed that the assessee was entitled to the deduction, reasoning that the amount of freight paid by the purchaser did not go into the seller's coffers. However, another member, Shri N.P. Shrivastava, disagreed, viewing the contract "F.O.R. destination" as indicative of an all-inclusive price. The matter was referred to another member, Shri M.R. Joshi, who agreed with the dissenting member, concluding that the cost of railway freight did not qualify for exclusion from the sale price.

The High Court agreed with the dissenting view, stating that the determining factor is the terms of the actual contract between the parties. If the contract was "F.O.R. destination," it must mean that the price was intended to include the railway freight. The Court emphasized that the definition of "sale price" in section 2(h) of the Act would include railway freight, even if paid by the purchaser, as long as the contract indicated an all-inclusive price. The Court also clarified that the clause "when such cost is separately charged" governs all three costs: freight, delivery, and installation. Therefore, the question was answered in the negative.

3. Transactions with Selling Agents Outside the Province:

The Board of Revenue concluded that the contracts of sale were made when the goods were situated in the Province, relying on the statement made by the assessee's authorized representative. The Board also noted that in cases where full payment had been received in advance, the actual transfer of property took place within the Province when the goods were railed. The Board rejected additional evidence in the form of affidavits as belated attempts to contradict the earlier statements.

The High Court upheld the Board's findings, stating that it is too late to go behind the finding recorded by the Board of Revenue. The Court emphasized that its function is confined to answering the questions raised and referred to it, not to investigate the correctness of the Board's findings. The Court answered the question in the affirmative, agreeing with the conclusions reached in a previous case, Messrs. Shriram Gulabdas v. Board of Revenue.

Conclusion:

The High Court answered the questions as follows:
1. The commission to agents or trade discount is liable to exclusion from the turnover, in favor of the assessee.
2. The cost of railway freight paid separately by the customer cannot be considered as 'separately charged' for the purpose of the definition in section 2(h)(i) of the Sales Tax Act, against the assessee.
3. The transactions between the petitioner and its selling agents outside the Province were 'sales' within the meaning of the Act, in favor of the Department.

The assessee was ordered to pay the costs of the Commissioner of Sales Tax, with a hearing fee of Rs. 250.