1971 (10) TMI 105 - HC - VAT and Sales Tax

Issues Involved:

1. Inclusion of excise duty in taxable turnover.
2. Legality of the amendment to Rule 9 of the Kerala General Sales Tax Rules, 1963.
3. Inclusion of inward freight charges in taxable turnover.
4. Interpretation of Section 6 of the Kerala General Sales Tax Act, 1963.
5. Competence of the State Government to amend Rule 9.
6. Allegation of taxation on tax.
7. Deduction of freight charges from taxable turnover.

Issue-wise Detailed Analysis:

1. Inclusion of Excise Duty in Taxable Turnover:
The petitioner-company contended that the amounts of excise duty charged to customers should not be included in the taxable turnover for assessments under the Kerala General Sales Tax Act. The court examined the definitions of "turnover" and "taxable turnover" under the Act and concluded that the aggregate amounts for which the goods are sold, which include excise duty, constitute the turnover. The court held that since the excise duty paid by the petitioner was passed on to the customers and included in the total sale price, it formed part of the taxable turnover.

2. Legality of the Amendment to Rule 9:
The petitioner challenged the legality of the amendment to Rule 9 by the notification dated 28th December 1965, which deleted clause (i) that allowed deduction of excise duty from the total turnover. The court held that the State Government had the competence to amend the rule, and the deletion of clause (i) did not create a new tax but merely withdrew an exemption. The amendment was within the powers of the State Government and did not violate any legislative provisions.

3. Inclusion of Inward Freight Charges in Taxable Turnover:
The petitioner also claimed deduction of inward freight charges incurred for transporting liquor to Ernakulam. The court referred to previous Supreme Court decisions, including Dyer Meakin Breweries Ltd. v. State of Kerala and D.C. Johar & Sons (P.) Ltd. v. Sales Tax Officer, Ernakulam, which held that freight and handling charges prior to the sale are components of the sale price and cannot be deducted from the taxable turnover. Therefore, the court rejected the petitioner's claim for deduction of freight charges.

4. Interpretation of Section 6 of the Kerala General Sales Tax Act, 1963:
The petitioner argued that Section 6 indicated that sales tax should not operate as a tax on tax. The court clarified that Section 6 merely states that the tax under the Act is in addition to any other tax levied under other laws and does not provide for exclusion of excise duty from the taxable turnover. The court rejected the petitioner's interpretation that sales tax should be inclusive of other taxes.

5. Competence of the State Government to Amend Rule 9:
The petitioner contended that the State Government had no inherent competence to delete clause (i) of Rule 9. The court held that if the State Government had the power to originally include clause (i), it also had the power to subsequently amend the rule by deleting the clause. The court found no merit in the petitioner's argument regarding the State Government's competence.

6. Allegation of Taxation on Tax:
The petitioner argued that including excise duty in the taxable turnover amounted to taxation on tax. The court held that the aggregate amount for which the goods are sold, including excise duty, forms the turnover. The court referred to Supreme Court decisions in George Oakes (Private) Ltd. v. State of Madras and State of Kerala v. N. Ramaswami Iyer & Sons, which established that the entire sale price, including taxes passed on to the buyer, constitutes the turnover. The court found no constitutional inhibition against such inclusion.

7. Deduction of Freight Charges from Taxable Turnover:
The petitioner sought deduction of freight charges from the taxable turnover. The court reiterated the Supreme Court's position that freight and handling charges incurred prior to the sale are part of the sale price and cannot be deducted. The court dismissed the petitioner's claim for exemption of freight charges.

Conclusion:
The court dismissed the original petition, rejecting all grounds of exemption put forward by the petitioner. The parties were directed to bear their respective costs.

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