1976 (2) TMI 161 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the freight charges can be deducted from the taxable turnover.
2. Interpretation of clauses in the Cement Control Order and the agreement between the manufacturer and the purchaser.
3. Applicability of the Supreme Court decision in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh.
4. Whether the freight collected by the assessee on behalf of the Cement Controller can be included in the taxable turnover.
5. Interpretation of Rule 6(c) of the Tamil Nadu General Sales Tax Rules, 1959, regarding freight charges.
6. Whether freight can be considered as a discount under paragraph (iii) to explanation (2) to section 2(r) read with rule 5-A(a).

Detailed Analysis:

1. Deduction of Freight Charges from Taxable Turnover:
The respondent-assessees, manufacturers of cement, claimed a deduction of Rs. 14,04,131.29, representing freight charges, from their taxable turnover. They argued that since freight was separately specified and charged in their invoices, it should be deductible. However, the assessing officer and the Appellate Assistant Commissioner rejected this claim, including the disputed turnover as part of the price realized for the cement sold. The Tribunal, following the Supreme Court decision in Hyderabad Asbestos Cement Products Ltd., allowed the appeal, excluding the freight charges from the taxable turnover.

2. Interpretation of Clauses in the Cement Control Order and Agreement:
The Cement Control Order, 1967, under clauses 8, 9, 11(1), and 11(2), fixed a uniform ex-factory price for cement and mandated that the price be free on rail destination railway station. The court noted that producers must sell cement at a fixed rate regardless of the distance, implying that the freight cost is included in the price. Clauses in the agreement between the manufacturer and the purchaser, such as clauses 5, 9, 10, and 14(a), were examined. The court concluded that these clauses did not show any variance in the payment of price and that the purchaser was responsible for freight charges initially, with the seller giving credit for the same in the bill.

3. Applicability of the Supreme Court Decision in Hyderabad Asbestos Cement Products Ltd.:
The court distinguished the present case from the Hyderabad Asbestos Cement case, where the Supreme Court held that freight was not included in the price due to specific contractual terms. The Cement Control Order mandated an all-inclusive price free on rail destination, making the producer liable for freight. Therefore, the decision in Hyderabad Asbestos Cement Products Ltd. was deemed inapplicable.

4. Freight Collected on Behalf of the Cement Controller:
The assessee argued that the freight collected was on behalf of the Cement Controller and should not be included in the taxable turnover. The court rejected this argument, stating that the price fixed under the Cement Control Order included the freight element, and the liability to pay freight was on the seller, not the purchaser. Thus, no collection on behalf of the Cement Controller was recognized.

5. Interpretation of Rule 6(c) of the Tamil Nadu General Sales Tax Rules, 1959:
Rule 6(c) allows deduction of freight charges from the total turnover if specified and charged separately. The court found that the freight was included in the price of the goods sold and not a post-sale charge. The invoices showed a free on rail destination price, and the freight was not charged separately. Therefore, the assessee was not entitled to a deduction under Rule 6(c).

6. Freight as a Discount:
The assessee claimed that freight should be considered a discount under paragraph (iii) to explanation (2) to section 2(r) read with rule 5-A(a). The court rejected this argument, noting that the assessee collected the full amount and only gave credit for the freight in the invoices. This did not constitute a discount from the sale price.

Conclusion:
The court concluded that the Tribunal erred in deleting the disputed turnover from the taxable turnover. The freight charges were included in the price fixed under the Cement Control Order, and the assessee was not entitled to deduct them from the taxable turnover. The tax revision case was allowed with costs, and the petition was granted.

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