1999 (9) TMI 917 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the freight charges charged separately could be treated as part of the turnover.
2. Liability of the revisionist for payment of interest on delayed payment of tax.

Issue-wise Detailed Analysis:

1. Freight Charges as Part of Turnover:

The revisionist, a cement manufacturer, contended that freight charges charged separately should be excluded from the taxable turnover. The Tribunal, however, rejected this contention, relying on the Supreme Court's decision in Hindustan Sugar Mills Ltd. v. State of Rajasthan, which held that under the Cement Control Orders, freight charges are part of the sale price and cannot be excluded from the taxable turnover.

The revisionist argued that the contract of sale was not f.o.r. destination and that the responsibility for loss, shortages, or damage ceased once the goods were handed over to the carriers. Despite this, the Tribunal held that the Cement Control Orders, which have statutory force, mandated that the prices shall be f.o.r. destination and include freight charges.

The Supreme Court's decision in Hindustan Sugar Mills Ltd. was pivotal, as it established that the Control Orders have overriding effect and that the freight charges form part of the sale price. The relevant clauses of the Cement Control Order, 1967, including clauses 7, 8, 9, and 11, were discussed in detail, emphasizing that the maximum price of cement included freight charges and that the producer was to be reimbursed for freight from the Cement Regulation Account.

The definition of "turnover" under section 2(i) of the U.P. Sales Tax Act and its explanations were examined. Explanation II(i) states that the amount for which goods are sold includes any sums charged for anything done by the dealer in respect of the goods sold at the time of or before delivery, excluding freight if charged separately. However, the Cement Control Order's provisions, having statutory force, override this explanation, making freight charges part of the turnover.

The court concluded that the freight charges, even when charged separately, are part of the taxable turnover due to the overriding effect of the Cement Control Order. The decision in U.P. State Cement Corporation Ltd. v. Commissioner of Sales Tax, which did not consider the effect of the Cement Control Order, was not applicable post the Supreme Court's ruling in Hindustan Sugar Mills Ltd.

2. Liability for Payment of Interest:

The revisionist argued that they bona fidely believed they were not liable to pay tax on freight charges, supported by a prior High Court decision. The Supreme Court's decision in Hindustan Sugar Mills Ltd. came later, and the revisionist could not have anticipated this change in the interpretation of the Control Order.

For Central Sales Tax, the Supreme Court in India Carbon Ltd. v. State of Assam held that there is no provision for charging interest under the Central Sales Tax Act, thus the revisionist was not liable for interest on delayed payment of Central sales tax.

Under the U.P. Sales Tax Act, section 8(1) mandates interest on delayed tax payments. However, considering the bona fide belief of the revisionist, supported by the High Court's earlier decision, the court held that the revisionist was not liable to pay interest on the unpaid tax amount. The department itself was unclear about the effect of the Cement Control Order before the Supreme Court's interpretation.

The court referenced Annapurna Biscuit Manufacturing Co. v. State of Uttar Pradesh, which held that if a dealer calculates tax based on the prevailing legal interpretation, they should not be penalized for subsequent judicial changes. Given the revisionist's bona fide belief and subsequent tax payment, the court concluded that interest on the delayed tax payment was not warranted.

Judgment:

The revisions were partly allowed. The Tribunal's decision on the taxability of freight charges as part of the turnover was upheld. However, the orders regarding interest on delayed tax payment were set aside, and it was held that the revisionist was not liable to pay interest on the delayed tax payment under the peculiar facts and circumstances of the case. Petitions were partly allowed.

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