2005 (1) TMI 691 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the freight charges form part of the turnover.
2. Whether the dealer is exempt from payment of interest on tax imposed.
3. Whether gunny bags in which cement was packed and sold were taxable as jute goods.

Issue-wise Detailed Analysis:

1. Whether the freight charges form part of the turnover:

The case revolves around whether the freight charges collected by the dealer for transporting cement from dumps to customers' destinations should be included in the turnover. The dealer, a cement manufacturer, had dumps in Uttar Pradesh and charged separate freight charges for deliveries from Kanpur and Sitapur dumps. The Assessing Authority included these freight charges in the turnover, citing the Cement Control Order, which mandates that the price of cement is FOR (Free on Rail) customer destination, inclusive of freight. This decision was challenged by the dealer, and the Tribunal ruled in favor of the dealer, stating that the sales were by stockists, not the manufacturer, and thus the freight charges should not be included in the turnover.

The court examined the Supreme Court's decision in Hindustan Sugar Mills v. State of Rajasthan, which dealt with similar issues under the Cement Control Order. The Supreme Court held that the Control Order has statutory binding force and ensures cement is available at a uniform price throughout India, inclusive of freight. The freight charges, therefore, form part of the sale price and turnover. The court noted that the Tribunal erred in its conclusion and remanded the matter for reconsideration, emphasizing that if the reimbursement from the Cement Regulations Fund included freight up to the customer destination, then the freight charges should be part of the turnover.

2. Whether the dealer is exempt from payment of interest on tax imposed:

The second issue concerned whether the dealer should pay interest on the tax imposed on the freight charges. The Assessing Authority treated the tax levied on the freight charges as admitted tax and demanded interest under Section 8(1) of the U.P. Trade Tax Act. The First Appellate Authority set aside this demand, and the Tribunal confirmed the decision. The court upheld this view, stating that the dealer never admitted liability on the freight charges, and it was a highly disputed question. Therefore, the tax on freight charges could not be treated as admitted tax, and interest under Section 8(1) was rightly deleted. However, the court noted that if it is ultimately held that freight charges form part of the turnover, interest under Section 8(1-B) could be demanded.

3. Whether gunny bags in which cement was packed and sold were taxable as jute goods:

The third issue was whether the gunny bags used for packing cement were taxable as jute goods. The Tribunal did not address this issue directly in its order. The court observed that the dispute before the Tribunal was primarily about the interest on tax imposed due to freight charges. Therefore, this specific question did not arise from the Tribunal's order and was not addressed in the judgment.

Conclusion:

The court allowed the revision on the first issue, setting aside the Tribunal's order and remanding the matter for reconsideration. On the second issue, the court dismissed the revision, upholding the deletion of interest under Section 8(1). The third issue was not directly addressed as it did not arise from the Tribunal's order in this case.