9911796707
TMI Blog1992 (11) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... Commercial Tax Officer made a reassessment revising the tax from 4 per cent to 8 per cent on the freight charges of Rs. 89,64,519. This was the subject-matter of appeal in T.A. No. 612/85 and T.R.C. No. 197 of 1988 arises out of that appeal. At the outset it may be stated that there is no dispute in these T.R.Cs. with regard to the tax levied on the freight charges forming part of the sale bills in so far as the rail despatches are concerned and the entire dispute is only with respect to despatches by lorries. It should also be mentioned that no separate arguments were addressed on the question of rate of tax in T.R.C. No. 197 of 1988. Obviously, if the freight charges under dispute are includible in the turnover the revised rate applied is legally correct. During the relevant years, the sale of cement was governed by the Cement Control Order, 1967, as amended from time to time. The Cement Control Order was promulgated by the Central Government in exercise of powers conferred on them by the Industries (Regulation and Development) Act, 1951. Clause 3 of the said Order lays down a prohibition against the removal of cement whether sold or unsold from the premises of the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment under the first proviso to clause 8. The proviso to clause 9 provides that the expenditure incurred by the producer on freight by the cheapest mode of transport or if any other mode of transport has been specified by the Central Government under clause 4 by such mode of transport shall be reimbursed to the producer by the Controller from out of the Cement Regulation Account referred to in clause 11. Clause 10 of the Order fixes the wholesale and retail prices of the cement and prohibits sale by dealers at a price exceeding the same. Clause 11 deals with Cement Regulation Account which the Controller has to maintain as a part of mechanism to ensure the realisation of the objectives of the order and its proper implementation. The amounts credited by the producer under clause 9 and such other sums of money as the Central Government may grant from time to time, after due appropriation made by Parliament shall go into the Cement Regulation Account. The amount credited to such account shall be spent for the specified purposes mentioned in sub-clauses (i) to (iv) of clause 11(2). One such purpose is to pay for or equalising the expenditure incurred by the producer on freight i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y station' price including packing charges and excise duty realised by him over the retention price, selling agency commission, packing charges and excise duty and he should then be reimbursed the amount of expenditure actually incurred by him on freight by the cheapest mode of transport. This would leave with the producer the retention price together with the selling agency commission, packing charges and excise duty and also reimburse him the actual freight paid by him." We shall now refer in brief to the nature of transactions and indicate as to how the controversy has arisen in the present case. The typical bill filed by the petitioner shows that he has charged the cost of cement at the f.o.r. destination railway station price as specified in clause 8 of the Control Order, added thereto the excise duty, packing charges and sales tax. After having arrived at the gross amount made up of the above components, he deducted from that gross amount the notional railway freight charges. This deduction or rebate was obviously on account of the fact that the cement was despatched by lorry arranged by the petitioner, the freight for which was borne by the buyer. The petitioner raised deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he exigibility of sales tax on the lorry freight depends upon the mutual agreement and contractual terms but not governed by the Cement Control Order. We find force in this contention of the learned counsel for the petitioner. In our view, the Tribunal has not appreciated the distinction between the despatches by rail and despatches by a costlier mode of transport such as lorry. In order to find an answer to the question posed for our consideration, our primary task would be to closely examine the celebrated decision of the Supreme Court in Hindustan Sugar Mills Ltd. case [1979] 43 STC 13. The legal principles with regard to the exigibility of sales tax on freight charges are no longer in doubt in view of the exposition of law made by the Supreme Court in that case. The Supreme Court first referred to the general terms and conditions of supply incorporated in the specimen invoice some of which are similar to the printed terms and conditions contained in the order form in the present case. The Supreme Court observed that the answer to the question would be clearly in favour of the assessee, if regard is had only to the terms and conditions of the contract without taking into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... freight and he then recovers it as part of the price or the obligation to pay the freight is on the purchaser and the producer pays it on behalf of the purchaser and then recovers it by way of reimbursement." The Supreme Court proceeded to answer that question in the following words which in our view represent the true ratio of the judgment. We again quote what the Supreme Court has said: "We are of the view that the former, and not the latter, represents the correct legal position. If the obligation to pay the freight were on the purchaser and in fact the purchaser paid the freight, as happened in both the cases before us in respect of every transaction of sale of cement, the amount of freight would obviously be deducted from the f.o.r. destination railway station price in the invoice and only the balance would be realised by the assessee. There would be no question of the assessee realising the amount of freight from the purchaser because the purchaser would have paid the freight in discharge of his own liability and the assessee would have no claim to recover it from the purchaser. Then how would the terms of clause 9, proviso to that clause and clause 11 of the Control Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure on account of freight by the cheapest mode of transport, the Supreme Court held that the producer has to bear the freight in discharge of his own obligation but not on account of the purchaser and he recovers the same as part of the price. That is so irrespective of the fact whether the buyer actually pays the freight at the destination railway station and whether the property and risk passes to the buyer the moment the goods are put on rail. Therefore, the freight element becomes an integral part of sale consideration. That being the ratio of the judgment of the Supreme Court, the same cannot be applied to a case of despatch of cement by costlier mode of transport, viz., lorry transport. Applying the same test as the Supreme Court did, let us ask the questions: (1) According to the Cement Control Order, is the producer obliged to bear the freight attributable to lorry freight? (2) Does the f.o.r. destination price fixed under the Cement Control Order include an element of freight payable on lorry transport? and (3) Does he get the reimbursement of the lorry freight from the Cement Controller? The answers to these questions are obviously in the negative. It is only th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold to the stockists was despatched by the petitioner by lorries. The lorry freight amount was collected by the petitioner by way of separate debit note. The mere fact that the lorry freight charges were not included in the bill but collected by way of separate debit notes, does not alter the situation. The liability to pay sales tax does not depend upon the question whether the freight charges are collected by including the same in the invoice or by raising a debit note. Even the method of accounting is not decisive. This position is fairly clear from the judgment of the Supreme Court in Hindustan Sugar Mills Ltd. case [1979] 43 STC 13 and of the Division Bench of this Court in Central Wines v. Special Commercial Tax Officer [1982] 49 STC 83. The Division Bench cited with approval the following observations of Viswanatha Sastri, J., speaking for the Full Bench of this Court in Government of Andhra v. East India Commercial Co. Ltd. [1957] 8 STC 114: "The fact that the payment is not shown in the bill or invoice as part of the price but separately as an item charged to the purchaser is not a decisive factor." The Division Bench then observed: "When the sales tax payable on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be proved before the assessee can succeed. The Tribunal did not enter any finding on these crucial aspects because the claim was rejected at the threshold purporting to rely upon the judgment in Hindustan Sugar Mills Ltd. case [1979] 43 STC 13 (SC). Another facet of the argument which has been put forward by the learned counsel for the petitioner is that the delivery of cement must be deemed to have been given to buyers ex-works, that is to say, at the factory premises and if so, the freight charges for the transport of cement was necessarily on account and at the risk of the buyers only. The learned counsel further adds that the assessee did no more than extending the facility of lorry transport through the media of its transport agents and the amounts collected by way of separate debit notes represent, what are known as "post-sale charges" which were ultimately passed on to transport contractor. In this connection, the learned counsel for the petitioner sought to rely upon certain printed terms of the contract and a few letters exchanged between the petitioner and the stockists. The learned counsel for the petitioner therefore submits that the ratio of the judgment of the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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