SUPREME COURT OF INDIA
State of Andhra Pradesh
Vs
A.P. Paper Mills Limited
Appeal (Civil) 3750 of 1999
(S.N.Variava and A.R.Lakshmanan)
03/01/2005
DR. AR. LAKSHMANAN, J.
The short question involved in this appeal is whether the transportation
charges and agent's commission paid by the respondent-M/s A.P. Paper Mills Ltd.
to the agent together with the cost of raw materials constitute
"turnover" under Section 2(s) and is liable to sales tax under
Section 6-A of the Andhra Pradesh Sales Tax Act, 1957 (6/1957).
The respondent is a public limited company engaged in the activity of
manufacturing paper. The respondent is a registered dealer under the A.P. Sales
Tax Act, 1957 (hereinafter called as "the Act") and is an assessee on
the rolls of the Commercial Tax Officer, Aryapuram, Rajahmundry.
The respondent purchased hard wood (raw material) from unregistered dealers
through persons called agents. The hard wood is used for the manufacture of
pulp. The agents are engaged in the business of purchase of raw material from
the unregistered dealers and supplying the same in the factory of the
respondent on contract rates which included the cost of raw materials,
transportation charges and the agent's commission. The respondent filed their
returns under the provisions of the Act. The Commercial Tax Officer found out
that the respondent was paying sales tax under Section 6-A of the Act only on
the cost of raw materials purchased from the unregistered dealers leaving out
the transportation charges and the commission paid to the agents which amounted
to Rs. 48, 50, 735/-.
The Commercial Tax Officer made an assessment including the transportation
charges and the agent's commission paid in the taxable turnover under Section
6-A of the Act after issuing a show cause notice. The amount of tax determined
to be paid was Rs. 2, 42, 537/-. The Commercial Tax Officer held that the
respondent is liable to pay tax on the total amount of purchase price as per
the definition of total turnover under Section 2(s) of the Act which also
included the transportation charges and the agent's commission for procuring
the raw materials.
The respondent filed an appeal before the Appellate Deputy Commissioner against
the order of the Commercial Tax Officer dated 22.3.1993. The appellate
Authority held that the respondent did not transport the raw materials after
purchase but the agent was made responsible for purchase of raw materials and
transportation of the same to the respondent's factory for a total
consideration which included the cost of raw materials, transportation charges
and agent's commission. The appellate Authority held that the entire
consideration paid by the respondent as the purchase value of the raw materials
liable to tax under Section 6-A of the Act.
The respondent filed a second appeal before the Sales Tax Appellate Tribunal
which allowed the appeal directing the Commercial Tax Officer to delete the
additions made towards transportation charges and agent's commission from the
gross and the net turnovers. The Tribunal held that the purchases made by the
agents from unregistered dealers are the purchases made by the respondent and
any expenses incurred subsequent to the purchase of raw materials would not be
included in sale consideration flowing from the agent to the respondent.
Aggrieved by the order of the Tribunal dated 13.5.1998, the appellant filed a
Tax Revision case in the High Court of Andhra Pradesh. The High Court, without
going into the merits of the case, dismissed the revision on the summary ground
that the transportation charges and agent's commissioner were incurred
subsequent to the purchase of the raw materials and the said charges,
therefore, do not represent the sale consideration which had passed from the
buyer to the seller is a finding of fact. Aggrieved by the order passed in the
revision by the High Court of Andhra Pradesh, the above appeal by way of
special leave petition was filed by the State of Andhra Pradesh.
We have heard Mr. Debojit Borkakati, learned counsel appearing for the
appellant and Mr. P.N. Gupta, learned counsel appearing for the respondent. It
was argued by the learned counsel appearing for the appellant that the High
Court is in error in not seeing that the agents appointed by the respondent are
engaged in the business of purchase of raw materials from the unregistered
dealers and supplying the same in the factory on contract rates which included
the cost of raw materials, transport charges and the agent's commission.
It was further submitted that the High Court is not correct in holding that the
transportation charges and the agent's commission are incurred by the
respondent subsequent to the purchase of raw materials and such charges do not
represent the sale consideration. Learned counsel appearing for the appellant
invited our attention to Section 2(s) and Section 6A of the Act and also relied
on the judgment of this Court in the case of E.I.D. Parry (I) Ltd. vs. Asstt.
Commnr. of Commercial Taxes & Anr. , & in the case of D.C. Johar
& Sons (P) Ltd. vs. Sales Tax Officer, Ernakulam & Anr. ,
1971(Vol.
Learned counsel appearing for the respondent reiterated the contentions urged
before the lower authorities and submitted that transportation charges and commission
paid to the agent would not form part of the turnover under Section 6A of the
Act. He further submitted that the finding of fact has been recorded by the
Tribunal on the basis of the related material on records and that the Tribunal
being final forum on question of finding of fact, the High Court has rightly
not interfered with the said finding of fact and this Court will not interfere
with such finding.
We have gone through the orders passed by the authorities and also of the High
Court. The definition of the term "turnover" as contained in Section
2(s) is as under:-
"2(s) "turnover" means
(i) the total amount set out in the bill of sale excluding the amount collected
towards the tax or the tax due under the Act whichever is less;" *
The definition of "total turnover" under Section 2(r) reads thus:
"2(r) "total turnover" means the aggregate turnover in all
goods of a dealer at all places of business in the State, whether or not the whole
or any portion of such turnover is liable to tax; including the turnover of
purchases or sales in the course of inter-State trade or commerce or in the
course of export of the goods out of the territory of India or in the course of
import of the goods into the territory of India;" *
Section 6A which deals with levy of tax on turnover relating to purchase of
certain goods reads as follows:
"6A. Levy of tax on turnover relating to purchase of certain goods
Every dealer, who in the course of business-
(i) Purchases any goods (the sale or purchase of which is liable to tax under
this Act) from a registered dealer in circumstances in which no tax is payable
under section 5 or under section 6, as the case may be, or
(ii) Purchases any goods (the sale or purchase of which is liable to tax under
this Act) from a person other than a registered dealer, and
(a) Consumes such goods in the manufacture of other goods for sale or consumes
them otherwise, or
(b) Disposes of such goods in any manner other than by way of sale in the
State, or
(c) despatches them to a place outside the State except as a direct result of
sale or purchase in the course of inter-State trade or commerce, shall pay tax
on the turnover relating to purchase aforesaid at the same rate at which but
for the existence of the aforementioned circumstances, the tax would have been
leviable on such goods under section 5 or section 6;" *
It is an admitted fact that the respondent purchased the hard wood from
unregistered dealers through agents and that the respondent appointed certain
agents who have opened depots for buying hard wood and transporting the same to
the factory premises of the respondent and that the agents were paid a total
amount which included the cost of raw material, transportation charges and
commission.
The assessing Authority is right in levying the tax on the total amount paid to
the agents for purchasing hard wood from unregistered dealers. It was contended
by the learned counsel for the respondent that the respondents are entitled to
claim exemption on transportation charges and commission on the ground that
they would not form part of the turnover under Section 6A of the Act. This
contention was rejected by the assessing authority, rightly so, in our opinion,
on the ground that the respondents were liable to pay tax on the total amount
of purchase price of hard wood. #
We have already extracted the definition of "turnover" under
Section 2(s) of the Act. The expenses for procuring hard wood, in our opinion,
would become part of the total turnover. The assessing authority dismissed the
appeal on the ground that the respondent did not transport hard wood after
purchase that the agent was made responsible for transportation etc. and that,
therefore, total consideration paid for the purchase of the goods would form
the turnover. # The said submission, in our opinion, has no force.
The Tribunal, in its order, has relied on the statement of the agent extracted
at page 2 of the assessment order. It is useful to reproduce the said statement
which reads as under:
"I am willing to supply casuraina oil ets from local cultivators and
transport the same to your depots as per your approved rate and conditions.
Further in the application the rate of raw material supply was split up into three
components namely:- (1) cost of raw material (2) Transport charges (3)
Commission." *
The finding of the Tribunal and the High Court that the transport and
commission were charges incurred subsequent to the purchase of the hard wood
and such charges do not represent the sale consideration is against the
admitted fact on the side of the respondent who have clearly made the statement
that the agents were paid a total amount which included the cost of raw
material, transportation charges and commission. When the facts are not in
dispute, the Tribunal and the High Court have erred in rendering a finding
against the revenue. #
In the case of E.I.D. Parry (I) Ltd. vs. Asstt. Commnr. of Commercial Taxes
& Anr. (supra), the question before this Court was as to whether the
planting subsidy paid by the appellants-E.I.D. Parry (I) Ltd. to the sugar-cane
growers can be said to be a part of the price of sugarcane purchased by it from
them and can legitimately be included in the turnover of the appellants. Whether
the transport subsidy/charges in excess of 30 Km. paid by the appellant to
third party, lorry owners, for transporting sugarcane pursuant to the State
Government's direction can be aggregated with the price of sugarcane and
included in the turnover of the appellants.
It was contended before this Court by the counsel for the appellant that the
planting subsidy given by the appellants to the cane-growers was by way of an
incentive to the cane-growers for planting a particular variety in the
stipulated months preceding the planting season and that the planting subsidy
being unrelated to the sale of sugarcane could not have been treated as a part
of the price for which the goods were bought and, therefore, could not have
been rightly included in the turnover of the appellants for determining their
purchase tax liability. On the other hand, the contention raised on behalf of
the sales tax authorities was that the act of giving planting subsidy for
growing sugarcane followed by an agreement for sale of the sugarcane by the
grower constituted one single transaction and the planting subsidy being an
amount paid in relation to the goods purchased had been rightly regarded as a
part of the price of sugarcane and included in the turnover of the appellants.
As regards the transport subsidy, the contention of the appellants was that the
transport charges were in fact paid by the appellants to third party lorry
owners for transporting sugarcane beyond the distance of 30 Km in view of the
Government's directions and that the transport charges being not the amounts
charged by the growers nor being the amounts paid to them were really in the
nature of the post-sale expenses and, therefore, could not have been lawfully
treated as part of the price and included in the turnover of the appellants.
The contention of the sales tax authority, on the other hand, was that under
the agreement of sale the cane-growers had to deliver the sugarcane at factory
premises and the arrangements made by the appellants for transporting sugarcane
by engaging private lorries were for the purpose of enabling the cane-growers
to deliver sugarcane speedily and at specified times. It was further submitted
that as transportation charges were paid by the appellants with a view to help
or assist the sugarcane-growers they were really a part of the price for which
sugarcane was bought by the appellants and, were, therefore, rightly included
in the taxable turnover of the appellants. After a detailed discussion, this
Court came to the conclusion that the total amount of consideration for the
purchase of goods would include the price strictly so called and also other
amounts which are payable by the purchaser or which represent the expenses
required for completing the sale as the seller would ordinarily include all of
them in the price at which he would sell his goods.
This Court further held that the transport subsidy was a part of the
consideration for which sugarcane was sold by the sugarcane growers to the
appellants. It is useful to reproduce paragraph 21 of the above judgment which
reads as under:
"For the same reasons we hold that the transport subsidy was a part of the consideration for which sugarcane was sold by the sugarcane- growers to the appellants. Though the agreements between the parties provided for delivery by the sugarcane-growers at the factory gate and though the transport charges paid by the appellants were not to the sugarcane-growers but to third-party lorry-owners, they were made for securing regular supply of sugarcane as per the requirements. Though payments were made at the instance of the Government of Tamil Nadu they also became a part of the implied agreement between the appellants and the sugarcane-growers.
They were not post-sale expenses. Those amounts were paid to ensure scheduled
delivery of sugarcane. The sale of sugarcane became complete only thereafter.
Those payments can be regarded either as payments made on behalf of the
sugarcane-growers or payments made in modification or variation of the earlier
agreements entered into by the sugarcane-growers for selling sugarcane. In
either case they could legitimately be regarded as the components of the sale
price as the sellers would have otherwise included those amounts in the sale
price." *
In the case of D.C. Johar & Sons (P) Ltd. vs. Sales Tax Officer, Ernakulam
& Anr. 1971(Vol. the appellant-Company made a claim for exemption for
freight and packing and delivery charges in respect of which separate bills
were made out when selling the goods at Ernakulam. This Court held that the tax
levied is not a tax on railway freight ; it is a tax on turnover, that is, on
the aggregate of sale price received by the dealer in respect of sale of goods.
Earliest decisions on this point is in the case of Dyer Meankin Breweries Ltd.
vs. State of Kerala, 1970 (Vol. In this case, the appellant-Company
manufactured liquor at various places in U.P. and Haryana, transported the
goods from its breweries and distilleries to its place of business in Ernakulam
and sold them there. When selling liquor to the customers, the appellant made
out separate bills for ex- factory price and for "freight and handling
charges".
The appellant claimed that the amount charged for "freight and handling
charges" incurred by it in transporting the goods from the breweries and
distilleries to the warehouse at Ernakulam had to be deducted under rule 9(f)
of the Kerala General Sales Tax Rules, 1963, in determining its taxable
turnover.
This Court held that all the expenditure incurred by the appellant towards
freight and handling charges was incurred prior to the sale and was a component
of the price for which the goods were sold and the appellant was not entitled
to the deduction claimed.
Hindustan Sugar Mills Ltd. vs. State of Rajasthan & Ors., 1979(Vol. :
This case relates to pre-sale charges. The question that arose in the
assessment of the assessee to sales tax under the Rajasthan Sales Tax Act,
1954, and the Central Sales Tax Act, 1956, was
whether the amount of freight deducted from the free on rail destination railway
station price in the invoices made out by the assessee and paid by the
purchasers formed part of the "sale price" within the meaning of the
definition of that term in section 2(p) of the Rajasthan Act and section 2(h)
of the Central Act.
The sales tax authorities and the High Court took the view that the amount of
freight formed part of the "sale price" and was, therefore, liable to
be included in the turnover of the assessee for the purpose of assessment of
sale tax. On appeal to this Court, this Court held as under:
"That the scheme of the Control Order was that the freight was payable
by the producer and he recovered it from the purchaser as part of the for
destination railway station price. The provision in the contract that the
delivery to the purchaser was complete as soon as the goods were put on rail
and payment of the freight was the responsibility of the purchaser was wholly
inconsistent with the scheme of the Control Order and must be held to be
excluded by it. The Control Order was paramount; it had overriding effect and
if it stipulated that the freight was payable by the producer, such stipulation
must prevail, notwithstanding any term or condition of the contract to the
contrary. Therefore, by reason of the provisions of the Control Order, which
governed the transactions of sale of cement entered into by the assessee with
the purchasers, the amount of freight formed part of the "sale price"
within the meaning of the first part of the definition of that term in section
2(p) of the Rajasthan Act and section2(h) of the Central Act and was includible
in the turnover of the assessee.
Under the first part of the definition of "sale price" in section
2(p) of the Rajasthan Act, the expression meant the amount payable to a dealer
as consideration for the sale of any goods and, therefore, the concept of real
price or actual price retainable by the dealer is irrelevant. The test is, what
is the consideration passing from the purchaser to the dealer for the sale of
the goods. It is immaterial to enquire as to how the amount of consideration is
made up, whether it includes excise duty or sales tax or freight.
The only relevant question to be considered is as to what is the amount payable
by the purchaser to the dealer as consideration for sale and not as to what is
the net consideration retainable by the dealer." *
The decision of the Rajasthan High Court was affirmed by this Court. In a
recent decision in the case of Greaves Chitram Limited vs. State of Tamil Nadu,
2003(133) STC, the Madras High Court held that freight is includible if the
contract is for delivery at buyer's place. In the above judgment, the Madras
High Court held that:
"Though no written contract or agreement between the parties was
available, from the purchase orders and invoices, a clue could be obtained to
determine the nature and character of the transaction entered into between
parties. These documents reveal that the dealer agreed to effect the delivery
of the goods at the place of the buyer. What was further agreed to by the
dealer was that freight charges would be pre-paid by it. If the contract was
one for delivery at the destination railway station, risk continues to be that
of the seller-dealer and consequently the freight charges paid are includible
in the sale price exigible to tax.
If the contract is one in which delivery to the purchaser would be complete, as
soon as the goods are put on rail at the place of despatch, the risk is that of
the purchaser and the freight charges incurred are not includible in the sale
price exigible to tax. Of course, this is not the invariable rule in all
eventualities and circumstances, e.g. goods covered by the control orders like
Cement Control Order. The dealer agreed to effect delivery at the place of the
buyer and that apart, it had also paid the transport charges besides including
the same in the invoice. Therefore the transport charges are includible in sale
price." *
In Ram Oxygen (P) Ltd. vs. Joint Commissioner (CT), 2004(Vol. 2001 Indlaw TNTT 8, the Tamil Nadu Taxation Special
Tribunal took the similar view and held that freight is includible in turn
over.
For the aforesaid reasons, the appeal filed by the State of Andhra Pradesh is
allowed. The question of law is answered in the affirmative and in favour of
the State.
The order passed by the Sales Tax Appellate Tribunal as affirmed by the High
Court is set aside. There shall be no order as to costs.