IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH G.S.T.R. No. 14 of 1990 DATE OF DECISION: March 19, 2009 M/s Food Corporation of India, Ferozepur …Applicant Versus State of Punjab …Respondent CORAM: HON’BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE H.S. BHALLA Present: Mr. Kashmiri Lal Goyal, Advocate, for the applicant. Mr. Piyush Kant Jain, Addl. AG, Punjab, for the respondent. 1. Whether Reporters of local papers may be allowed to see the judgment? Yes 2. To be referred to the Reporters or not? Yes 3. Whether the judgment should be reported in the Digest? M.M. KUMAR, J. This order shall dispose of G.S.T.R. No. 14 of 1990 and connected G.S.T.R. Nos. 49 & 50 of 1989, 17 of 1990, 25, 28, 30, 31, 32, 36, 38, 59 and 60 of 1991. The relevant facts necessary for the disposal of the controversy raised in these references are being referred from G.S.T.R. Nos. 50 of 1989, 14 of 1990 and 60 of 1991. 2. At the instance of the Food Corporation of India-applicant, this Court has issued direction to the Sales Tax Tribunal, Punjab (for G.S.T.R. No. 14 of 1990 brevity, ‘the Tribunal’) to refer questions of law for opinion of this Court, vide various orders. The principal order seeking reference under Section 22(2) of the Punjab General Sales Tax Act, 1948 (for brevity, ‘the Act’) was passed by this Court on 27.9.1988 directing the Tribunal to refer the following questions of law, which had emerged from the order dated 25.11.1983 passed by the Tribunal. Accordingly, the Tribunal has referred the following questions of law (in G.S.T.R. No. 14 of 1990) to this Court for its opinion:- “1. Whether in the facts and circumstances of the case, the expenses incurred by the State or Agencies of the Food Corporation of India after acquiring or purchasing the goods before delivery to the petitioner-dealer could form part of gross turnover and be subjected to tax? 2. Whether the foodgrains procured by the Food Corporation of India under the Levy Order amounts to sale/purchase and can be subjected to tax? 3. Whether in the facts and circumstances of the case the Tribunal is right in law in holding that the bardana supplied by the Food Corporation of India alongwith foodgrains can be subjected to tax? 3. It is also pertinent to mention that in some of the references viz. G.S.T.R. Nos. 49 & 50 of 1989, 36, 59 and 60 of 1991, the Tribunal has also referred the question of law as to whether the market fee could also be subjected to tax, for opinion of this Court, which is an additional 2 G.S.T.R. No. 14 of 1990 question of law in the aforesaid cases. The additional question of law as referred in G.S.T.R. No. 60 of 1991 reads thus:- “Whether in the facts and circumstances of the case, the Tribunal is right in law in holding that the market fee can be subjected to tax under the provisions of the Act which had been recovered from the purchasing dealer viz. Food Corporation of India and ratio of the law laid down in Supreme Court 46 STC 477 [Anand Swarup Mahesh Kumar v. Commissioner of Sales Tax, [1980] 46 STC 477] was not applicable to the facts of the case?” FACTS (G.S.T.R. 14 of 1990): 4. Brief facts of the case as per the statement of case sent by the Tribunal in G.S.T.R. No. 14 of 1990 are that the FCI, which is a registered dealer under the Act, filed its quarterly returns in respect of the assessment years 1972-73 to 1975-76, showing its gross turnover. The Assessing Authority being not satisfied issued notices in Form ST-XIV under Section 11(2) of the Act for production of account books. After production thereof the Assessing Authority, Ferozepur, vide various orders finalised the assessments for the years 1972-73 to 1975-76. Against the orders of the Assessing Authority, the FCI filed appeals before the Deputy Excise and Taxation Commissioner (Appeals), Ferozepur Division at Bathinda, who vide order dated 17.11.1978 dismissed the appeals as withdrawn for the years 1972-73, 1973-74 and 1974-75. The Appellate Authority remanded the case to the Assessing Authority for fresh determination for the year 1975-76 (Ist quarter), vide order dated 28.5.1979. However, the Appellate 3 G.S.T.R. No. 14 of 1990 Authority partly allowed the appeal for the year 1975-76 (2nd, 3rd and 4th quarters) vide order dated 17.11.1978. Against the aforementioned orders, the FCI filed six appeals before the Tribunal, which were dismissed vide order dated 25.11.1983. 5. Feeling aggrieved against the order dated 25.11.1983, the FCI filed six applications for reference under Section 22(1) of the Act, which were dismissed by the Tribunal vide order dated 16.10.1984. The FCI then filed six petitions under Section 22(2) of the Act before this Court for directing the Tribunal to refer questions of law for opinion of this Court. This Court vide order dated 27.9.1988 directed the Tribunal to refer aforementioned questions Nos. 1 to 3 for opinion of this Court. FACTS (G.S.T.R. No. 60 of 1991): 6. The facts as culled out from G.S.T.R. No. 60 of 1991 are that for the assessment year 1971-72, the Assessing Authority, Jalandhar, created an additional demand of Rs. 23,55,360/-, vide his order dated 15.11.1977. Feeling aggrieved, the FCI filed an appeal before the Deputy Excise and Taxation Commissioner (Appeals), Jalandhar Division, Jalandhar, who dismissed the same vide order dated 16.11.1984. The FCI further filed an appeal before the Tribunal, who remanded back the matter to the Assessing Authority, vide its order dated 29.12.1986 for fresh determination of tax liabilities on the following three issues:- “(a) No tax is to be levied in respect of levy rice and for this purpose, procurement charges, price of Bardana and the element of market fee would stand included in the price of levy rice not exigible to tax. 4 G.S.T.R. No. 14 of 1990 (b) As regards non-levy rice, tax will be levied in accordance with the law and the price of such rice as a base for tax will include procurement charges, Bardana and market fee. (c) Consignment sales will be treated as sales for the purchase of sales tax in accordance with the order of the High Court dated 24.1.1985 in the case of Des Raj Pushap Gulati Versus The State of Punjab, reported as 58-STC-393.” 7. Against the remand order the FCI filed an application under Section 22(1) of the Act before the Tribunal to refer the questions of law to this Court, which was dismissed vide order dated 29.11.1989. The FCI then filed an application under Section 22(2) of the Act, bearing STC No. 5 of 1990, in this Court for directing the Tribunal to refer the questions of law for opinion of this Court, which was allowed vide order dated 3.10.1990. In this manner, the aforementioned four questions of law (three are similar to the one referred in G.S.T.R. No. 14 of 1990, the fourth one is additional question) have come up for determination by this Court. RE: QUESTION NO. 1: 8. The first question which arises for consideration pertains to the incidental charges incurred by the dealer-FCI either at the time of or before the delivery of the goods. The Assessing Authority, the Appellate Authority as well as the Tribunal have found these incidental charges to be part of consideration, as such charges are covered by the expression ‘turnover’, as defined in Section 2(i) of the Act. A bare perusal of the 5 G.S.T.R. No. 14 of 1990 section shows that it is illustrative of the aggregate of the amounts of purchases and parts of purchases actually made by any dealer less any sum allowed as cash discount/trade discount. However, it is to include any sum charged for anything done by the dealer in respect of the goods at the time of or before delivery thereof. It is in the light of the aforesaid definition that the findings recorded by the Tribunal have to be examined. The findings recorded by the Tribunal on the aforesaid issue reads as under:- “……As regards the expenses of various types incurred by the selling dealers of the appellant-dealer, these were admittedly incurred by them before delivery of goods by them to the appellant dealer and would constitute part of the turnover of the appellant. 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 in (is?) the amount payable by the purchaser to the dealer as consideration for the sale and not as to what is the net consideration retainable by the dealer. ……” 9. Mr. K.L. Goyal, learned counsel for the dealer-FCI has argued that after bidding of paddy or wheat the charges incurred by the dealer-FCI on weighment, stitching charges, expenses incurred on stitching jute thread, printing of the gunny bags, dammi and carriage etc. have to be excluded from the aggregate of the amounts of sale and purchase, which is to constitute turnover. According to the learned counsel the aforesaid 6 G.S.T.R. No. 14 of 1990 charges are borne by the dealer-FCI and, therefore, would not constitute turnover within the meaning of Section 2(i) of the Act. In that regard he has placed reliance on a judgment of Hon’ble the Supreme Court rendered in the case of McDowell & Co. Ltd. v. Commercial Tax Officer, [1977] 39 STC 151, where the expression ‘any sums charged by the dealer” has been interpreted in its ordinary popular sense. It has been held that it means ‘what is demanded and collected or received by the dealer’. He has then submitted that the only relevant question for determination in such like cases would be 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. In that regard, learned counsel has placed reliance on another judgment of Hon’ble the Supreme Court rendered in the case of Hindustan Sugar Mills Ltd. v. State of Rajasthan, [1979] 43 STC 13. It has, thus, been submitted that the price charged by the seller of the agricultural produce like paddy or wheat through the Commission Agent has to be regarded as ‘consideration’ and, therefore, incidental charges like weighment, stitching charges, expenses incurred on stitching jute thread, printing of the gunny bags, dammi and carriage etc. would not form part thereof. 10. Mr. Piyush Kant Jain, learned Additional Advocate General, has, however, submitted that the vires of the definition of expression ‘turnover’ given in Section 2(i) of the Act, has not been challenged and according to the definition of expression ‘turnover’ all sums charged by the dealer in respect of the goods at the time of or before the delivery, have to be regarded as a part of the total turnover and would not qualify for 7 G.S.T.R. No. 14 of 1990 exclusion. Mr. Jain has vehemently argued that the determinable event is not the final bidding price to be paid by the dealer but any sum paid for anything done by the dealer in respect of the goods either at the time of or before delivery has to be included. According to the learned counsel there cannot be any effective delivery of the agricultural produce like paddy and wheat, without packing them in gunny bags, stitching the same properly, spending some amount on the stitching with jute thread, labour charges, payment of dammi and carriage. 11. Having heard learned counsel for the parties on question No. 1, we deem it appropriate to refer to the expression ‘turnover’ as defined in Section 2(i) of the Act, which reads thus:- “2. Definitions.- In this Act, unless there is anything repugnant in the subject or context, (i) 'turnover’ includes the aggregate of the amounts of sales and purchases and parts of sales and purchases actually made by any dealer during the given period, less any sum allowed as cash discount and trade discount according to ordinary trade practice, but including any sum charged for anything done by the dealer in respect of the goods at the time of or before, delivery thereof.” 12. A close scrutiny of the aforesaid provision shows that emphasis has been made to include any sum charged for anything done by the dealer in respect of the goods at the time of or before delivery thereof. It follows that after the agricultural produce has been purchased by the dealer in inter se bidding then for taking its delivery it has to incur certain 8 G.S.T.R. No. 14 of 1990 expenditure, which are either on or before the delivery. The provision is illustrative with regard to the aggregate of the amounts of purchases and parts of purchases actually made by any dealer. Therefore, it would include the price of bag, labour charges, stitching charges, price of jute thread, dammi and carriage etc. In that regard, the contention of the learned State counsel deserves to be accepted that there is no delivery taken before weighment, which is not possible without packing the agricultural produce in a gunny bag. We also find substance in the contention of the learned counsel that even stitching and labour incurred for all these activities have to be included for effective delivery of the goods, which would include carriage also. Therefore, question No. 1 deserves to be answered in favour of the revenue and against the dealer- FCI. 13. In view of the above, question No. 1 is answered against the dealer-FCI and in favour of the revenue. RE: QUESTION NOS. 2 & 3: 14. At the outset Mr. Piyush Kant Jain, Additional Advocate General, Punjab, has submitted that questions Nos. 2 and 3 would not survive for adjudication as these questions have been answered by Hon’ble the Supreme Court against the dealer-FCI in the case of Food Corporation of India v. State of Kerala, [1997] 105 STC 4. 15. Mr. Jain, learned State counsel has further submitted that the food grains procured by the dealer-FCI under levy order has to be regarded as a sale/purchase transaction, which is exigible to tax as is clear from the reading of the aforesaid judgment of Hon’ble the Supreme Court. 9 G.S.T.R. No. 14 of 1990 According to the learned counsel the contrary view taken by this Court in the case of Food Corporation of India v. State of Haryana, [1987] 66 STC 7, was reversed by Hon’ble the Supreme Court where it was held that on account of element of compulsion involved, the character of the transaction was not to be considered as sale. Therefore, he has contended that question No. 2 is covered against the dealer-FCI and has to be decided in favour of the revenue. With regard to question No. 3 he has placed reliance on para 36 of the judgment of Hon’ble the Supreme Court in the case of State of Kerala (supra) and has argued that the gunny bags used in the course of the transactions as a packing material are liable to be included in the taxable turnover. 16. Mr. K.L. Goyal, learned counsel for the dealer-FCI could not successfully dispute the aforesaid factual position and the law laid down by Hon’ble the Supreme Court. 17. Having heard learned counsel we are not left with any doubt that both these questions are covered by the judgment of Hon’ble the Supreme Court in State of Kerala’s case (supra). While considering levy procurement of the foodgrains, their Lordships’ of Hon’ble the Supreme Court have placed reliance on earlier judgments rendered in the cases of Vishnu Agencies (Pvt.) Ltd. v. Commercial Tax Officer, [1978 42 STC 31 and Coffee Board, Karnataka v. Commissioner of Commercial Taxes, [1988] 70 STC 162 and proceeded to hold as under:- “ 26. On facts and in the light of observations of Full Bench of the Allahabad High Court in Commissioner of Sales Tax v. Ram Bilas Ram Gopal [1969] 24 STC 508, we are 10 G.S.T.R. No. 14 of 1990 satisfied that some area of consensual arrangement and some field for volition is left untouched by the legislation in all disputed transactions. The disputed transactions are sales, may be, under the compulsion of a statute. Nevertheless, they are sales exigible to tax. Whatever coercive force is used to bring about the transactions, the same must be traced to legislation and not to the State Government as a party to such transactions. 27. We, therefore, answer the principal common point holding that the levy procurement is a sale/purchase and therefore, falls within the purview of entry No. 54 of List II of Seventh Schedule to the Constitution. The States were competent to levy sales/purchase tax on such transactions. In the light of the rulings of this Court referred to above in detail, we are unable to agree with the submission of the learned Senior Counsel for the appellants that there was no area left for consensual agreement in the parties to the procurement transactions. The view taken by the Full Bench of the Allahabad High Court in Ram Bilas Ram Gopal case [1969] 24 STC 508 is the correct view, and the High Court of Allahabad (Lucknow Bench) was right in applying the same in the judgment under appeal. ……” 18. Thus, it follows that question No. 2 is liable to be answered in favour of the revenue and against the dealer-FCI. 11 G.S.T.R. No. 14 of 1990 19. With regard to question No. 3 it would be profitable to extract para 36 of the judgment of Hon’ble the Supreme Court rendered in the case of State of Kerala (supra) which reads thus:- “ 36. We have noticed in the course of the discussion that the Punjab and Haryana High Court has taken a different view and we have also held that the view taken by the Punjab and Haryana High Court was not the correct one. The State of Punjab aggrieved by the decision of the Punjab and Haryana High Court has filed appeals. Our discussion concerning the six propositions would equally apply to the appeals filed by the State of Punjab and one additional point arises in the appeals filed by the State Punjab namely whether the gunny bags used in the course of the disputed transactions as a packing material are liable to be included in the taxable turnover or not? The Punjab and Haryana High Court held that the gunny bags in these transactions are not exigible to tax as the contents, namely, rice/paddy are not liable to tax as there was no sale at all. An additional ground given by the High Court was that there was nothing to show whether there was any agreement between the parties for the sale of gunny bags. Now that we have held that the disputed transactions are exigible to tax one reason given by the High Court as mentioned above, cannot be supported. Further, the facts are not clear regarding the agreement. In the circumstances we consider that the matter has to be left open to be decided by 12 G.S.T.R. No. 14 of 1990 the Assessing Officer while finalising the assessment in the light of the judgment.” 20. Similar view has been taken by Hon’ble the Supreme Court in the case of Co-Operative Company Limited v. Commissioner of Trade Tax, (2007) 4 SCC 480. There is no dispute that the price of gunny bags was included in the total consideration amount. Hence, it has to be regarded as ‘sale’. Moreover, it has been admitted by the learned counsel for the dealer-FCI. In view of the aforesaid finding it stands established that the price of gunny bags is included as part of consideration in the voucher. Therefore, it cannot be disputed that the price of gunny bags along with the price of the goods is total consideration, therefore, it would be exigible to tax. Accordingly, question No. 3 is also liable to be answered against the dealer-FCI and in favour of the revenue. ADDITIONAL QUESTION: MARKET FEE 21. Mr. K.L. Goyal, learned counsel for the dealer-FCI has also pointed out with regard to the additional question raised in G.S.T.R. Nos. 49 & 50 of 1989, 36, 59 and 60 of 1991 concerning inclusion of market fee in the total turnover that the matter stands concluded by Hon’ble the Supreme Court against the revenue and in favour of the dealer-FCI in the cases of State of Punjab v. Guranditta Mal Shauti Prakash, [2004] 136 STC 12 and State of Punjab v. Chhabra Rice Mills, [2006] 144 STC 1. He has drawn our attention to para 8, discussing the rationale adopted in the case of Guranditta Mal Shauti Prakash (supra) and argued that there was no obligation cast on the part of the seller to pay the market fee since it is duty of the buyer to pay the same and the seller can realise it from the 13 G.S.T.R. No. 14 of 1990 buyer. He has relied upon paras 5 and 6 of the judgment of Hon’ble the Supreme Court in the case of Chhabra Rice Mills (supra), which reads thus:- “5. Under what circumstances, the market fee is to be paid needs to be considered and once it is held that the buyer has an obligation to pay the market fee and it is the duty of the seller to deposit the market fee on behalf of the buyer and, therefore, to realise it from the buyer, it is not the legal obligation of the seller to pay market fee on such a transaction and thus the amount of market fee cannot be treated as part of the sale consideration. Similar is the position in the present case as per law prevailing. 6. The above position was examined by this Court in State of Punjab v. Guranditta Mal Shauti Prakash (2004 (5) SCC 791 and relying on the decision in Anand Swarup's case (1980) 4 SCC 451, it was held that there was no obligation on the part of the seller to pay market fee since it is the duty of the buyer to pay the same and the seller can realise it from the buyer. The inevitable conclusion, therefore, is that there was no liability to pay sales tax on the element of market fee.” 22. We have confronted the learned State counsel with the aforesaid observations of Hon’ble the Supreme Court and he could not give any satisfactory reply. Therefore, once the element of market fee is not to form part of the consideration then it cannot be included in the total turnover for the purposes of realising the tax. Therefore, the additional 14 G.S.T.R. No. 14 of 1990 question of law is liable to be answered in favour of the dealer-FCI and against the revenue. 23. For the reasons aforementioned question Nos. 1, 2 and 3 are answered against the dealer-FCI and in favour of the revenue whereas additional question re: market fee is answered in favour of the dealer-FCI and against the revenue. (M.M. KUMAR) JUDGE (H.S. BHALLA) March 19, 2009 JUDGE Pkapoor 15