Case: Hindustan Sugar Mills Etc Vs. State of Rajasthan and Others

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 happen ed in both the cases before us i n 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 order be satisfied ? How would it be possible to give effect to clause (9) if what is realised by the assessee is not the F.O.R. destination railway station price but that price less the amount of freight? How would the assessee claim to be entitled to be reimbursed under the proviso to clause (9) if he has not incurred any expenditure on the freight? The entire statutory scheme would become unworkable. The scheme of the Control order clearly proceeds on the basis that the flight is payable by the producer and the recovers it from the purchaser at part the F.O.R. destination railway station price. The provision in the contract that the delivery to the purchaser shall be complete as soon as the goods are put on rail and payment of the freight shall be the responsibility of the purchaser is wholly inconsistent with the scheme of the Control order and must be held to be excluded by it. The Control order is paramount: it has overriding effect and if it stipulates that the freight shall be payable by the producer, such stipulation must be prevail, notwithstanding any term or condition the contract to the contrary. The conclusion is, therefore, inevitable, - that the amount of freight forms part of the sale price within the meaning of the first part of the definition.This renders it unnecessary to consider the second part of the definition, but the latter clause of the second p art was strongly relied upon on behalf of the assessee to support the exclusion of the amount of freight from sale price and hence we must proceed to consider it. The second part enacts an inclusive clause. It says that sale price includes "any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in case where such cost is separately charged." Therefore, any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof is to be regarded as part of sale price, even if it does not fall within the first part of the definition. But there is an exception carved out of this inclusion. Not all sums charged for something done by the dealer in respect of the goods at the time of or therefore the delivery thereof are covered by the inclusive clause. The cost of freight or delivery or the cost of installation certainly represents an amount charged for transportation or installation of the goods at the time of or before the delivery thereof and would, there- fore, fall within the inclusive clause on its plain terms but it is taken out by the exclusion clause, "other than the cost of freight or delivery or the cost of installation in case where such cost is separately charged". This exclusion clause does not operate as an exception to the first part of the definition. It mere ly enacts an exclusion out of the inclusive clause and takes out something which would otherwise be within the inclusive clause. Obviously, therefore, this exclusion clause can be availed of by the assessee only if the State seeks to rely on the inclusive clause for the purpose of bringing a particular amount within the definition of sale price`. But if the State is able to show that the particular amount falls within the first part of the definition and is, therefore, part of the sale price, the exclusion clause cannot avail the assessee to take the amount in question out of the definition of sale price. Here on the view taken by us, the amount of freight forms part of the sale price within the meaning of the first part of the definition and it is not necessary for the State to invoke the inclusive clause and in fact the State has not done so. The exclusion clause is, therefore, irrelevant and cannot be called in aid by the assessee. We may point out that eve n if the exclusion clause were read as an exception to the first part of the definition which, as we have pointed out, cannot be done, it cannot avail the assessee. It is only where the cost of freight is separately charged that it would fall within t he exclusion clause and in the context of the definition as a whole, it is obvious that the expression "- cost of freight is separately charged ` is used in contradistinction to a case where the cost of freight is not separately charged but is included in the price. It is not intended to apply to a case where the cost of freight is part of the price but the dealer chooses to split up the price and claim the amount of freight as a separate item. in the invoice. Where the cost of freight is part of the price, it would fall within the first part of the definition and to such a case, the exclusion clause in the second part have no application.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]Though we are concerned in these appeals with assessments made under both Rajasthan Sales Tax Act, 1954 and Central Sales Tax Act, 1956, it would be sufficient to refer only to the provisions of the Rajasthan Sales Tax Act, 1954, since the material provisions of both the Acts are identicalThis definition is in two parts. The first part says that sale price means the amount payable to a dealer as consideration for the sale of any goods. Here, 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 ask is as to what is the amount payable by the purchaser to the dealer as consideration for the sale an d not as to what is the net consideration retainable by the dealer.Take for example, excise duty payable by a dealer who is a manufacturer. When he sells goods manufactured by him, he always passes on the excise duty to the purchaser. Ordinarily it is not shown as a separate item in the bill, but it is included in the price charged by him. The sale price in such a case could be the entire price inclusive of excise duty because that would be the consideration payable by the purchaser for the sale of the goods. True, the excise duty component of the price would not be an addition to the coffers of the dealer, as it would go to reimburse him in respect of the excise duty already paid by him on the manufacture of the goods. But even so, it would be part of the sale price because it forms a component of the consideration payable by the purchaser to the dealer. It is only as part of the consideration for the sale of the goods that the amount representing excise duty would be payable by the purchaser. There is no other manner of liability, statutory or otherwise, under which the purchases would be liable to pay the amount of excise duty to the dealer. And, on this reasoning, it would make no difference whether the amount of excise duty is included in the price charged by the dealer or is shown as a separate item in the bill. In either case, it would be part of the sale price. So also, the amount of sales tax payable by a dealer, whether included in the price or added to it as a separate item as is usually in case, forms part of the sale price. It is payable by the purchaser to the dealer as part of the consideration for the sale of the goods and hence falls within the first part of the definition. This position is now well settled as a result of the decision of this Court in M/s George Oakes (Pvt.) Ltd. Versus The State of Madras &ors. (XII STC 476) whether the view taken by Madras High Court in S ri Sundararajan &Co. Ltd. Versus The State of Madras (VIII STC 105) was approved. There S. K. Das, J., speaking on behalf of the Court, approved of the following observations of Lawrence, J., in Paprika Ltd. &Anr. Versus Board of Trade (1944) Al l E.R.r a sale attracts purchase tax, that tax presumably affects the price which the seller who is liable to pay the tax demands but it does not cease to be the price which the buyer has to pay even the price is expressed as x plus purchase tax."We may then take a case where a dealer transports goods from his. factory to his place of business and sells them at a price which is. arrived at after taking into account freight and handling charges incurred by him in transporting the goods. The amount of freight and handling charges included in the price would obviously be the part of the sale price, because it would be payable by the purchaser to the dealer as part of the consideration for the sale of the goods. The same would be the legal position even if the freight and handling charges are shown separately in the bill and added to the price of the goods, for the character of the payment would remain the same. Since freight and handling charges represent expenditure incurred by the. dealer in making the goods available to the purchaser at the place of sale, they would constitute an addition to the cost of the goods to the dealer and would clearly be a component of the price charged to the purchaser. The amount of freight and handling charges would he. payable by the purchaser not under any statutory or other liability out as part of the consideration for the sale of the goods and it would, therefore, Form part of sale price within the meaning of the first part of the definition. This position is also well settled having regard to the decisions of this Court inDyer Meakin Breweries Ltd. v. sales Tax officer, Ernakulam ( XXVII STCe may now take another example which is very much near to the one which we have already discussed. The dealer may, instead of transporting the goods from his factory or his place of business and selling them there, enter into a contract of sale F.O.R.. destination railway station. Where such a contract is made, the seller undertakes an obligation to put the goods on rail and arrange to have them carried to the destination railway station at his expense. The delivery of the goods to the purchaser in such a case is complete at the distination railwaystation and till then the risk continues to remain with the dealer. The freight is payable by the dealer since he has to arrange for the goods to be carried by rail to the destination railway station at his expense and there is no obligation on the purchaser to pay the freight The purchaser is concerned only to pay the agreed price for the delivery of the goods at the destination railway station. The agreed price being inclusive of the freight, it would be a matter of indifference to the purchaser as to what is the amount of freight. Even if there is any fluctuation in the amount of freight, since the making of the contract, the purchaser would have no concern, because he is liable to pay only the agreed price which includes the freight, whatever it be. The dealer may, in such a case, pay the freight and charge the agreed price to the purchaser, or he may obtain a railway receipt on the basis of freight to pay" and request the purchaser to pay the freight at the time of taking delivery of the goods from the railway at the destination railway station and give the purchaser credit for the amount of the freight against the agreed price. The latter would merely be a convenient mode of paying the agreed price. Since it is the obligation of the dealer to deliver the goods free on rail destination railway station, the dealer is liable to pay the freight s between him and the purchaser and the purchaser can very well refuse to accept the railway receipt which is not "freightprepaid"but "freight to pay". But he may, ordinarily as a reasonable businessman he would, accept such railway receipt and pay the amount of freight on behalf of the dealer. When the purchasers pay the amount of freight in such a case, it would be; as part of the agreed price and not as freights the dealer. The amount of freight paid by the purchaser and shown in the bill as deducted from the agreed pr ice would, therefore, clearly form part of "sale price" and fall within the first part of the definition.This would plainly and indubitably be the position where the contract of sale entered into by the dealer is F.O.R.. destination railway station. But here it is necessary to bear in mind a rather important distinction. There may be a case where the contract of sale may not be F.O.R.. destination railway station, but the price alone may be so. Where such is the case, the contract does not have all the incidents of a F.O.R. destination railway station contract, but merely the price is stipulated on that basis. The terms of such a contract may provide that the delivery shall be complete when the goods a re put on rail and thereafter It shall be at the risk of the purchaser. Such a stipulation would make the railway agent of the purchaser for taking delivery of the goods. The freight in such a case would be payable by the purchaser though the pr ice agreed upon is F.O.R.. destination railway station. The price of the goods receivable by the dealer would, in that event, he the F.O.R.. destination railway station price less the amount of freight payable by the purchaser. That would be the consideration payable by the purchaser to the dealer for the sale of the goods and the amount of freight being payable by the purchaser would not be included in the sale price within the meaning of the first part of the definition. The position would be the same even if the dealer pays the freight and obtains railway receipt freightprepaid"and claims the full F.O.R.. destination railway station price in the bill. The amount representing freight would not be payable as part of the consideration for the sale of the goods but by way of reimbursement of the freight which was payable by the purchaser but in fact disbursed by the dealer and hence it would not form part of the sale price.This was precisely the basis on which the decision in Hyerabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh (XXIV STC 487) was given by this Court. There the appellant maintained a uniform catalogue rate all over the country in respect of its manufactures an d the catalogue rate obviously included freight in transporting goods to the customers. The appellant despatched goods lo the customers by rail under railway receipts with "freight to pay" and made out invoices at the catalogue rate, deducted discount from it and charged sales tax on the balance and then gave credit for the amount of freight to be paid by the customers. The question arose in the 1.. assessment of the appellant to sales tax whether the amount of freight formed part of the sale price and was, therefore, includible in the turnover of the appellant. The terms of the contracts with the customers were in a printed form and clauses (4) and (16) thereof provided as follows: (4) The prices of the said productions supplied to the stockists shall be the current general gross list price charged by the company Free on rail, less such discount as may be fixed by the company from time to time (16) " the date of delivery shall mean the date of the railway receipt and in the case of consignment sold free on rail destination, the railway freight shall be nevertheless payable by the stockists at the destinations and the amount of freight should on the railway receipt shall be deducted from the invoice of the company`. It will be seen that under clause (4) the price of the goods was stipulated to be "the current general gross list price charged by the company free on rail", but clause (16) made it clear that "the date of delivery shall mean the date of the railway receipt" and though the goods may be sold free on rail destination, "the railway freight shall nevertheless be payable by the stockists at the destinations and the amount of freight shall be deducted from the invoice of the company" The combined reading of clauses (4) and (16) clearly showed that it was only the price which was F.O.R. destination and the delivery to the customers was complete as soon as the. goods were put on rail and payment of freight was the obligation of the customers as between them and the appellant. That is why Shah, J., speaking on behalf of the Court said: "If clause (4) stood alone the price charged by the company may be deemed to be the catalogue rate less the discount payable to the purchasers. But by clause (16) the purchasers clearly undertook to pay railway freight which was deducted from the invoice made out by the company. By clause (16) the company received the catalogue rate less the railway freight as price of the goods sold. We are unable to agree with the High Court that "the term relating to the price in the contract between the company and the stockists envisaged by this clause [clause (16)] implies a obligation on the part of the company to pay the railway freight". In our judgment, under the terms of the contract, there is no obligation on the company to pay the freight, and under the terms of the contract the price received by the company for sale of goods is the invoice amount less the freight" and held that the amount of freight was not part of the sale price. It was, to quote again the words of Shah, J.. "not made a part of the price".We may also at this stage refer to another decision of this court earlier in point of time. That is the decision in Tungabhadra Industries Ltd. Kurnool Versus Commercial Tax officer Kurnool (XI STC 827). What happened in this case was that the appellant sold and despatched hydrogenated groundnut oil to the purchasers at an agreed price which was inclusive of freight. It is not very clear from the record but it does appear that the railway receipts obtained by the appellant were on the basis of freight to pay and the amount of freight was paid by the purchasers and in the invoices made out by the appellant, the agreed price inclusive of freight was shown and from this the amount of freight was deducted and on the balance the amount of sales tax was computed. The appellant claimed to deduct the amount of freight from the turnover on the strength of Rule 5(1) (g) of the turnover and Assessment Rules which provided that in determining the net turnover of a dealer, he shall be entitled to a deduction of "all amounts falling under the following two heads, when specified and charged for by the dealer separately, without including them in the price of the goods sold: (i) freight;(ii) This Court held that the deduction claimed was not permissible since the conditions for the applicability of Rule 5(1) (g) were not satisfied. It was pointed out that it was clear from the contents of the specimen invoice produced by the appellant that "the appellant has charged a price inclusive of the railway freight and would therefore be outside the terms of Rule 5(1) (g) which requires that in order to enable dealer to claim the deduction it should be charged for separately and not included in the price of goods sold. The conditions of the rule not having been complied with, the appellant was not entitled to the deduction in respect of freight." Here the freight was payable by the appellant because the price was inclusive of the freight and there was no stipulation in the contract, as in the Hyderabad Asbestos Cement Companys case, that the delivery to the purchaser shall be complete when the goods are put on rail or that the payment of freight shall be the obligation of the price. And it did not make any difference to this position that the freight was not initially paid by the appellant but was paid by the purchaser and given credit for against the agreed freight inclusive price in the invoice.Now, in the light of this discussion, let us turn to examine the facts of the present appeals. The Control order here becomes very material. It is a statutory order having binding force and effect and it must govern the transactions of sale of cement entered into by the assessee with the purchasers. The Control order is designed to ensure availability of cement at a uniform price throughout India irrespective of the distance from the place of manufacture and clause (8) provides a maximum price of Rs. 214.65 per metric tonne F.O.R. destination railway station at which a producer may sell cement manufactured by him. It was at this maximum price of Rs. 214.65 permetric tonne F.O.R. destination railway station that, in pursuance of this clause, the assessee sold cement to various purchasers. The price was clearly inclusive of freight. But the question is: who, under the terms of the contract, was liable to pay the freight, the assessee or the purchaser ? Was the contract one for delivery at destination railway station or was it a contract in which delivery to the purchaser would be complete as soon as the goods are put on rail at the place of despatch ? The answer to this question would clearly be in favour of the assessee if we have regard only to the terms and conditions of the contract without taking into account the provisions of the Control order. Clause (8) of the "General Terms and Conditions of Supply" incorporated in the contract provided that once the goods are handed over to the railway and a railway receipt is obtained, the responsibility of the assessee shall cease and the risk shall pass to the purchaser and, therefore, if there is nondelivery or shortage or delay in. delivery, it is the purchaser who, according to this clause, shall be entitled: to make a claim against the railway. If there were overcharge of freight then again under clause (11) it is not the assessee but the purchaser who would be entitled to lodge a claim with the railway authorities. The specimen invoice produced by the assessee also made it clear that the responsibility of the assessee for shortage, loss, delay or damage shall cease as soon as the goods are delivered at the Work Siding and all such claims may be preferred by the purchaser against the railway and in case excess freight has been charged, the purchaser shall be entitled "to lodge claim with the railways". It would, thus, be seen that according to these provisions the delivery of the goods to the purchaser would be complete as soon as they are put on rail at the Work Siding and the risk then passes to the purchaser and payment of freight would be the responsibility of the purchaser. This would by the position apart from the provisions of the Control order and on this position, there can b e doubt, for reasons already discussed, that the amount of freight would not form part of the sale price. But we have to consider the impact of the provisions of the Control order, for these provisions having statutory force and authority have. riding effect and the terms and conditions of the contract to the extent to which they conflict with these provisions must be held to be excluded. Let us, therefore, examine the impact of the relevant provisions of the Control order on the terms and conditions of the contract.It is clear from the scheme of the Control order that the price chargeable by a producer is contemplated to be Rs. 214.65 per metric tonne F.O.R. destination railway station. This of course is the maximum price at which a producer may sell cement and theoretically, or course, there is nothing to prevent him from selling it at a lower price, but it is assumed by the Central Government that in a sellers market where there is scarcity of supply, the producer will sell at the maximum price permitted to him under the Control order and that is the basis on which the machinery of Cement Regulation Account is worked out in the Control order. This machinery would become unworkable and at the least it would re quire the Central Government to subsidies the Cement Regulation Account in a large way, if every producer were to sell cement at a price lower than Rs. 214.65 per metric tonne F.O.R. destination railway station. It is, therefore, obvious that though the Control order merely provides the maximum price of Rs. 214.65 per metric tonne F.o.R. destination railway station at which a producer may sell cement, leaving it theoretically open to him to sell it at a lower price, the basic assumption underlying the Control order is that every producer will sell at the maximum price. And in fact, in both the cases before us, every transaction of sale of cement by the assessee was at the price of Rs. 214.65 per metric tonne F.o.R destination railway station. This, however, by itself would not be determinative of the controversy because the question would remain as to who, between the assessee and the purchaser, is liable to pay the freight and that requires us to consider whether there is anything in the Control Order which overrides the relevant provisions of the contract bearing on this question and by necessary implication, exclude them. Clause (9) clearly contemplates that the F.o.R. destination railway station price would be realised by the producer, for the excess of such price over the retention price and selling agency commission is required to be paid over by the producer to the controller in the Cement Regulation Account. The amount of freight has, therefore, to be realised by the producer from the purchaser and that postulates that it is the producer who pays the freight to the railway authorities. The proviso to clause (9) makes this doubly clear by providing that "the expenditure incurred by the producer onl bereimbursedto the producer" and again clause (11) uses the expression"paying of equalising the expenditure incurred by the producer on freight". It is, therefore, clear that under the scheme of the Control order the freight is paid by the producer and he then recovers it from the purchaser. But that does not conclude the controversy. The question still remains: When the producer pays the freight, does he do so because, as between him and the purchaser, He is liable to pay the 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.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 happen ed in both the cases before us i n 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 order be satisfied ? How would it be possible to give effect to clause (9) if what is realised by the assessee is not the F.O.R. destination railway station price but that price less the amount of freight? How would the assessee claim to be entitled to bereimbursedunder the proviso to clause (9) if he has not incurred any expenditure on the freight? The entire statutory scheme would become unworkable. The scheme of the Control order clearly proceeds on the basis that the flight is payable by the producer and the recovers it from the purchaser at part the F.O.R. destination railway station price. The provision in the contract that the delivery to the purchasershallbe complete as soon as the goods are put on railand payment of the freightshallbe the responsibility of the purchaseris wholly inconsistent with the scheme of the Control order and must be held to be excluded by it. The Control order is paramount: it has overriding effect and if it stipulates that the freightshallbe payable by theproducer, such stipulation must be prevail, notwithstanding any term or condition the contract to the contrary. The conclusion is, therefore, inevitable,that the amount of freight forms part of the sale price within the meaning of the first part of the definition.This renders it unnecessary to consider the second part of the definition, but the latter clause of the second p art was strongly relied upon on behalf of the assessee to support the exclusion of the amount of freight from sale price and hence we must proceed to consider it. The second part enacts an inclusive clause. It says that sale price includes "any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in case where such cost is separately charged." Therefore, any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof is to be regarded as part of sale price, even if it does not fall within the first part of the definition. But there is an exception carved out of this inclusion. Not all sums charged for something done by the dealer in respect of the goods at the time of or therefore the delivery thereof are covered by the inclusive clause. The cost of freight or delivery or the cost of installation certainly represents an amount charged for transportation or installation of the goods at the time of or before the delivery thereof and would, therefore, fall within the inclusive clause on its plain terms but it is taken out by the exclusion clause, "other than the cost of freight or delivery or the cost of installation in case where such cost is separately charged". This exclusion clause does not operate as an exception to the first part of the definition. It mere ly enacts an exclusion out of the inclusive clause and takes out something which would otherwise be within the inclusive clause. Obviously, therefore, this exclusion clause can be availed of by the assessee only if the State seeks to rely on the inclusive clause for the purpose of bringing a particular amount within the definition of sale price`. But if the State is able to show that the particular amount falls within the first part of the definition and is, therefore, part of the sale price, the exclusion clause cannot avail the assessee to take the amount in question out of the definition of sale price. Here on the view taken by us, the amount of freight forms part of the sale price within the meaning of the first part of the definition and it is not necessary for the State to invoke the inclusive clause and in fact the State has not done so. The exclusion clause is, therefore, irrelevant and cannot be called in aid by the assessee. We may point out that eve n if the exclusion clause were read as an exception to the first part of the definition which, as we have pointed out, cannot be done, it cannot avail the assessee. It is only where the cost of freight is separately charged that it would fall within t he exclusion clause and in the context of the definition as a whole, it is obvious that the expression "cost of freight is separately charged ` is used in contradistinction to a case where the cost of freight is not separately charged but is included in the price. It is not intended to apply to a case where the cost of freight is part of the price but the dealer chooses to split up the price and claim the amount of freight as a separate item. in the invoice. Where the cost of freight is part of the price, it would fall within the first part of the definition and to such a case, the exclusion clause in the second part have no applicationBefore we part with these appeals we think it necessary to advert to one rather unusual circumstance which has caused some anxiety to us. We were told by the learned counsel appearing on behalf of the assessee and that was not disputed on behalf of the State that the assessee had entered into a large number of transactions of sale of cement with the Central Government through the Director General of Supplies and Disposals and when the assessee claimed to recover the amount of sales tax in respect of these transactions from the Central Government on the basis that freight was part of sale price`, the Director General of Supplies and Disposals pointed out to the assessee that the Law Department of the Government of India had advised them that freight was not part of sale price within the meaning of the definition of that term and hence no sales tax wouldbe payable by theassessee on the amount of freight and the assessee was, therefore, not justified in claiming to recover the amount of sales tax from the Central Government. The assessee, in view of this statement made on behalf of the Central Government, did not press its claim to recover the amount of sales tax on the freight component of the price from the Central Government. Now, it appears clearly from this judgment that the opinion given by the Law Department of the Government of India was not correct and the statement made on behalf of the Government of India that no sales taxwillbe payable by theassessee on the amount of freight was unjustified. There can be no doubt that this statement misled the assessee into not claiming the amount ofx on the freight component of the price from the Central Government.