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CASE NO.: Appeal (civil)  3750 of 1999

PETITIONER: State of Andhra Pradesh

RESPONDENT: M/s A.P. Paper Mills Ltd.

DATE OF JUDGMENT: 03/01/2005

BENCH: S.N. Variava, Dr. AR. Lakshmanan & S.H. Kapadia

JUDGMENT: J U D G M E N T

Dr. AR. Lakshmanan, J.

The short question involved in this appeal is whether the transportation charges  and agent’s commission paid by the respondent \026 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

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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. , (2000) 2 SCC 321 &  in the case of D.C.  Johar & Sons (P) Ltd. vs. Sales Tax Officer, Ernakulam & Anr. , 1971(Vol.27) STC 120.   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 \026

(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

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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 \026 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

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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.27) STC 120,  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.26) STC 248.  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

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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.43) STC  13:   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 f.o.r.  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

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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.134) STC 240,  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.