# _-"'/;', --:-··,.,, 1\ ·- --- -- ·, '276 HINDUSTAN SUGAR MILLS ETC v. STATE OF RAJASTHAN AND ORS

- **Citation:** [1979] 1 S.C.R. 276
- **Court:** Supreme Court of India
- **Decided:** 1978-08-22
- **Bench:** P .. N .. Bhagwati, V. 0. Tulzapurkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1-276-hindustan-sugar-mills-etc-v-state-of-rajasthan-and-ors-7579
- **Pages:** 22

## Headnote

Sale Price, under section 2(p) of the Rajastlzan Sales· Tax Act, 1954 andScction 2(_1!) of Central Sales __ Tax- Act. 1956-JV!zetlzer, in sales of cement
effected under the Cement Control Order 1967, the amount of freight forms
part of the "sale price" so as to be exigible to sales tax under the Rajasthan
Act and Control ~tct-Distinction "J;etween contrtact of sale for f.o.r. destination
railway ~station' and a 'contrtact l1:here price alone is so'.
The appellant assessee owned a cement factory known as Udaipur Cement:
Works at Udaipur. During the assessment year -1971-72.and_ 1972-73,
the
sale of- cement was controIIed under the Cement Control ·Order, 1967, issued
by the Cen!ral Government., in exercise of the powers conferred by Sections
18 G and 25 of the Industries (Development and
Regulation) Act,
1951.
Clause 7 of the Control Order.specified a.retention.Price of Rs. '161.40 per·_
rnetric tonne for Cement manufactured. by all producers, other than
thoSe
:rr.entioned in items 1 to 5 of the schedule, which included the assessee. The·
rr.aximum price at which a prcxfucer
could sell cement was __ prescribed
in
clause (8) \VbiCh said that no producer shall sell "any other vafiety Of cement
at a price exceeding Rs. 214.65 per metric tonne free on rail destination rail-
·way station plus the excise duty :paid thereon .. , plus .. such charges as may be
fixed by the Central Government in respect of packing in jute bags or in any
other ccntaincrs". The Explanation to dause 8 clarified that for the purpose·
of the Control Order, the express.ion 'free on rail destination railway station•·
means .. the price including the cost of transport by the cheapest mode except
where any other mode of transport has been .specified. by the Central Government under clause ( 4) at the destination point".
During i.he relevant assessment years, the assessee entered into diverse contracts of sale of cement with purchasers at the price of Rs. 214.65 per metric
tonne, "free on rail destination railway station" plus· packing charges
plus
excise duty.
These contracts were on the terms and tonditions set out in
the form of ''General terms ·and conditions of supply" adopted by the assessee.
The assessee, in fulfilment of these
contracts, despatched· cement to the
purchasers at various destinations by rail and the railway receipts were madeout on the basis of 'freight to pay'. The invoices sent by the assessee shov.:ed
the 'free on rail destination railv;ay ttation• price of the cement despatched,
at the.rate Of Rs. 214.65 per metric"tonne and added the amounts representing
excise dut}' ·and packing charges and deducted the amount of railway freight,
since it v,ras to be paid by the purchasers. The assessee did not charge in the
invoices sales tax On the railway freight, since in its view it did nqt form
part of the •sale_ price'; but in order to provide against a possible claim '\\o'hich
might be made by the Sales Tax Authorities, tfi.e assessee claimed by way of
deposit an amount 'towards contingent liability tO sales tax on railway freight
to be paid by you' that is, the purchasers.
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HINDUSTAN SUGAR MILLS v. RAJASTHAN (Bhagwati, J.)
277
In the assessment of the assessee to sales tax under the Rajasthan Sales
Tax Act, 1954 and the Central Sales Tax Act, 1956, the Sales Tax Authorities
took the view that tp.e amount of freight formed part of the "sale price" and
was, therefore, liable to be included in the turnover of the assessee for the
purposes of assessment of sales tax. The assessee challenged the correctness
of the view by filing a writ petition in the High Court of Rajasthan, but the
High Court agreed with the view taken by the Sales Tax Authorities and held
that since under clause 8 of the Control Order, the price payable by the purchasers was f.o.r. destination price, the amount of freight included in it formed
part of 'sale price'
B
Dismissing the appeals, the Court
HELD : 1. By reason of the provisions of the Cement

## Text

_Characters 0–39,599 of 64,332. This is a partial read: ask again with offset=39599 for what follows._

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'276
HINDUSTAN SUGAR MILLS ETC.
v.
STATE OF RAJASTHAN AND ORS.
·August 22, 1978
[P .. N .. BHAGWATI AND V. 0. TULZAPURKAR, JJ.]
Sale Price, under section 2(p) of the Rajastlzan Sales· Tax Act, 1954 andScction 2(_1!) of Central Sales __ Tax- Act. 1956-JV!zetlzer, in sales of cement
effected under the Cement Control Order 1967, the amount of freight forms
part of the "sale price" so as to be exigible to sales tax under the Rajasthan
Act and Control ~tct-Distinction "J;etween contrtact of sale for f.o.r. destination
railway ~station' and a 'contrtact l1:here price alone is so'.
The appellant assessee owned a cement factory known as Udaipur Cement:
Works at Udaipur. During the assessment year -1971-72.and_ 1972-73,
the
sale of- cement was controIIed under the Cement Control ·Order, 1967, issued
by the Cen!ral Government., in exercise of the powers conferred by Sections
18 G and 25 of the Industries (Development and
Regulation) Act,
1951.
Clause 7 of the Control Order.specified a.retention.Price of Rs. '161.40 per·_
rnetric tonne for Cement manufactured. by all producers, other than
thoSe
:rr.entioned in items 1 to 5 of the schedule, which included the assessee. The·
rr.aximum price at which a prcxfucer
could sell cement was __ prescribed
in
clause (8) \VbiCh said that no producer shall sell "any other vafiety Of cement
at a price exceeding Rs. 214.65 per metric tonne free on rail destination rail-
·way station plus the excise duty :paid thereon .. , plus .. such charges as may be
fixed by the Central Government in respect of packing in jute bags or in any
other ccntaincrs". The Explanation to dause 8 clarified that for the purpose·
of the Control Order, the express.ion 'free on rail destination railway station•·
means .. the price including the cost of transport by the cheapest mode except
where any other mode of transport has been .specified. by the Central Government under clause ( 4) at the destination point".
During i.he relevant assessment years, the assessee entered into diverse contracts of sale of cement with purchasers at the price of Rs. 214.65 per metric
tonne, "free on rail destination railway station" plus· packing charges
plus
excise duty.
These contracts were on the terms and tonditions set out in
the form of ''General terms ·and conditions of supply" adopted by the assessee.
The assessee, in fulfilment of these
contracts, despatched· cement to the
purchasers at various destinations by rail and the railway receipts were madeout on the basis of 'freight to pay'. The invoices sent by the assessee shov.:ed
the 'free on rail destination railv;ay ttation• price of the cement despatched,
at the.rate Of Rs. 214.65 per metric"tonne and added the amounts representing
excise dut}' ·and packing charges and deducted the amount of railway freight,
since it v,ras to be paid by the purchasers. The assessee did not charge in the
invoices sales tax On the railway freight, since in its view it did nqt form
part of the •sale_ price'; but in order to provide against a possible claim '\\o'hich
might be made by the Sales Tax Authorities, tfi.e assessee claimed by way of
deposit an amount 'towards contingent liability tO sales tax on railway freight
to be paid by you' that is, the purchasers.
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HINDUSTAN SUGAR MILLS v. RAJASTHAN (Bhagwati, J.)
277
In the assessment of the assessee to sales tax under the Rajasthan Sales
Tax Act, 1954 and the Central Sales Tax Act, 1956, the Sales Tax Authorities
took the view that tp.e amount of freight formed part of the "sale price" and
was, therefore, liable to be included in the turnover of the assessee for the
purposes of assessment of sales tax. The assessee challenged the correctness
of the view by filing a writ petition in the High Court of Rajasthan, but the
High Court agreed with the view taken by the Sales Tax Authorities and held
that since under clause 8 of the Control Order, the price payable by the purchasers was f.o.r. destination price, the amount of freight included in it formed
part of 'sale price'
B
Dismissing the appeals, the Court
HELD : 1. By reason of the provisions of the Cement Control
Order
1967, which governed the transactions of sale of cement entered into by the
C
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 and
was includible in the turnover of the assessee. [296 D-E]
2. (a) The Control Order is paramount; it has over-riding effect and if it
stipulates that the freight shall be payable by the producer, such stipulation
must prevail, notwithstanding any term or condition of the contract to the
D
contrary and any such term or conditions to the extent to which it is in
conflict with the provisions of the control order would stand excluded. It is
a statutory order having binding
force and effect and it must govern the
transactions of sale of cenient entered into by the assessee with the purchasers.
[292 C, 293 B-G, 295 Al
(b) The Control Order is designed to ensure availability of cement at a
E
uniform price throughout India irrespective of the distance from the place of
manufacture and clause 8 of the
order 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 per metric tonne f.o.r. destination railway station that, in pursuance of this clause, the assessee sold cement to various purchasers. The
price was clearly inclw;ive of freight. [292 D-E]
F
(c) Under the scheme of the Control Order the freight is paid by
the
producer who then recovers it from the purchaser. Clause 9 clearly contemplates that the f.o.r. destination railway station price would be realised by
the producer, .fo!· th7 exces~ of such price over the retention price and selling
agency. commLSston ts requtred to be paid over by the producer to the controller in the C~ment Regulation Account. The amount of freight has, thereG
fore, . to. be realised by the producer from the purchaser and that postulates
that. it ts the producer who pays the freight to the railway authorities. The
prov1~0 to clau&e (9) makes this doubly clear by providing that "the expenditure incurred .by the producer on freight., .. 'shall be reimbursed 10 I/he producer ?nd a~a1n clause (11) uses the expression" .... paying or equalti.sing the
expenditure incurred by the producer on freight". [294 A-C]
1 · (d)dWhhen the producer pays the freight, he does so because as betwee
H
um an
t e purchaser he is liable to a th f · h
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n
as part of the price. [294 D-E]
P Y
e reig t and he then recovers it
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278
SUPREME COURT REPORTS
[1979] I S.C.R.
(e) If the obligation to pay the freight were on the purchaser, the amount
of freight would obviously be deducted from the f.o.r. destination
railway
station price in the
invoice and only the balance· wou1d 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 the his own liability and the assessee would have no claim to
recover it from the purchaser.
Then, the terms of clause 9, proviso to that
clause and clause 11 of the Control Order would not be satisfied.
It would
not be possible to give effect to clause 9, if what is realised by the assessee
is not the f.o.r. destination railway price but that price less the amount of
freight.
The assessee also would not be able to 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 un\vorkable. [294
.
E-GJ
(f) The scheme of the Control Order clearly proceeds on the basis tha:t
the freight is payable by the producer and he recovers 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 shall be complete as soon as the
goods are put on rail and payment of the freight shall be the responsibility
of the purc;1aser is wholly inconsistent with the scheme of the Control Order
and must be deemed to be excluded by it. [294 H, 295 A]
3. (a) The definition of Sale Price in section 2(p) of the Rajasthan Sales
Tax Act, 1954 is in two parts. The first part says that "sale price" means the ,
amount p~1yable 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
. would be irrelevant.
The test would be, what was the consideration
that
passed from the purchaser to the dealer for the sale of the goods.
The only
relevant question to ask being what was the amount paid by the purchaser ·ro
the dealer as consideration 'for the sale and not as to what was the net conSi~
deration retainable by the dealer, it would be immaterial to enquire as to how
th~. amount of consideration was made up, whether it included excise duty or
sales tax or freight. [286 D, F-G]
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 the 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.
And so would be the case regarding the amount of freight
and handling charges. It would be payable by the Purchaser not under any
statutory or other liability but as part of the consideration for sale of the
goods and it would therefore form part of "sale price" within the meaning of
the first part of the definition. [287 A-D, 288 D-F]
.•
•
'P.1/s. Cieorge Oakes (P) Ltd. v. The State of Madras, XII S.T.C. (S.C.) 476;
Dy:er Meakin Breweries Ltd. v. Sales Tax Officer, Ernakulam, XXVII S.T.C.
r;!'
(SL) 120 applied.
ff
Sri Sundararajan & Co. Ltd. v. The State of Madras (VIII S.T.C. Mad. 105);
Panrika Ltd. and Anr. v. Board of Trade (1944) 1 All. E.R. 372; Love v.
Norman Wright (Builders) Ltd. [1944] 1 All. E.R. 618; referred to.
f
HINDUSTAN SUGAR MILLS v. RAJASTHAN (Bhagwati, !.)
279
(b) In a contract of sale f.o.r. destination railway station, the delivery of
th@ -goods to the purchaser would be complete at the destination railway station
and till then the risk would continue to rem2iin with the dealer.
The agreed
price being inclusive of the freight, it would be a matter of indifference to the
ptirc:haser as to what was the amount of freight paid by the dealer.
Th~ dealer
may, in such a case, pay the freight c.1.1d charge the agreed price to the purchaser or he m21y obtain a railway receipt on the basis or '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 purc~r credit for the amount of the freight against the agreed price. The latter
would merely be a convenient mode of paying the agreed price. Though the
pun~haser can very well refuse to accept the railway receipt which is not 'freight
prepaid', but 'freight to pay', he ordinarily, as a reasonable busi~1essman would,
accept such a railway receipt and pay the e.mount of freight on behalf of th;;:
dealer.
'Vhe-n the purchaser, pays the amount of freight, in such a case, it
would be as part of the agreed price and not as freight vis-a-1·i.f the Jea!er. The
amount of freight paid by the pUf'~haser and shown in the b'.ll as deducted fron1
the agreed price would, therefore, clearly form part of 'sale price' a11d fall
witbin the first pa11 of the definition. [288 G-H, 289 A-El
(c) Jn a case, \Vhere the ccntract of sale is not f.o.r. destination railway
station: but the price alone is so, the contract would not have all th~ incidents
of f.o.r. destination railway station 'contract', but merely the price would be
stipulated on that basis. The terms of such a contract may. provide that the
dctiverv shall be romplete when the goods are put on rail and thereafter it
shall be at 1hc risk of the purchaser. Such a stipulation would make the r'dilwaiy <tgent of the purchaser for taking delivery of the goods.
The freight i•.1
suCh a case would be payable by the purchaser though the price ag~ced upon
is f.o.r. destination railway station.
The price of the goods receivable by the
dealer would, in that even, be the f.o.r. destination railway station-price less
the amount of freight payable by the purchaser. That would be the considt:ration payable by the purchaser to the dealer for the sale of the good5 and !he
amount of freight b~ing payable by the purchaser ¥.Duld not be included in
the •sale price' within the m,eaning of the first part of' the definition.
The position \VouJd be the same even if the dealer pays the freight and obt:?.ins railway
receipt ''freight pre-paid" and claims the full f.o.r. destination rail\\:av station
price in the bill.
The amount representing freight would not be p~yable as
part of the consideration for the sale of the goods but by way of rein1bur5e1nent
of the freight which W<US payable by the purchaser but in fact disbur5ed by the
de:iler and hence it would not form part of the 'sale price'. [289' G-H, 290 A-CJ
. JJyderahad Asbestos Ce1nent Products Ltd. v. State of Andhra Pradt·.d1, XXIV
S.T.C. (S.C.) 487; Tungabhadra Industries Ltd. Kurnool v. ComnJl'rcial Tax
Officer, /(urnonl (XI STC 827); explained.
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p
, 4 .. T~e .s~cond p~t of the definition enacts an inclusive clause and says that
sale pnce Includes ?DY 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
fre.ight ~r delivery or t~e cost of insta11ation in case where such cost is separately
ch~rged .
Therefore, any sum charged for anything done by the dealer in
rcsPect of the goods at the time of or before the delivery thereof', is to be
H
regarded as part of the '"1le price', even if it does not fall within the first part
of lhe definition.
But there is an exception carved out of this inclusion.
Not
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280
SUPREME COURT REPORTS
[1979] 1 S.C.R.
all sun1s charged for something done by the dealer in respect of the goods at
the time of or before 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 coot is separately charged". [295 C, FJ
(b) This exclusion clause does not operate as an exception to the first part
of the definition. It merely enacts an exclusion 'out of the inclusive clause and
takes out son1ething which wouid otherwise be within the inclu:->ive clause.
Ohvious1y, therefore, this exclusion clause can be availed of by the assessee
only i~ 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 t-he particular amount falls within the first part of the definition and is therefore, part of the 'sale price', the exclusi~1 clause cannot avail
the assessee to take the amount in question out of the definition of 'sal~ price'.
In the instant case, since the amount of the freight forms part of the 'sale
price' within the meaning of the first part of the definition, it is not necessary for
the State to i•.lvoke 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. [295 F-H, 296 AJ
•
(c} Even if the exclusion clause were read as oo. exception to tJ1e first part
of the definition which, cannot be done, it cannot avail the assessee.
It is
only where the cost of freight is separately charged that it would fall within
the e"\clu5ioo 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 prk:e 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 pb:rt 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. [296 A.CJ
Obscr~·ation :
(a) In respect of the assessee's several transactions of cement with the Central
Government through the Director General of Supplies and Disposals, the opinion
G
given by the Law Depairtment of the Government of India viz., "that freight
was not part of 'sale price' within the meaning of the definition of that term
and hence no sales tax would be payable by the assessee on the amount of
freight" was not correct and was unjustified. [296 E~H]
H
(b) As this statement misled the assessee into not claiming the mriount of
sales tax on the freight component of the pi:ice from the Central Governn1ent,
in the circumstances fairness and justice demand that the Central Government,
should pay to the assessee the la·mount of sales tax on the freight component of
the price in respect of transactions of sa.le of cement entered into
by
tbe
assessce with them under the provisions of the control order. [297 A.CJ
;
HINDUSTAN SUGAR MILLS v. RAJASTHAN (Bhagwati, !.)
281
'CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1122 of 1976.
A
From the Judgment and Order dated 10-9-1976 of the Rajasthan
:High Court in D. B. Civil Writ Petition No. 1080 of 1976.
V. M. Tarkunde, V. K. Shinghal, N. N. Goswamy and Arvind
Minocha for the appellant in C. A. No. 1122 of 1976.
F. S. Nariman , Y. S. Chitale, A. K. Srivastava, V. Bhasin, C. V.
!Francis and Vineet Kumar for the appellant in C.A. No. 1310 of 1976.
S. J. Sorabjee, L. N. Sinha, S. M. lain, S. C. Bhandari and B. B.
Singh for the respondents in both the appeals.
Anantha Babu and A. Subba Rao for the intervener in C.A.
No. 1122 of 1976.
The Judgment of the Coun was delivered by
BHAGWATI, J.
These appeals by special leave raise an interesting
question of law relating to the applicability of the definition of "sale
price" in section 2(p) of the Rajasthan Sales Tax Act, 1954 and 2(h)
of Central Safos Tax Act, 1956. The question is whether in sales of
<:ement effected under the Cement Control Order 1967, the amount
of freight forms part of the "sale pric<i" so as to be exigible to Sales Ta'i!:
under these Acts.
The facts giving rise to these appeals are in material
respects identical and hence it would be sufficient if we state the facts
of Civil Appeal No. 1122 of 1976 which was argued as the main appeal
'before us.
The appellant in this appeal is Hindustan Sngar Mills Ltd. (hereinafter referred to as the assessee).
The assessee owns a cement factory
known as Udaipur Cement Works at Udaipur in Rajasthan and.it manufactures and sells cement to purchasers both inside and outside Rajasthan.
The appeal relates to assessment of the assessee to sales tax under the
Rajasthan Sales Tax Act, 1954 and the Central Sales Tax Act, 1956 for
the assessment years 1971-72 and 1972-73. During these assessment
years the sale of cement .was controlled under the Cement Control Order,
1967 (hereinafter referred to as the Control Order). The Control
Drder was issued by the Central Goverrunent in exercise of the powers
conferred by sections lSG and 25 of the Industries (Development and
Regulation) Act, 1951. Clause (7) of the Control Order provided that
·the ex-factory prices admissible to the producer for the different varieties of cement shall be as specified in the Schedule and the Schedule,
as it stood at the material time, specified a retention price of Rs. 161.40
per metric tonne for cement manufactured by all producers other than
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282
SUPREME COURT REPORTS
(1979] 1 S.C.R.
those mentioned at Items 1 fo 5, which included the assessee.
The
maximum price at which a producer could sell cement was prescribed
in clause ( 8) which said that no produeer shall sell "any other variety
of cement at a price exceeding Rs. 214.65 per metric tonne free on rail
destination railway station plus the excise duty paid thereon". Tue
proviso to Gause (8) provided that in the case of packed cement, there
shall be added to this price such charg-es as may be fixed by the Central"
Government in respect of packing in jute bags or in any other containers. The Explanation to this clause clarified that for the purpose of
the Control Order, the expression 'free on rail destination railway station'
means "the price (including the cosf of transport by the cheapest mode
except where any other mode of transport has been specified by the
Central Government under Clause ( 4) at the destination point". Clause·
(9) and (11) provided for the creation of a Cement
RegulatioIL
Account in the following terms :
9. Payments to Cement Regulation Account :
Every producer shall, in respect of such transaction by
way of sale of cement effected by him, Jl"Y within one month
of the close of the month in which sales take place, to the
Controller, an amount equivalent to the amount, if any, by
which the free on rail destination price of such cement realised by him exceeds the aggregate of the following amounts,.
namely:
(i) the e.x-factory price of such cement calculated in.
accordance with the rates specified in the Schedule;
(ii) a selling agency commission calculated at the rate
of Rs. 3.00 per tonne;
(iii) the excise duty paid thereon; and
(iv) in the case of packed cement, the charges fixed by
the Central Government in respect of the packing
or the containers under the first proviso fo clause·
8 .
Provided that the expenditure incurred by the producer on
freight by the cheapest mode of transport or where any other
mode of transport has been specified by the Central Government under clause 4, by such mode of transport in respect of
such transactions shall be reimbursed to the producer by the
Controller from out of the
Cement Regulation Account
referred to in clause 11.
*
*
*
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HINDUSTAN SUGAR MILLS v. RAJASTHAN (Bhagwati, !.)
'.l83
11. Cement RegJJ]ation Account :
( 1) The Controller shall maintain an account to be
known as the Cement RegJJ]ation Account to which shall
be credited the. amounts paid by the producer under
clause 9 and such other sums of money as the Central
Government may, after due appropriation made by Parliament by law in this behalf, grant from time to time.
(2) The amount credited under sub-clause (I) shall be
spent only for the following purposes, namely :
(i) paying or equalising the expenditure incurred
by the producer on freight in accordance with the
provisions of this Order ;
(ii) equalising concession, if any, granted in the
matter of price for supplies to Government or for
purposes of export under the third proviso to clause
8·
(iii) expenses incurred by the Controller in discharging the functions under this Order subject to
such limitS, if any, as may be laid down by the
Central Government in this be hall'."
OlaUie (14) which is the last clause laid down the procedure for
ma:kilig cJa~ for payment from the Cement Regulation Account. It
provided fhat "every producer shall make an ajpp!ication regarding his
claim foc any reimbursement towards equalising freight or equalising
concession in the matter of export price to the Controller who may, ill.
settling the claim, require the producer to furnish all details, relating
thereto, including the cost of freight incurred, excise duty, if any, paid'
etc." The underlying object behind these provisions was that cement
should be available at uniform price throughout the country and that is
why it was provided that no prodncer shall sell cement at a price exceeding~- 214.65 per metric tonne "free on rail destination railway station"
plus packing charges and excise duty.
This was the maximum price at
which the Central Government intended that cement should be available
any where in India, irrespective of the distance from the place of manufacture.
Now this price was worked out on the basis ot average freight
and since the actual freight would necessarily be more or less than the
averalge freight depending on the distance of thel place of destination
from the manufacturing site, clauses 9 and 11 of, the Control Order
provided a machinery by which the producer could be ensured the retention price specified in the Schedule alongwith selling agency commission at the rate of Rs. 3.00 per metric tonne, packing charg1:s and excise
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duty.
This result was achieved by providinlJ that the producer should
hand over to the Controller the excess of the "free on ra!iI destination
railway station" price including pac;k:ing charges and excille duty realised by him over the retention price, selling agency commission, l_)acking
charges and excise duty and he should then be re-imbursed the amount
of expenditure actually incurred by him on freight by the cheapest mode
of transport.
This would leave with the producer the retention price
together with the se!ling agency commission, packing charges and excise
duty and also re-imburse him the actual freight paid by him.
During the relevant assessment years, the assessee entered into
diverse contracts of sale of cement with purchasers at the price of
Rs. 214.65 per metric tonne "free on rail destination railway station"
plus packing charges and excise duty.
These contracts were on the
terms and conditions set out in the form of 'General terms and conditions of supply" adopted by the assessee. A copy of the "General
terms a'nd conditions of supply" was handed over to us by the learned
counsel app2aring on behalf of the assessee at the hearing of the appeals
and it was not disputed on behalf of the State that the>e were
the
general terms and conditions on which contracts were entered into by
the asseissce with the purchasers. Clauses 5, 8 and 11 of the "General
terms and conditio"ns of supply" were strongly relied upon on behalf
of the assessee and we shall, therefore, set them out in extenso :
5. Although the price of cement is on the basis of F.O.R. destination railway station, consignments will 11'2VertheleSJs be despatched "freight to pay" and credit afforded in our Bill for
the amount of freight payable. The purchaser should accordingly arrange to pay Railway freight/Road tra"nsport charges
at the destination at the time of taking delivery.
8. Once the consignment is handed over to the Carrier and a
receipt is obtained, the responsibility of the Company 02ases.
The Company does not accept any liability for any delay.
shortage, damage or Joss of goods in tra"nsit.
Claim should
be lodged with the Carriers by the Buyers dirooctly.
11. In respect of any claim for over charge of freight, the purchaser
shall put up claim with the concerned Railway authorities.
The asscssee, in fulfilment of these contracts, despatched cement to
the purchasers at various destinations by rail and the railway receipts
were made out on the basis of "freight to pay".
The invoices sent
by the assesseo2 showed the "free on rail destination railway station"
rrice of the cement despatched at the rate of Rs. 214.65 per metric
trmne and added tho amounts representing excise duty and packing
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HINDUSTAN SUGAR MILLS v. RAJASTHAN (Bhagwati, J.)
285
charges and deducted the amount of railway freight since it was to be
paid by the purchasers.
The assessee did not charg~ in the invoices
sales tax on the amount of railway freight, since in its view it did not
form part of the "sale price", but i"n order to provide against a possible claim which might b~ made by the sales tax authorities, the assessee
claimed by way of deposit an amount "towards contingent liability
to sales tax on railway freight to be paid by
you"
that is,
the
purchasers. Each invoice also contained a statement at the commencement that : "E.,~ry care is taken in packing and despatching goods and
our responsibility for shortage, Joss, delay or damage ceases after
delivery at Works Sidi"ng.
All such claims should be preferred with
the railways or the carriens concerned". The purchasers received the
railways receipts from the banks against payment of the amounts of
the invoices and thereafter took delivery of the cement despatched by
the assessee after making payment of the railway freight.
The question arose in the assessment of the :assessee to sales tax
under the Rajasthan Sales Tax Act, 1954 and the Central Sales Tax
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Act, 1956 as to whether the amount of freight deducted from the free
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on rail destination railway station price (hereiRafter for the sake of
brevity referred to as F.O.R. destination 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 Rajasthan Sales Tax Act, 1954 and section 2(h) of the Central
Sales Tax Act, 1956. The Sales Tax Authorities took the view that
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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 Sales Tax. The assessee challenged the correctness of this view by filing a writ petition in the High Court of Rajasthan but the High Court agreed with the view taken by the Sales
Tax Authorities and held that since under clause 8 of the Control F
Order, the price payable by the purchasers was F.0.R. destination
price, the amount of freight inoluded in it formed part of the "sale
price". The assessee thereupon preferred Civil Appeal No. 1122 of
1976 after obtaining special leave from this Court.
It will thus be seen that Civil Appeal No. 1122 of 1976 is directed G
against the judgment of the Rajasthan High Court which has taken
a view against the assessee. The other appeal, namely, Civil Appeal
No. 1310 of 1976 which ha~ been heard alongwith Civil Appeal No.
1122 of 1976 has been filed by the assessee directly against an adverse order made by the assessing authorities but the question in that
appeal is the same as in Civil Appeal No. 1122 of 1976. It must
be conceded straightaway that the questiou is not fme from diffic-;;lty
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SUPREME COURT REPORTS
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and there is a sharp divergence of opinfon amongst different High
Courts, with an almost equal number of High Courts ranging on
either side. But fortunately there are two decisions of this
Court
which throw some light on this question. We shall refer to them in
due course.
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 identical.
Section 3 of the Rajasthan Sales Tax Act,
1954 provides that every dealer whose turnover in the previous year
exceeds a certain limit shall be liable to pay tax on his taxable turnover, subject to the provisions of that Act.
"Taxable turnover" is
defined in section 2 ( s) to mean that part of the "turnover" which remains after deducting the aggregate amount of proceeds of certain
categories of sales and "turnover", according to section 2(t), means
"the aggregate of the amount of sale prices received or rec.eivable
by a dealer in respect of the sale or supply of gooos-". The definition of 'sale price' is given in section 2(p). and according to that
definition, it means ;
-the amount payable to a dealer as consideration for the.
sale of any goods, less any sum allowed as cash discount
according to the practice normally prevailing in the trade,
but inclusive of any sum charged for anything done by the
dealer in respect of the goods at th(J time of or before 'lbe
delivery thereof other than the cost of freight or delivery
or the cost of installation in case where such cost is separately chargeld".
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This 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 toot 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 i•
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made up. whether it includes excise duty or sales tax or freight. The
only relevant queistion to ask is as to what 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.
Take for example, excise duty payable by a dealer who is a manuH
facturer.
When he sells goods manufactured by him,
he always
- passes on the excise duty to the purchaser. Ordinarily it is not shown
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HINDUSTAN SUGAR MILLS v. RAJASTHAN (Bhagwati, !.)
287
as a separate item in the bill, but it is included in the price charged by
him.
The 'sale price' in such a c,ase 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 thel
dealer, as it would go to re-imburse him in respect of the excise duty
aJr.eady 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 the case, forms part of the :sale price'. It iis 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 Ml s
George Oakes (Pvt.) Ltd. Versus The State of Madras & Ors. (XII
STC 476) whether the view taken by Madras High Court in Sri
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.
& An~. Versus Board of Trade (1944) All E.R. 372) :
"Whenever a sale attracts purchase tax, that tax prcsumafUy 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."
The learned Judge also quoted with approval what Goddard,
L.J.,
said in Love v. Norman Wright (Builders) Ltd. ((1944) 1 Ali E.R.
618] :
•·where an article is taxed, whether by purchase tax,
customs duty, or excise duty, the tax becomes part of the
price wldch ordinarily the buyer will have to
pay.
The
price of an ounce of tobacco is what it is because of the
rate of tax, but on a sale there is only one consideration
though made up of cost pins profit plus tax.
So if a selier
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SUPREME COURT REPORTS
[!979] ! S.C.R.
offers goods for sale, it is for him to quote a price which
includes the tax if he desires to pass ,it on to the buyer. If
the buyer agrees to the price, it is not for him to consider
how it is made up or whether the seller has included tax
or no!."
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and summed up the· position in the following words :
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"So far as the purchaser is concerned, he pays for lhc
goods what the seller demands, namely,
the price
even
though it may include tax.
That is the whole consideration
for the sale and there is no reason why the whole amount
paid to the seller by the purchaser should not be treated as
the wnsideration for the sale and included in the turnover."
We may theu take a case where a dealer transports goods from his
factory to his place of business and sells them at a' price whi:h is
arrived at &Jter taking into account 'freight and handling charge>'
incurred by him in transporting the goods.
The amount of 'freight
and handling charges' in~luded in the. price would obviously
b<> 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 be
payable by the purchaser not under any statutory or other liability but
as part of the consideration for the sale of the goods and it wouid,
therefore, iorm 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 in Dyer Meakin Breweries Ltd. \'.
Sales
Tax Officer, Ernakulam (XXVII STC 120).
We may now take another example which is very much near te>
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 pnt 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 railway station and till then the risk continues to remain with
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BUIDllsTAN SUGAR MILLS v. RAJASTHAN (Bhagwati, /.)
289
the dealer.
The freight is payable by the dealer
sine~ 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.