# CEMENT MARKE'IJNG CO. OF INDIA LTD v. ASSTT. COMMISSIONER OF SALES-TAX, INDORE &ORS

- **Citation:** [1980] 1 S.C.R. 1098
- **Court:** Supreme Court of India
- **Decided:** 1979-10-30
- **Case number:** Civil Appeal Nos. 191-193 of 1978
- **Bench:** P. N. Bhagwati, R. S. Pathak
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/cement-marke-ijng-co-of-india-ltd-v-asstt-commissioner-of-sales-tax-indore-ors-7863
- **Pages:** 6

## Headnote

Mad/1ya Pradesh General Sales Tax Act 1958, Sl(o) &: Central Sales Tax
Act 1956 S2(h)-'Sale Price'-Sa/e of cement under Cement Control Order·-
a1nount of 'freight'-whether part of 'sale price' includibl-e in taxable turnoveT
of the asseSBee.
·
Madhya Pradesh General Sales Tax Act 1958, S43 & Central S•les Tax
Act 1956, S9(2)-'false' return-Bona fide belief of assessee that the amount
of 'freight' did not form part of the 'sale price' and not includible in the
taxable turnover-penalty whether leviable.
The assessee (appellant) effected certain transactions of sale of cement in
accordance with the provisions of the Cement Control Order.
The amount of
freight which was included in the 'free on rail destination railway station'
price and which was paid by the purchaser was deducted from the price shoWJ>
in the invoices sent to the purchasers.
The assessee proceeding on tlle basis
that the amount of freight did not form part of the sale price and was not
includible in the taxable turnover did not show it in the returns submitted by
it.
The Assistant Commissioner of Sales Tax took the view that having regard
to the provisions of the Cement Control Order, the amount of freight formed
part of the sale price and was includible in the taxable turnov<er of the assessee,
and passed two orders of assessment, one under the Central Sales· Tax Act,
1956 and the other under the Madhya Pradesh General Sales Tax Act, 1958,
including the amount of freight in the taxable tumover of the asseasce and
levying tax upon it and ftlso ·imposing heavy penalty on the assessee on theground that the assessee had failed tOI disclose in its returns the
amount of
freight as forming part of the taxable turnover.
In appeals to this Court on the questions of : (I) inclusion of the amount
of freight in the taxable turnover of the assessee and (2) imposition of penalty
for not showing the amount of freight as forming part of the taxable turnover
in the returns.
HELD : 1. (i) The amount of freight formed part of the sale
p.ricewithin the ineaning of the first part of the definition of that term in Section
2(o) of the Madhya Pradesh General Sales Tax Act, 1958 and Sectioe 2{h)
of the Central Sales Tax Act, 1956' and was rightly included in the taxable
turnover of the assessee. [l!OIEJ
(ii) In Hindustan Sugar Mills
v.
State of Rajasthan [1979] I SCR 276
this C.ourt held that by reason of the provisions of the Cement Control Order,
1967, which governed the transactions of sale of cement entered into- by theasoessee the amount of freight formed part of the sale price within the rneanin~
)
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CEMENT MARKETING CO. V. SALES TAX
1099
of the firs~ part of the definition of that term contained in Section 2(p) of
tho Rajasthan Sties Tax Act. 1954 and Section 2(h) of the Central So.les Tai<
Act, 1956 and was includ,ible in the taxable turnover of the assessee.
The
said decision n1ust equally apply under the Madhya .Pradesh General Sales Tax
Act, 195~, a~ the definition of 'sale price' in Section 2(o) of 1he Madhya Pradesh General Sales Tax Act, 1958 is materially in the same tern1s as Section
2(pl of the Rajasthan Sales Tax Act, 1954. [l!OlC-E]
2(i) The A.55istant Commissioner of Sales Tax was not justified in imposing p1enalty on the assessee under Section 43 of the Madhya Pradesh General
Sales Tax Act, 1958 and section 9 sub-section (2) of the Central Sales Tax
Act of 1956 as the assessee could not be said to have filed 'false' returns when
it did not include the amount of freight in the taxable turnover shown in the
returns. [1103C, BJ
(ii) Section 43 of the Madhya Pradesh General Sales Tax Act, 1958 pro-
- viciing for imposition of penalty requires that the assessee should have filed a
'faJ.5.e' return and a return cannot be said to be 'false' unless there is an ele~
ment of deliberateness in it.
The· Section being penal in character, unless the
filing of an inaccurate return is accompanied by a guilty mind,
the section
cannot be invoked for imposing penalty. [1102

## Text

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1098
CEMENT MARKE'IJNG CO. OF INDIA LTD.
v.
..
ASSTT. COMMISSIONER OF SALES-TAX, INDORE &ORS.
October 30, 1979
[P. N. BHAGWATI. AND R. S. PATHAK, JJ..]
Mad/1ya Pradesh General Sales Tax Act 1958, Sl(o) &: Central Sales Tax
Act 1956 S2(h)-'Sale Price'-Sa/e of cement under Cement Control Order·-
a1nount of 'freight'-whether part of 'sale price' includibl-e in taxable turnoveT
of the asseSBee.
·
Madhya Pradesh General Sales Tax Act 1958, S43 & Central S•les Tax
Act 1956, S9(2)-'false' return-Bona fide belief of assessee that the amount
of 'freight' did not form part of the 'sale price' and not includible in the
taxable turnover-penalty whether leviable.
The assessee (appellant) effected certain transactions of sale of cement in
accordance with the provisions of the Cement Control Order.
The amount of
freight which was included in the 'free on rail destination railway station'
price and which was paid by the purchaser was deducted from the price shoWJ>
in the invoices sent to the purchasers.
The assessee proceeding on tlle basis
that the amount of freight did not form part of the sale price and was not
includible in the taxable turnover did not show it in the returns submitted by
it.
The Assistant Commissioner of Sales Tax took the view that having regard
to the provisions of the Cement Control Order, the amount of freight formed
part of the sale price and was includible in the taxable turnov<er of the assessee,
and passed two orders of assessment, one under the Central Sales· Tax Act,
1956 and the other under the Madhya Pradesh General Sales Tax Act, 1958,
including the amount of freight in the taxable tumover of the asseasce and
levying tax upon it and ftlso ·imposing heavy penalty on the assessee on theground that the assessee had failed tOI disclose in its returns the
amount of
freight as forming part of the taxable turnover.
In appeals to this Court on the questions of : (I) inclusion of the amount
of freight in the taxable turnover of the assessee and (2) imposition of penalty
for not showing the amount of freight as forming part of the taxable turnover
in the returns.
HELD : 1. (i) The amount of freight formed part of the sale
p.ricewithin the ineaning of the first part of the definition of that term in Section
2(o) of the Madhya Pradesh General Sales Tax Act, 1958 and Sectioe 2{h)
of the Central Sales Tax Act, 1956' and was rightly included in the taxable
turnover of the assessee. [l!OIEJ
(ii) In Hindustan Sugar Mills
v.
State of Rajasthan [1979] I SCR 276
this C.ourt held that by reason of the provisions of the Cement Control Order,
1967, which governed the transactions of sale of cement entered into- by theasoessee the amount of freight formed part of the sale price within the rneanin~
)
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CEMENT MARKETING CO. V. SALES TAX
1099
of the firs~ part of the definition of that term contained in Section 2(p) of
tho Rajasthan Sties Tax Act. 1954 and Section 2(h) of the Central So.les Tai<
Act, 1956 and was includ,ible in the taxable turnover of the assessee.
The
said decision n1ust equally apply under the Madhya .Pradesh General Sales Tax
Act, 195~, a~ the definition of 'sale price' in Section 2(o) of 1he Madhya Pradesh General Sales Tax Act, 1958 is materially in the same tern1s as Section
2(pl of the Rajasthan Sales Tax Act, 1954. [l!OlC-E]
2(i) The A.55istant Commissioner of Sales Tax was not justified in imposing p1enalty on the assessee under Section 43 of the Madhya Pradesh General
Sales Tax Act, 1958 and section 9 sub-section (2) of the Central Sales Tax
Act of 1956 as the assessee could not be said to have filed 'false' returns when
it did not include the amount of freight in the taxable turnover shown in the
returns. [1103C, BJ
(ii) Section 43 of the Madhya Pradesh General Sales Tax Act, 1958 pro-
- viciing for imposition of penalty requires that the assessee should have filed a
'faJ.5.e' return and a return cannot be said to be 'false' unless there is an ele~
ment of deliberateness in it.
The· Section being penal in character, unless the
filing of an inaccurate return is accompanied by a guilty mind,
the section
cannot be invoked for imposing penalty. [1102D, 1102H]
(iii) Where the assessee does not include a particular item in the taxable
turnover under a bonafide belief that he is not liable so to iru:lude it, it would
not be right· to condemn the return as a 'false: return inviting imposition of
penalty. [11 <h!F]
Hindustan Steel Ltd. v. State of Ori<sa, 25 S.T.C. 211, referred to.
In the instant case, the assessee did not include the amount of freight iD
the taxable turnover under a bonafide belief that the amount of freight did
not form part of the sale price and 'vas· not includible in the taxable turnover.
'The ccntention of the ass·essee throughout was that on a proper construction
of the definition of 'sale price' in Section 2·(0) of the Madhya Pradesh General
Sales Tax Act, 1958 and Section 2(h) of the Central Sales Tax Act, 1956,
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the amount of freight did not fall v.'ithin the definition and was not liable to
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be included in the taxable turnover. Tt cannot be said that this \Yas a frivolous
contention taken up merely for the purpose of avoiding liability to tax.
This
·was a highly arguable contention.
The belief entertained by the assessee that
it was not liable to include the amount of freight in the taxable turnover co_uld
not be said to be malafide or unreasonable. It cannot. therefore, be said that
t'!J.e assessee filed 'false• returns necessitating imposition of penalty. [1102A-D,E]
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CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 191-193 of
1978.
Appeals by Special Leave from the Judgment and Order dated
28-12-77 of th~ Assistant Commis~ioner of Sales Tax, Indore in R. C.
No. IND/1/X/XIX/5 in case No. 118/72-73 for the period 1-8-71 to
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31-7-72, R. C. No. IND/1/1344 (Central) in Case No. 84/72-73 for
the period 1-8-71 to 31-7-72 and R. C. No. IND/l/X/XIX/5 (TOT)
. l!OO
SUPREME COURT REPORTS
[1980J l S.C.R •
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in Case No. 118/72-73 fur the period 15-11-71to31-7-72 and rectified by orders dated 7-1-1978.
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V. S. Desai (CA 191/78), B. R. Agarwala and P. G. Gokhale for
the Appellant.
S. K. Gambhir for the Respondent.
The Judgment of the Court was delivered by
BHAGWA TI, J .-'These appeals by special leave raise common
questions of law and it would be convenient to dispose them of by a
single judgment.
The assessee effected certain transactions of sale of ceme.nt in
accordance with the provisions of the Cement Control Order during
the assessment period Ist August, 1971 to 31st July, 1972 and in the
course of the assessment of the assessee to sales tax.under the :-.1adhya
Pradesh General Sales Tax Act, 1958 and Central Sales Tax Act, 1956,
a question arose whether the amount of freight which was included in
the 'free on rail destination railway station' price, but which was paid
by the purchasers and hence deducted from thei price shown in the invoices sent to the purchasers, formed part of the sale price so as to be
liable to be included in the taxable turnover of the assessee.
The
assessee, proceeding on the basis that the amount of freight did not
I
form part of the sale price and was not includible in the taxable turnover did not show it in the returns, but the Assistant Commissioner of
Sales Tax took the view that having regard to the provisions of the
Cement Control Order, the amount of freight formed part of !he sale
price and was includible in the taxable turnover of the assessee and on
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this view, he passed two orders of assessment, one under the Central
Sales Tax Act, 1956 and the other nnder the Madhya Pradesh General
Sales Tax Act, 1958, inc!nding the amount of freight in the taxable
turnover of the assessee and levying tax upon it and also imposing
heavy penalty on the assessee on the ground that the assessee had failed
to disclose in its returns the amount of freight as formil)g part of the
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taxable turnover.
The same positi'on obtained also in regard to. the ,
assessment period 15th November,
1971 to 31st July, 1972 and a
similar order bringing the amount of·freight to tax and imposing heavy
penalty on the assessee was passed by the Assistant Commissioner of
Sales Tax under the Madhya Pradesh General Sales Tax Act, 1958.
Since the question as to whether in respect of transactions of sale. of
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cement governed by the Cement Control Order, the amount of freight
formed part of the sale price and was liable to be included in the taxable
turnover of the dealer, was pending decision in this Court, the assessee
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CEMENT MARKETING. co. v. SALES TAX (Bhagwati, l.)
1101
'preferred appeals directly to this Court by special leave against the
Orders of assessment made by the Assistant Commissioner of Sales Tax.
The assessee challenged in the appeals .not only the inclusion of the
amount of freight in the taxable turnover of the assessee, but also the
imposition of penalty for not showing the amount of freight as forming
part of the taxable turnover in the returns.
So far as the first question is concerned, namely,. whether the
amount of freight formed part of the sale price and was includible in
the taxable turnover of the assessee so as to be exigible to sales tax, it
stands concluded by a recent decision given by this Court in Hindustan
Sugar Mills v. State of Rajasthan & Ors.(')
It has been held by this
Court in that case that by reason of the provisions of the Cement Control Order, 1967, 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 contained in sec. 2 (p) of the Rajasthan Sales
Tax Act, 1954 and section 2(h) of the Central Sales Tax Act, 1956
and .was iilcludible in the taxable turnover of the asseisee.
The definition of 'sale price' in section 2 ( o) of the Madhya Pradesh General Sales
Tax Act, 1958 is materially in the same terms as section 2(p) of the
Rajasthan Sales Tax A,ct, 1954, and this decision must therefore equally
apply uuder the Madhya Pradesh General Sales Tax Act, 1958 and it
must be held that the amount of freight formed part of the sale price
within the meaning o[ the first part of the definition of that term in
section 2(o) of the Madhya Pradesh General Sales Tax Act 1958 and
section 2(h) of the Central Sales Tax Act, 1956 and was rightly included in the taxable tumoyer of the assessee.
We may point out that the observations made by this Court iu the
Order dated 31st August, 1979 allowing the Review Application of the
assessee in Hindustan Sugar Mill,-; case (supra) are equally applicable
t
in the present case and the State WiH do what is fair and just to the
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a~ellant as indicated by this Court in. that Order.
___
The next question that arises for consideration is whether the Assistant Commissioner of Sales Tax was right in imposing penalty on the
assessee for not showing the amount of freight as forming part of the
taxable turnover in its returns. The penalty was imposed under section 43 of the Madhya Pradesh General Sal~es Tax Act, 1958 and section 9 sub-section
(2) of the Central Sales Tax Act, 1956 on the
(1) [1979] I S.C.R. 276.
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1102
SUPREME COURT REPORTS
[1980] 1 S.C.R.
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!1fOund that the assessee had furnished false returns by not including
the amount of freight in the taxable turnover disclosed in the returns.
Now it is difficult to see how the assessee could be said to have filed
'false' returns, when what the assessee did, namely, not including the
amount of freight in the taxable turnover was nuder a bonafide belief
that the amount of freight did not form part of the sale price and was
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not includible in the taxable turnover.
The contention of the assessee
tl1roughout was that on a proper construction of the definition of 'sale
price' in section 2(o) of the Madhya Pradesh General Sales Tax Act,
1958 and section 2(h) of the Central Sales Tax Act, 1956, the amount
of freight did not fall within the definition and was not liable to be
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included in the taxable turnover.
Thisi was the reason why the assessee
did not include the amount of freight in the taxable turnover in the
returns filed by it.
Now, it cannot be said that this was a frivolous
contention taken up merely for the purpose of avoiding liability to pay
tax.
It was a highly arguable contention which required serious consideration. by the Court and the belief entertained by the assessee tha~
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it was not liable to include the amount of freight in the taxable furnover
could not be said to be malafide or unreasonable.
What section 43 o~
' the Madhya Pradesh General Sales Ta;x Act, 1958 requires is that the
assessee should have filed a 'false' return and a return cannot be said
to be 'false' unless there is an element of deliberateness in it. It is
possible that even where the incorrectness of the return is claim.ed to
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be due to want of care on the part of the assessee and there is no
reasonable explanation forthcoming from the assessee for such want of
care, the Court may, in a given case, infer, deliberateness and the return
may be liable to be branded as a- false return. But where the assessee
does not include a particular item in the- taxable turnover under a
bonafide belief that he is not liable so to incltJde it, it would not be right
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to condemn the return as a 'false' return inviting imposition of penalty.
This view which is being taken by us is supported by the decision of
this Court in Hindustan Steel Limited v. State of OrissaC) where it has
been held that "even if a minimum penalty is prescribed, the authority
competent to impose the penalty will be justified in refusing to impose
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penalty, when there is a technical venial breach of the provisions of
the Act or where the breach flows from a bona fide belief that the offert......
der is not liable to act in the, manner prescribed by the statute ...... " '-
It is elementary that section 43 of the Madhya , Pradesh General
Sales Tax Act, 1958 providing for imposition of penalty is penal in
character and unless the filing of an inaccurate return is accompanied
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by a guilty mind, the section cannot be invoked for imposing penalty.
If the view canvassed ,on behalf of the Revenue were accepted, the re-
(!) 25 S.T.C. 211.
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CEMENT MARKETING co. v. SALES TAX (Bhagwati, J.)
1103
sult would be that even if the assessee raises a bonafide contention that a
particular item is not liable to be included in the taxable turnover, he
would have to show it as forming part of the taxable turnover in his
return and pay tax upon it on pain of being held liable for penalty in
case his contention is ultimately found by the Court to be not acceptable.
That surely could never have been intended by the Legislature.
We are, therefore, of the view that the assessee could not be said
to have filed 'false' returns when it did not include the amount of
freight in the taxable turnover shown in the retrirns and the Assistant
Commissioner of Sal((S Tax was not justified in imposing penalty on
the assessee under section 43 of the Madhya Pradesh General Sales
Tax, 1958 and section 9 sub-section (2) of the Central Sales Tax Act,
1956.
We accordingly reject the appeals in so far they are directed against
tl1e inclusion of the amount df freight in the taxable turnover of the
assessee but allow the appeals in so far as they relate to imposition of
penalty of freight in the taxable turnover of the assessee but al!ow the
appeals in so far as they relate to imposition of penalty and set aside
the Orders passed by the Assistant Commissioner of Sales Tax impqsing
penalty on the assessee.
There will be no order as to costs of the appeals. ·
N. V. K.
Appeals partly allowed.
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