Citation Codes

Equivalent Citations

citation codes

Case Number

Tax Case No. 339 of 1975 (Revision No. 57 of 1975)

Judges

P. Govindan Nair, C.J
V. Ramaswami, J.

Acts

Section 2(s) of the Andhra Pradesh General Sales Tax Act and Section 5 of that Act
Rule 5(1)(g) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939,
Rule 6(c)(i) of the Tamil Nadu General Sales Tax Rules, 1959.
Nadu General Sales Tax Act, 1959,
Section 2(d)(ii),
Section 2(g)
Rule 6(c)(i),
Rule 5(1)(g).

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

This is a revision petition by the assessee against an order of the Sales Tax Appellate Tribunal concerning assessment of sales tax. The revision petition raised three points: (1) whether freight charged by the dealer should be included in the dealer's taxable turnover, (2) whether receipts from the sale of various scrap items formed part of taxable turnover, and (3) whether tax charged on locally purchased raw hides and skins could be shifted to a subsequent transaction when those raw hides and skins were tanned and sold inter-State. Counsel for the revision petitioner urged three points before the court, and the court dealt with them seriatim.

Legal Issues Presented

Whether the Tribunal erred in including freight charges in the assessee's taxable turnover (with reference to Rule 6(c)(i) of the Tamil Nadu General Sales Tax Rules, 1959 and the contractual terms).
Whether receipts from the sale of various scrap items (drums, containers, gunny bags, iron and brass scraps, car spare parts, condemned appliances, etc.) are transactions connected with the assessee's business and thus form part of taxable turnover.
Whether the tax liability imposed on the purchase of raw hides and skins (item 7(a) of the Second Schedule) can be shifted so that the tax is instead chargeable on the subsequent inter-State sale of tanned hides and skins.

Arguments of the Parties

Revision Petitioner (Assessee) — Arguments

On freight: The Tribunal erred by including freight in turnover. Reliance was placed on Rule 6(c)(i) of the Tamil Nadu General Sales Tax Rules, 1959, and the submission that freight did not form part of the price of goods sold and therefore should be excluded from turnover; freight had been separately specified and charged.
On scrap: Cited Board of Revenue v. Ansari to argue that volume, frequency, continuity and regularity of transactions must be satisfied before a person can be said to be carrying on a business of selling goods (implying that some scrap sales may not constitute business turnover).
On hides and skins: Contended that tax imposed on raw hides and skins by item 7(a) would be shifted to the sale of tanned hides and skins (relying on Sadak Thamby & Co. v. Appellate Assistant Commissioner of Commercial Taxes).

Revenue — Arguments

On freight: Relied upon the decision in Tungabhadra Industries Ltd. v. Commercial Tax Officer, Kurnool, arguing that that case should control and that where price is inclusive of freight (goods delivered free of freight), freight forms part of turnover.
On scrap and hides: The opinion records the revenue's position in contesting the assessee's contentions; specifically, it opposed exclusion of scrap sales from turnover and opposed the contention that tax on purchase of raw hides could be displaced by later inter-State sales.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Hyderabad Asbestos Cement Products Ltd. v. State of A.P. [1969] 24 S.T.C. 487 (S.C.)	Construction of contractual clause where freight was deducted from the invoice and whether freight formed part of the price/turnover; interpretation of "total turnover" in the relevant Sales Tax statute.	The court found the facts before it to be identical to Hyderabad Asbestos and followed that decision: where the contract/terms make freight payable by the buyer and deducted from invoice, the price received by the seller excludes freight and freight is not includible in total turnover.
Tungabhadra Industries Ltd., Kurnool v. Commercial Tax Officer, Kurnool [1960] 11 S.T.C. 827 (S.C.)	Whether a dealer who specified total price then deducted railway freight could claim deduction under the relevant Rule (Rule 5(1)(g) of Madras Rules 1939); principle that if price stipulated is inclusive of freight and delivery is free of freight, freight forms part of turnover.	The court distinguished Tungabhadra: that case involved delivery free of freight so freight formed part of turnover; it was held to be distinguishable on facts and not applicable to the present case.
State of Tamil Nadu v. Burmah Shell Co. Ltd. [1973] 31 S.T.C. 426 (S.C.)	Principle that sale of certain scrap/unserviceable goods used in the course of the company's operations is connected with the business and therefore part of business turnover.	The court treated Burmah Shell as prima facie indicating that the scrap items listed were connected with the assessee's business and therefore their sale forms part of taxable turnover; this supported holding against the assessee on scrap.
Board of Revenue v. Ansari [1976] 38 S.T.C. 577 (S.C.)	Requirement that volume, frequency, continuity and regularity of transactions must be satisfied to constitute carrying on the business of selling goods.	The assessee relied on Ansari to argue that scrap sales might not be business transactions; the court observed the point but concluded it did not apply because the assessee was admittedly carrying on a business and the transactions were incidental to that business.
Sadak Thamby & Co. v. Appellate Assistant Commissioner of Commercial Taxes [1969] 24 S.T.C. 468	Dealt with shifting of tax where both items 7(a) and 7(b) of the Second Schedule were attracted (local purchase of raw hides and local sale of tanned hides and skins).	The court stated that the Sadak Thamby decision related to situations where both items 7(a) and 7(b) applied (local sales) and thus it was not called upon to follow or consider its correctness because the contingency it addressed did not arise in the present case.
Gordon Woodroffe & Co. (Madras) P. Ltd. v. State of Tamil Nadu [1977] 40 S.T.C. 130	Whether tanned hides and skins (the subject-matter of inter-State sales) are subject to local sales tax under item 7(b); treatment of tanned hides as a different commodity from raw hides.	The court regarded this decision as more appropriate on the point and noted that tanned hides and skins sold inter-State were not subject to item 7(b) (which deals with local sales) and thus are a different commodity; nevertheless, the court held that tax liability on last purchase of raw hides attached on purchase and could not be displaced by subsequent inter-State sales.

Court's Reasoning and Analysis

The court addressed each of the three contentions in turn and applied statutory wording, contractual terms, and relevant precedents to the facts before it.

1. Freight — interpretation of Rule 6(c)(i) and contractual terms

- The court considered Rule 6(c)(i) of the Tamil Nadu General Sales Tax Rules, 1959, which permits deduction of specified amounts (including freight) from total turnover when those amounts are "specified and charged for by the dealer separately, without including them in the price of the goods sold." The court observed an ambiguity: freight is ordinarily part of turnover only if it forms part of the price, but the rule contemplates exclusion even where freight is separately specified and charged.

- Rather than deciding the point solely from the rule's wording, the court relied on the Supreme Court's decision in Hyderabad Asbestos Cement Products Ltd. v. State of A.P., which involved identical facts (invoice including cost and freight, terms providing freight payable by buyer and deductible from the invoice). The Supreme Court had held that under such contractual terms the company received the catalogue rate less railway freight as the price of goods — i.e., freight did not form part of the seller's price.

- The court therefore held that in the present case, because the terms of business provided that freight was payable by the buyer and deducted from the invoice, the freight did not form part of the price and thus was not includible in the total turnover.

- The court considered but distinguished Tungabhadra Industries Ltd., where the facts showed delivery to buyer free of freight, and thus price was inclusive of freight; that decision was not applicable to the present facts.

2. Scrap — whether sales are incidental to business and part of turnover

- The assessee sold various scrap and condemned items (drums, containers, gunny bags, iron/brass scraps, car spare parts, condemned appliances, etc.). The court noted the prima facie applicability of State of Tamil Nadu v. Burmah Shell Co. Ltd., in which similar scrap sales were held to be connected with the company's business.

- The court considered the assessee's reliance on Board of Revenue v. Ansari about the need for volume, frequency, continuity and regularity for an activity to be a business, but found that the assessee was admittedly carrying on a business and that the scrap items sold were incidental to that business under Section 2(d)(ii) (definition of "business"). Read with the definition of "dealer" in Section 2(g) and the liability under Section 3, the court concluded that these scrap sales were transactions connected with the business and their proceeds must be included in turnover.

3. Raw hides and skins — whether tax on purchase can be shifted to subsequent inter-State sale of tanned hides

- Facts: the assessee purchased raw hides and skins (admitted last purchaser), tanned them, and sold the tanned hides and skins in inter-State transactions.

- The assessee argued (relying on Sadak Thamby & Co.) that tax imposed by item 7(a) on raw hides and skins would be shifted to the later sale of tanned hides and skins. The court observed that Sadak Thamby dealt with circumstances where both items 7(a) and 7(b) applied — specifically local purchase and local sale — and thus the contingency in Sadak Thamby (local sale of dressed hides within the State) did not arise here because the sales were inter-State.

- The court found Gordon Woodroffe to be more appropriate on the point, recognizing that tanned hides and skins sold inter-State were a different commodity for the purpose of item 7(b) (which concerns point of levy at first sale in the State) and thus item 7(b) did not apply to inter-State sales.

- Importantly, the court held that liability to pay tax arising on the last purchase of raw hides and skins is attracted immediately on that purchase. The court found no provision in the Act or Rules permitting the assessee to remove or substitute that tax liability by pointing to subsequent tanning and inter-State sale. Accordingly, the contention that tax could be shifted was negatived.

Holding and Implications

Core Ruling: The revision is allowed in part and dismissed in part. Specifically:

Freight: The court held that freight charged under the facts and contractual terms before it did not form part of the price payable for the sale and therefore is not includible in the total taxable turnover of the assessee (the assessee succeeded on this point).
Scrap sales: The court held that sales of scrap and unserviceable items were transactions connected with the assessee's business and their proceeds must be included in taxable turnover (the assessee lost on this point).
Raw hides and skins: The court held that tax liability on the purchase of raw hides and skins (where the dealer was the last purchaser in the State) attached upon purchase and could not be shifted to subsequent inter-State sale of tanned hides and skins; the assessee's contention was negatived (the assessee lost on this point).

Consequences for the parties: The revision petitioner succeeded on the freight point but failed on the scrap and hides points. The court directed the parties to bear their respective costs. The opinion applies established precedent (notably Hyderabad Asbestos) and distinguishes others (notably Tungabhadra); it does not purport to lay down any new rule of law beyond its application of existing authorities to the facts.

Costs: The court directed that parties bear their respective costs.

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Gordon Woodroffe & Company (Madras) Private Limited v. The State Of Tamil Nadu

1. This is a revision taken by the assessee to sales tax from the order of the Sales Tax Appellate Tribunal. Counsel on behalf of the revision petitioner urged three points before us. We shall deal with them seriatim.

2. The first submission was that the Tribunal erred in fixing the turnover of the revision petitioner by including the freight charge. The exclusion of the turnover relating to freight was urged in two ways. Reliance was placed first on Rule 6(c)(i) of the Tamil Nadu General Sales Tax Rules, 1959. It was also submitted that, apart from Rule 6(c)(i), "freight" did not form part of the price of the goods sold and, therefore, cannot form part of the turnover either. Rule 6 provided that, in determining the taxable turnover, the amounts specified therein shall, subject to the conditions specified therein, be deducted from the total turnover of a dealer. The particular clause with which we are concerned states:

(c) 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; . . .

shall be excluded from the total turnover.

3. This rule, on a reading of it proceeds on the basis, as is clear from what is stated earlier, that freight would form part of the total turnover because the direction is that freight be deducted from the total turnover of the dealer. There is some ambiguity in this regard. To be included in the turnover, freight must necessarily form part of the price for which the goods were sold. The latter part of the rule insists, however, that freight should not be included in the price of the goods sold and it must be specified and charged for by the dealer separately. The expression is "without including them in the price of the goods sold". To give sense to this rule, we have to understand this as meaning that even in cases where the freight formed part of the price, it can be excluded from the total turnover in cases where it is specified and charged for separately and by not including it in the price of the goods sold. In other words, by merely mentioning in the invoice the price of the goods sold separately and by charging for freight separately, even if the two together really formed part of the price of the goods sold, the exemption can be claimed. The submission of counsel is that these conditions have been satisfied in this case. We are not dealing with this argument of counsel because we feel that the argument on the second point has to be accepted in view of the pronouncement of the Supreme Court in the decision in Hyderabad Asbestos Cement Products Ltd. v. State of A.P. [1969] 24 S.T.C. 487 at 489 (S.C.) The facts considered by the Supreme Court are identical to that with which we have to deal with here. That the invoice included the cost as well as the freight is admitted. It is not also separately shown there. Reliance has been placed on the terms of business. The clause relating to deliveries provides thus:

The conditions of any railway receipt shall be binding on the buyer and 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 buyer at the destination and the amount of freight shown on the railway receipt shall be deducted from the invoice of the company.

4. There was a similar provision in the agreement of sale which was construed by the Supreme Court in Hyderabad Asbestos Cement Products Ltd. v. State of A.P. [1969] 24 S.T.C. 487 at 489 (S.C.) At page 489, the terms of the contract as contained in Clauses (4) and (16) are extracted, which are in these terms:

. . . (4) The price 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; but the terms and the times of delivery and the payments therefor shall be in the absolute discretion of the company who may vary the same from time to time.

(16) The conditions of any railway receipt shall be binding on the stockists and the date of delivery shall mean the date of the railway receipt and in the case of consignments sold free on rail destination, the railway freight shall be nevertheless payable by the stockists at the destinations and the amount of freight shown on the railway receipt shall be deducted from the invoice of the company.

5. The Supreme Court referred to the definition of "turnover" in Section 2(s) of the Andhra Pradesh General Sales Tax Act and Section 5 of that Act as well as the expression "total turnover". It is stated that "total turnover" is the aggregate of the consideration received for the sale or purchase of goods inclusive of any sums charged by the dealer for anything done in respect of the goods sold at the time of or before the delivery of the goods. After adverting to the terms of the contract and the provisions in the statute, the Supreme Court observed:

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 stockist envisaged by this clause [Clause (16)] implies an 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

6. In view of a provision similar to Clause (16) of the agreement construed by the Supreme Court, in the case before us, we too have to hold that the price did not include the freight that was payable by the buyer though it was stated that it was "free on rail destination".

7. However, it is contended by the counsel on behalf of the revenue that it is the decision of the Supreme Court in Tungabhadra Industries Ltd., Kurnool v. Commercial Tax Officer, Kurnool. [1960] 11 S.T.C. 827 (S.C.) that must be applied and that case is distinguishable from the one before us. The Supreme Court was considering therein whether Rule 5(1)(g) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, was attracted or not. The Supreme Court came to the conclusion that where a dealer specified in the bill of sale the total amount of the price of the goods sold, then deducted from this amount the railway freight and showed the balance as the sum on which sales tax was computed, the dealer had charged a price inclusive of the railway freight and he would not be entitled to the deduction under Rule 5(1)(g). The facts of the case are not very clear from this pronouncement of the Supreme Court obviously because the facts were clearly stated in the judgment of the High Court. Only the questions of law were discussed. When we turn to the facts disclosed, as seen from the judgment of the High Court, it is evident that there was no term of contract in that case similar to Clause (16) of the agreement considered by the Supreme Court in Hyderabad Asbestos Cement Products Ltd. v. State of A.P. [1969] 24 S.T.C. 487 (S.C.) and similar to the term regarding "deliveries" in Clause (6) of the terms of business in the case before us. The following sentence from the decision of the High Court in Tungabhadra Industries Ltd., Kurnool v. Commercial Tax Officer, Kurnool. [1955] 6 S.T.C. 259 at 262 makes the position clear:

If, on the other hand, the price stipulated for a commodity is inclusive of the freight on the understanding that the goods would be delivered at the place of the buyer free of freight, as seems to be the case here, it will form an integral part of the turnover.

8. Evidently, therefore, in the case in Tungabhadra Industries Ltd., Kurnool v. Commercial Tax Officer, Kurnool. [1960] 11 S.T.C. 827 (S.C.), the goods were delivered at the place of buyer free of freight. This is a vital distinction between the case in Tungabhadra Industries Ltd., Kurnool v. Commercial Tax Officer, Kurnool. [1960] 11 S.T.C. 827 (S.C.) and the case before us which is on all fours with the decision in Hyderabad Asbestos Cement Products Ltd. v. State of A.P. [1969] 24 S.T.C. 487 (S.C.) We, therefore, follow the latter decision and hold that the amount of freight is not includible in the total turnover of the assessee as the freight did not form part of the price payable for the sale.

9. The second contention raised by the counsel with which we are concerned relates to scrap. The assessee is engaged in the business of manufacture of hides and skins and other items. They have sold various items such as drums and containers, gunny bags, iron scraps, brass scraps, etc., sundry items of scraps, car spare parts, condemned frigidaire and sewing machine. All these items of sale related to goods that were handled by the assessee is not disputed. Prima facie, the position is as indicated in State of Tamil Nadu v. Burmah Shell Co. Ltd. [1973] 31 S.T.C. 426 at 432 (S.C.) decided by the Supreme Court.

10. The counsel for the revision petitioner, however, relied on the decision of the Supreme Court in Board of Revenue v. Ansari [1976] 38 S.T.C. 577 (S.C.) and contended that the volume, frequency, continuity and regularity of transactions of sale and purchase must be satisfied in order that a person could be said to be carrying on the business of selling goods. The question therein was whether the forest department of the Government of Andhra Pradesh was carrying on the business of selling various items of forest produce. The court, after considering the facts, came to the conclusion that the Government cannot be said to be carrying on the business. No such question arises before us.

11. Admittedly, the assessee is carrying on a business. If its activity relating to the sale of the commodities, which we have mentioned above, amounts to an activity incidental to the business under the terms of the definition of "business", as amended, and contained in Section 2(d)(ii), it (the assessee) will be carrying on a business and, when the definition of the term "dealer" contained in Section 2(g) is read with the definition of the word "business", it is clear that the assessee would be a dealer and under Section 3, the assessee will be liable to tax. Section 2(d)(ii) mentions "any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern". It was with reference to this provision that the Supreme Court in State of Tamil Nadu v. Burmah Shell Co. Ltd. [1973] 31 S.T.C. 426 at 432 (S.C.) observed:

The sale of scrap in these appeals, which, as we have said earlier, consisted of spoiled drums, hose pipes, etc., were all held to be connected with the business of the company. This finding is a finding of fact but even otherwise the very nature of the particular scrap prima facie would indicate that they are connected with the business of the company. The assessee being an oil company has to use oil drums, hose pipes, jerry cans, etc., as part of its trading activity and any sale of these unserviceable goods as scrap is a transaction connected with its trade or commerce.

12. The sale of items, to which we have already referred to, stands on the same footing. Drums and containers, gunny bags, iron scraps, brass scraps, etc., sundry items of scraps, car spare parts, sewing machine, etc., also formed part of what became useless for the purpose of the business of the assessee and are connected with the business of the assessee and the sale of those items will be a transaction connected with the business and will form part of the business of the assessee. The price received for those items also would have to be included in its turnover. We, therefore, negative this contention advanced on behalf of the assessee by the counsel.

13. The only remaining item with which we are concerned relates to raw hides and skins admittedly purchased by the assessee. It is also admitted that the assessee was the last purchaser of those raw hides and skins. After purchasing the raw hides and skins, they were tanned by the assessee and it is said that those tanned hides and skins were sold in inter-State transactions.

14. From these facts, the counsel contended that when once raw hides and skins had been converted into tanned hides and skins, the tax imposed on raw hides and skins by item 7(a) of the Second Schedule to the Tamil Nadu General Sales Tax Act, 1959, is shifted to the latter transaction of sale of the tanned hides and skins. The assessee got inspiration for this contention from the decision of this Court in Sadak Thamby & Co. v. Appellate Assistant Commissioner of Commercial Taxes [1969] 24 S.T.C. 468. We are not called upon, with great respect, to consider the correctness or otherwise of the decision for we think that decision related to a case where both items 7(a) and 7(b) of the Second Schedule to the Act were attracted. For items 7(a) and 7(b) to be attracted, there must be a local purchase of raw hides and skins and a local sale of the tanned hides skins. This was what was meant and dealt with is clear from the following sentence in that decision:

If the dealer is able to prove the above fact with reference to his account books, then the assessing officer is obliged to revise the assessment and bring to tax such of those raw hides and skins as are still in stock as such with the dealer under item 7(a) and treat the rest of the stock converted into dressed skins and sold during the year under item 7(b) . . .

15. "Under item 7(b)" can only refer to sales of the nature and character indicated under item 7(b) of the Second Schedule, which must necessarily relate to what is mentioned in column (3), which refers to point of levy. Under that heading, it is mentioned "at the point of first sale in the State". This means that item 7(b) will be attracted only in cases where dressed hides and skins are sold in the State and, in order that item 7(b) may be attracted, there must be first sale in the State. Such a contingency does not arise in this case. So, we need not consider the judgment in Sadak Thamby & Co. v. Appellate Assistant Commissioner of Commercial Taxes [1969] 24 S.T.C. 468.

16. More appropriate is the decision of this Court reported in Gordon Woodroffe & Co. (Madras) P. Ltd. v. State of Tamil Nadu [1977] 40 S.T.C. 130. This Court came to the conclusion in this decision that tanned hides and skins being only the subject-matter of inter-State sales with which it was concerned, they were not subject to any tax under item 7(b) since item 7(b) dealt with only local sales, and the assessee was not entitled to exemption under Notification G.O. No. 3602, Revenue, dated 28th December, 1963. This Court held that tanned hides and skins being a different commodity from raw hides and skins, there is no question of the notification being made applicable.

17. Whatever that be, the liability to pay tax from the last purchase of raw hides and skins is attracted immediately on the last purchase having been effected. Even if those raw hides and skins are tanned thereafter, we are not able to discern any provision in the Act or the Rules which would enable the assessee to contend that the tax chargeable on the purchase of raw hides and skins on the basis that the dealer was the last purchaser in the State can be removed or substituted. We, therefore, negative this contention put forward on behalf of the assessee.

18. In the above discussion, in respect of all the three points raised by the revision petitioner, we have held in favour of the assessee on the first point relating to "freight" and we have held against the assessee in relation to the turnover represented by what we call "scrap" and with regard to the liability to tax by the purchase of hides and skins. The revision petitioner has won on one point and has lost on the other two points. We direct the parties to bear their respective costs.

Gordon Woodroffe & Company (Madras) Private Limited v. The State Of Tamil Nadu

Structured Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Revision Petitioner (Assessee) — Arguments

Revenue — Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Gordon Woodroffe & Company (Madras) Private Limited v. The State Of Tamil Nadu

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