Hindustan Sugar Mills Ltd. v. State of Rajasthan — 1976 DIGILAW 292 (RAJ)

SEN, J.—The short question involved in this writ petition is whether or not the railway freight on the cement sold by the petitioner under the Cement Control order. 1967. should be deducted from its texable turnover for purposes of the Rajasthan Sales Tax Act, 1954 or it should be treated as the part of the sale price and liable to be taxed under the Act. 2. The Commissioner Commercial Taxes, has, in response to a show-cause notice entered a caveat and raised a preliminary objection as to the maintainability of the petition. The parties were heard both on the objections as well as on the merits at great length. They have also filed their written submission. 3. The petitioner is engaged in the business of manufacturing and selling cement, which is a controlled commodity, to its purchasers in Rajasthan as well as out side Rajasthan. The sale of cement is controlled by the Cement Control Order, 1967. According to clause 8 of the Cement Control Order, the price is not to exceed the prescribed price per metric ton "F.O.R. destination". The price is, therefore, a fixed price per metric ton "F.O.R. destination" and the supplier has to bear the cost of the freight. In the invoices issued by the petitioner, the price charged per metric ton is the price "F.O.R. destination" i.e., inclusive of the freight. The petitioner has afterwards deducted the railway Freight with the words "to be paid by you" i.e., by the purchaser. The petitioner has collected tax in respect of the amounts of railway freight. In the invoices, at the foot, there appears the printed term:— "Deposit towards contingent liability on railway freight to be paid by you". The mere fact that the railway freight has afterwards been deducted and shown payable by the purchaser, not the fact that the tax collected was described as deposit, would not entitle the petitioner to claim deduction of the railway freight from its taxable turnover. 4. During the assessment years 1971-72 and 1972-73, the petitioner, in its returns, showed in its turnover the full sale price as fixed by the Cement Control Order, being the price "F.O.R. destination". The tax which was deposited along with the returns was cot on the gross turnover, but on the turnover arrived at by deducting the amount of railway freight. During the assessment years 1971-72 and 1972-73, the petitioner, in its returns, showed in its turnover the full sale price as fixed by the Cement Control Order, being the price "F.O.R. destination". The tax which was deposited along with the returns was cot on the gross turnover, but on the turnover arrived at by deducting the amount of railway freight. During the assessment proceedings for the years in question, the Assessing Authority issued usual notice under section 10 2) of the Rajasthan Sales Tax Act, 1954 in Form ST-12. On February 6, 1975, after examining the trading account of the petitioner, the Assessing Authority gave an opportunity to the petitioner to show cause why the amounts of freight as shown by it in its returns should not be treated as part of the sale price of the cement. This was done in accordance with rule 54 of the Rajasthan Sales Tax Rules as well as the principles of natural justice. In response to the notice to show cause, the petitioner, by its letter dated February 20, 1975 as clarified by the subsequent letter dated April 14, 1975, raised a preliminary objection contending that the Assessing Authority had no jurisdiction to levy any tax on the amounts of freight which were claimed as deduction in its returns. 5. By an earlier order dated April 17, 1975, the Assessing Authority held that the question whether or not the petitioner was entitled to deduction of the freight from its gross turnover, would be decided at the time of the passing of the assessment order under section 10 of the Rajasthan Sales Tax Act. Being aggrieved, the peti-tioner filed revisions before the Board of Revenue, The revisions were, however, dismissed as premature by a Single Member of the Board, by his order dated 25th November, 1975, as the assessments were still to be made The petitioner, then, preferred special appeals. Being aggrieved, the peti-tioner filed revisions before the Board of Revenue, The revisions were, however, dismissed as premature by a Single Member of the Board, by his order dated 25th November, 1975, as the assessments were still to be made The petitioner, then, preferred special appeals. In special appeals, a Division Bench of the Board, by its order dated May 21, 1976, directed the Assessing Authority to dispose of the preliminary objection raised by the petitioner as a preliminary point, with a further direction that the petitioner should be given reasonable opportunity to seek its remedy before an appropriate authority in respect of the decision if any, given against it In view of that direction given by the Board, the Assessing Authority had no option but to decide the preliminary objection raised by the petitioner. This it did by its order dated June 17, 1976. The petitioner has straight away filed this writ petition challenging the order of the Assessing Authority insofar as it relates to the taxability of the railway freight under the Rajasthan Sales Tax Act, 1954. 6. Shri S.C. Bhandari, learned counsel for the Commissioner, Commercial Taxes, raised a preliminary objection as to the maintainability of the writ petition. He submits that the writ petition besides being wholly mala fide, was premature at this stage and should not be entertained There was no order of assessment. Nor any notice of demand. He stated before us that the amount of tax involved on the railway freight collected by the petitioner during the years in question amounted to over Rs. 6,00,000/- and the petitioner was in duty bound to credit the same alongwith the returns. It has, however, wrongfully withheld the huge amount and is utilising the same in its business. There was no reason why the Assessing Authority should not be permitted to complete the assessment and raise a demand for the tax which was legitimately due. Even if the point is controversial, it should be left to be determined by the assessing authority The R.S.T. Act provides for a complete machinery by which the relief claimed could be had. The relief as claimed in the writ petition can not be granted, as there was no question of jurisdiction involved. There was no lack of inherent jurisdiction on the part of the Assessing Authority. There is also no error apparent on the face of the record. The relief as claimed in the writ petition can not be granted, as there was no question of jurisdiction involved. There was no lack of inherent jurisdiction on the part of the Assessing Authority. There is also no error apparent on the face of the record. No writ or direction in the nature of prohibition or certiorari could, therefore, be issued. 7. Learned counsel for the Commissioner, Commercial Taxes, contends that the petitioner cannot by pass the remedy of an appeal to the Deputy Commissioner, of a revision before the Board of Revenue and that of a special appeal before the Board. He contends that the facts have to be found by the taxing authorities in the instant case and the petitioner should, therefore, be left to the normal remedy of appeal and a case stated. There is no reason why the hierarchy of the Tribunals should not be left to determine the question involved in the manner provided, and then to have a case stated by the Board of Revenue to the High Court to have its opinion thereon. Learned counsel for the commissioner, commercial Taxes drew our attention to a recent decision of the Board of Revenue in Associated Cement Companies Ltd., Lakheri Cement Works vs. C.T.O. Kota Revision No. 1267 of the 1975 decided on April 22, 1976, where under precisely similar set of circumstances, the Board of Revenue has held in view of the Cement Control Order, 1967, which envisages that the price of the cement sold by a manufacturer will be the price "F.O.R. destination" i.e. inclusive of railway freight, that railway freight forms part of the "sale price" as defined in section 2(h), and the subsequent deduction of the amount of freight from the price with a direction to the buyer to pay freight would not mean that the railway freight was "separately charged" or that it was not liable to be included in the sale price" as defined in section 2(h) of the C.S.T. Act. The Board of Revenue has followed the view taken by the Madhya Pradesh, Patna and Mysore High Courts in Birla Jute Mfg. Co. Ltd. vs. Commissioner of Sales tax, Madhya Pradesh (1), Commissioner of Commercial Taxes vs. Aooka Marreluac Ltd. (2) and The State of Mysore vs. Panvam Cement & M.T. Ltd. (3). 8. In our judgment, the writ petition cannot be entertained. Co. Ltd. vs. Commissioner of Sales tax, Madhya Pradesh (1), Commissioner of Commercial Taxes vs. Aooka Marreluac Ltd. (2) and The State of Mysore vs. Panvam Cement & M.T. Ltd. (3). 8. In our judgment, the writ petition cannot be entertained. It is not the function of the High Court under Article 226 of the Constitution, in taxation matters, to constitute itself into an original authority or an appellate authority to determine the question of taxability which depends upon a precise definition of facts. Here, the assessing authority has come to a particular conclusion. The correctness of that view can be questioned in the manner provided by the Act. In S.T.O. Jodhpur vs. The Ratan G. Nohela (4), their Lordships of the Supreme Court deprecated the practice on the part of the assessees to rush to the High Courts after an assessment order is made, saying that such petitions should not be entertained In the present case; there is no order of assessment. There is no demand raised on the petitioner. The assessing authority had earlier rightly declined to decide the taxability of railway freight as a preliminary point. It was, however, compelled to do so under the directions of the Board of Revenue. Be it so, the assessing authority has still seisin over the matter and the assessment order has yet to he passed. 9. To the same effect is the decision of their Lordships in C. A. Abraham vs. I.T.O. Koliayam (5) that where the Act provided for a complete machinery for assessment of tax and imposition of penalty and for obtaining relief in respect of any improper orders passed by the Income-tax authorities, the assessee could not be permitted to abandon resort to that machinery and to invoke the jurisdiction of the High court under Article 226 of the Constitution when he had adequate remedy open to him by an appeal to the tribunal. There is no reason why the same principles should not apply to the present case we would for that reason alone, dismiss the petition in limine 10. In that view of ours, no other question arises. We would, indeed, have refrained from expressing any opinion on the merits. Learned counsel for the petitioner, however, pressed the merits of the point in controversy evidently wanting to have a decision thereon. We are, therefore, constrained to deal with them. 11. In that view of ours, no other question arises. We would, indeed, have refrained from expressing any opinion on the merits. Learned counsel for the petitioner, however, pressed the merits of the point in controversy evidently wanting to have a decision thereon. We are, therefore, constrained to deal with them. 11. In support of the petition, Shri M.G. Bhandari, learned counsel for the petitioner, has put forth a three fold contention. In the first place, he contends that the Assessing Authority has acted without Jurisdiction in holding that the railway freight forms part of the "sale price" within the meaning of sec. 2(b) of the Act, when the petitioner deducted the freight as trade discount, and the railway freight was separately charged. In the second place, he contends that the petitioner has no equally efficacious alternative remedy, as due to the circular dated February 27, 1975, issued by the Commissioner of Sales-tax, the filing of an appeal before the Deputy Commissioner was an empty formality. Thirdly, he contends that no tax was recovered on supplies to the DGSD on the advice of the Ministry of Law & Justice when no tax was leviable. As regards the other consumers, it is said that the amounts of freight are collected as a deposit. There is, in our view, no force in any of these submissions. 12. Much stress was laid by learned counsel for the petitioner on the circular dated 27-2-75 issued by the Commissioner requiring the assessing authorities to assess the tax on the railway freight. It is said that the offending circular in question was nothing but a mandate and the assessing authority had no option but to pass the impugned Order; rejecting the preliminary objection It is further stated that the circular is also directed to the Deputy Commissioner and, therefore, the appeal to him would be an exercise in futility. We are afraid, the learned counsel is not right in is contention. The circular issued by the Commissioner is an innocuous document. It was issued by the Commissioner, Commercial Taxes, directing the assessing authorities to collect sales-tax on the full FOR. destination price and not to allow any deduction on account of "Freight to pay". It merely drew the attention of the assessing authorities to the three decisions in question and asked them to impose tax on the freight. 13. It was issued by the Commissioner, Commercial Taxes, directing the assessing authorities to collect sales-tax on the full FOR. destination price and not to allow any deduction on account of "Freight to pay". It merely drew the attention of the assessing authorities to the three decisions in question and asked them to impose tax on the freight. 13. The decision in Firm Murlidhar Brijmohan vs. State of Rajasthan (6), Mahadayal Premchand vs. C.T.O, Calcutta (7) are clearly distinguishable. In Mahada-yal Premchand vs. C.T.O. Calcutta (7) their Lordships were considering a case where the assessing authority abdicated his functions and expressly stated that though he was satisfied on the material placed before him that no tax was payable, he was passing the order of assessment under the instructions of his higher authorities. That was a case which turned on its peculiar facts. In Firm Murlidhar Brijmohan vs. State of Rajasthan (6) this court was, no doubt, concerned with a similar circular but at that time, under section 14(2) of the R.S.T. Act the Commissioner was also a Revisional authority i.e., he exercised quasi judicial functions. The revisional powers of the Commissioner have since been taken away. He now is only concerned with the administrative control. We fail to appreciate why the Commissioner cannot, in exercise of such administrative powers, issued a circular of this nature drawing the attention of the assessing authorities throughout the State to certain recent decisions. In Delhi Cloth and General Mills Co. Ltd. v Shri R.R. Gupta C.T.O., Jaipur (8) this Court had before it a similar circular and it was observed that it did not appear, as here, that the Assessing Authority was in manner influenced by it. In appeal their Lordships in Delhi Cloth & General Mills Co. Ltd. vs. R.R. Gupta (9) referred to that circular while affirming the decision. Nothing, therefore, turns on the circular. There was some controversy as to whether Deputy Commissioner to whom the circular was issued was the Deputy Commissioner (Administration), as stated by the learned counsel for the Commissioner, or was the Deputy Commissioner (Appeals) as asserted by learned counsel for the assessee. But we do not think it necessary to enter into that controversy here. 14. There was some controversy as to whether Deputy Commissioner to whom the circular was issued was the Deputy Commissioner (Administration), as stated by the learned counsel for the Commissioner, or was the Deputy Commissioner (Appeals) as asserted by learned counsel for the assessee. But we do not think it necessary to enter into that controversy here. 14. On merits, the point in controversy whether the railway freight of cement sold by a manufactured under the Cement Control order forms part of the price, in a contract of sale of goods, where the sale price was 6xed under the Cement Control Order, is F.O.R. destination" and, therefore, falls within the meaning of the "sale price" as defined in sec. 2(h) of the C.S.T Act, 1956 and consequently must be included in the turnover of a dealer under sec. 2(j) of the Act, is settled by a series of decision of different High Courts See Birla Jute Mfg. Co. Ltd. vs. Commissioner of Sales tax. Madhya Pradesh (1). Commissioner of Commercial Taxes vs. Aooka Marreluac Ltd. (2) and the State of Mysore vs. Panyam Cement & M. I. Ltd. (3). Though there is no decision of the Rajasthan High court, we see no reason to take a different view. 15. The price of the cement sold by the petitioner being F.O.R. destination was an all inclusive price including the cost of freight till destination. The railway freight, therefore, cannot be considered as "separately charged" for the purposes of the definition of the term "sale price" as contained is sec. 2(p) of the Act, though deducted by the petitioner in its invoices as to be paid by the buyer, as the buyer acted as an agent of the petitioner in making the payment. The amount representing the railway freight in respect of the sales is, therefore, not liable to be excluded from the taxable turnover of the assessee company. 16. In Birla Jute Manufacturing Co. Ltd. vs. Commissioner of Sales Tax (1) one of us (Sen J.) had occasion to observe :- "That the railway freight forms part of the price, in a contract for sale of goods, where the sale price is FOR destination, and, therefore, must fall within the meaning of the term "sale price" as defined in sec 2(h), and consequently must be included in the taxable turnover of a dealer, within the meaning of sec. 2(j) of the Central Sales Tax Act, 1956...) the question whether the railway freight forms part of the sale price of a dealer, in relation to a contract where the price is FOR destination, is now settled by a series of decisions, interpreting the terms sales price and taxable turnover, appearing in different sales tax laws of different states. The definitions appearing therein are almost identical as those contained in section 2(h) and (j) of the C S.T. Act. The principles laid down in the decisions interpreting like provisions in other sales-tax laws must, therefore, govern the present case." "The determining factor is not the terms in which the bill is made, but the terms of the actual contract between the parties and if the contract was as stated, F.O.R. destination, it mutt mean that the price was intended between the parties to be inclusive of the railway freight" 17. In repelling a similar contention based on Hyderabad Asbestos Cement Products Ltd. vs. State of Andhra Pradesh (10) it was observed:— "Strong reliance was placed by learned counsel for he petitioner on the decision of their Lordships in Hyderabad Asbestos Cement pro-duels Ltd v State of A.P. (1972) 29 STC 246 on which the opinion of the Law Ministry is based and on the strength of which, the present writ petition is field. It is urged that this decision of their Lordships really concludes the matter, as the facts in that case were identically the same as those in the present case. We are unable to accept the contention. No doubt, the bills prepared in respect of (a) supplies to different Government departments through their Director General of Supplies and Disposals under subclause (vi) of clause 16 of the Rate Contract and (b) supplies to non-Government buyers, contained term that the consignments would be sent freight to pay and in case of all sales, the payment of freight is by the buyers. To that extent the bills prepared are identically the same as those in Hyderabad Asbestos Cement Products Ltd. vs. State of A.P." 18. While dealing with the sale of controlled commodity like cement where freight is part of the price, it was said:— "Nevertheless, the distinguishing feature is that in the present case the sales, whether to Government buyers or to non-Govt. buyers, were sales of a controlled commodity. While dealing with the sale of controlled commodity like cement where freight is part of the price, it was said:— "Nevertheless, the distinguishing feature is that in the present case the sales, whether to Government buyers or to non-Govt. buyers, were sales of a controlled commodity. The contracts of sale were, therefore, subject to the provisions of the Cement Control Order, 1967. Under Clause 6(2) (a), the price at which the state Trading Corporation could sell cement was the price fixed thereunder, from lime to time, F.O.R. destination i.e. inclusive of railway freight That being so, the amount of freight forms part of the price. The term "F.O.R. destination" has significance to the rate or the price. Under sec. 2(h) of the C.S.T. Act, 1956, the expression sale price means the amount payable to a dealer as consideration for the sale of any goods etc. The price of cement sold by the petitioner, as agent of the state Trading Corporation being FOR. destination was an all-inclusive price, including the cost of freight till destination. The cement control Order, 1967 has the object of making cement available to buyers throughout the country at a fixed price." The Madhya Pradesh High Court then concluded: "In our opinion, the decision of their Lordships in HACP Ltd. vs. State of A.P. is distinguishable on facts. There, the assessee was carrying on the business of manufacturing end selling asbestos cement sheets and other allied products. To meet the competition from other manufacturers, the assessee maintained a uniform catalogue rate all over the country is respect of its manufactures. It sent goods to out station customers by rail under railway receipts with freight to pay. It made out an invoice at the catalogue rate and the customers paid the amount of the invoice less the freight for releasing the railway receipts and took delivery of the goods on payment of the railway freight. The result was that the net price received by the assessee was the catalogue rate, less the railway freight charged in respect of the goods transported to the destination. Their Lordships interpreted the terms of the contract for holding that under the contract there was no obligation on the part of the assessee to pay the freight and the price received by it for the sale of goods was the invoice amount less the freight. Their Lordships interpreted the terms of the contract for holding that under the contract there was no obligation on the part of the assessee to pay the freight and the price received by it for the sale of goods was the invoice amount less the freight. That was a matter of contract between the parties of a commodity of which there was a free trade. Under these circumstances, their Lordships held that the railway freight paid by the customers did not, as a matter of contract, form part of the sale price within the meaning of sec. 2(r) of the Andhra Pradesh General Sales Tax Act. 1957. Our attention was drawn to the fact that their Lordships reversed the drcision of the Andhra Pradesh High Court based on their earlier decision in Tunqabhadra Industries Ltd. vs. Commercial fax Officer, Kurnol (1960) 11 STC 827 (SC) and also that the catalogue price in that case was F.O.R. destination. We do not think that these circumstances are of any avail to the petitioner. The form in which the invoice is made out is not determinative of the contract between the parties. In Tunqabhadra Industries Ltd. vs. C.T.O. Kurnool (1960) 11 STC 827 (SC) the freight, as here, was part of the price, while in Hyderabad Asbestos Cement Products Ltd. vs. State of A.P. (10), the price received by the assessee to the sale of the goods was the invoice amount less the freight. Their Lordships, therefore, did not think it necessary to refer to their earlier decision. Besides, when under the contract between the parties, the assessee deducted the railway freight from the catalogue price, the price charged was not in the true sense F.O.R. destination." We see no reason to take a different view. Under clause 8 of the Cement Control Order, 19b7 the price at which the petitioner could sell cement was the price fixed thereunder. The price so fixed was the price "FOR. destination" i.e. inclusive of railway freight. That being so, the amount of freight forms part of the price. The term "FOR" has significance to the rate or the price. Under section 2(p) of the R.S.T. Act, 1954, the expression "sale price" means amount paid to a dealer as consideration for the sale of any goods etc. destination" i.e. inclusive of railway freight. That being so, the amount of freight forms part of the price. The term "FOR" has significance to the rate or the price. Under section 2(p) of the R.S.T. Act, 1954, the expression "sale price" means amount paid to a dealer as consideration for the sale of any goods etc. The price of the cement sold by the petitioner being "FOR destination" including the cost of the freight till the destination was an all inclusive price, including the railway freight. Merely because the petitioner made cut an invoice after deducting the freight and despatched the goods to out station customers by rail under railway receipts with freight to pay did not imply that the goods were sold at a price lesser than the controlled price. The net price received by the petitioner was still the controlled price i.e. inclusive of freight and, therefore, the railway freight formed part of the sales price as defined in section 2(p) of the R.S.T. Act, 1954. The claim for deduction of the cost of freight made by the petitioner must also fall because in the circumstances, the railway freight could not be considered as "separately charged" for the purpose of the definition contained in sec-tion 2(p) of the Act. 19. In K.C.P. Ltd. (Ramakrishna Cements), Macherla and another vs. Government of Andhra Pradesh (11), the Andhra Pradesh High Court was dealing with the same question as here i.e. whether sales-tax was payable on freight on sale of cement which is a controlled commodity, with respect, the Andhra Pradesh High Court fell into an error in not considering the effect of the Cement Control Order, 1957 which fixed as F.O.R. destination. They merely followed the decision of the Supreme Court in Hyderabad Asbestos Cement Products Ltd. vs. State of Andhra Pradesh (10), without marking the distinction between a case where the Railway freight paid by the customer of a controlled commodity like cement, the price of which fixed under the control Order, 1957 was F.O.R. destination i.e. an all inclusive price including the cost of freight and a case where the railway freight did not, as a matter of contract, formed part of the sale price. 20. In M/s. Premier Vegetable Products vs. C.T.O. Spl. 20. In M/s. Premier Vegetable Products vs. C.T.O. Spl. Circle II, Jaipur (12), one of us (Kudal, J.) while sitting as a Member of the Board of Revenue dealt with a case where the sale was not of a controlled commodity, nor was the contract one where the price was "FOR destination". It was decided on a finding of fact that "from the material available on record, it was clearly established that railway freight was never intended to be part of sale price." That decision is, therefore, clearly distinguishable. The other decisions cited are also distinguishable for similar reasons. 21. We are informed that (he judgment of the Madhya Pradesh High Court in Birla Jute Manufacturing Co. Ltd. vs. Commissioner of Sales Tax, Madhya Pradesh, Indore (1) is in appeal before the Supreme Court. If that be so, then that is an additional ground that we should not intervene. If the judgment of the Madhya Pradesh High Court is reversed by their Lordships, the taxing authorities shall give to the petitioner the relief that it claims. If on the contrary that judgment is upheld in appeal, then the view of the assessing authority must prevail. 22. In conclusion, we would like to stress that the assessing authorities should come to an independent conclusion of their own on the appoint in controversy, uninfluenced by any of the observations that we might have made in disposing of this petition. 23. The petition, therefore, fails and is dismissed summarily with costs.