G. PURUSHOTHAMA PANICKER v. STATE OF KERALA — 1997 DIGILAW 150 (KER)

JUDGMENT G. SIVARAJAN, J. – This is a revision filed by the assessee against the order of the Kerala Sales Tax Appellate Tribunal, Additional Bench, Ernakulam in T.A. No. 655 of 1993. 2. The revision petitioner is a dealer in cement at Olakettiambalam in Mavelikkara Taluk. He is a registered dealer under the Kerala General Sales Tax Act, 1963 as well as under the Central Sales Tax Act, 1956. The assessment year concerned is 1988-89. He filed a return for the said assessment year reporting the total and taxable turnover of Rs. 20,23,386 and Rs. 18,35,154 respectively. The assessing authority originally completed the assessment accepting the said return. Subsequently, a notice was issued by the Sales Tax Officer, Mavelikkara under section 19 of the Kerala General Sales Tax Act, 1963. The reason stated for issuing notice is that the freight, loading and unloading charges, etc., paid had not been included in the turnover conceded by the petitioner. The petitioner filed reply to the reassessment notice objecting to the proposal. The assessing authority rejected the same and revised the assessment for 1988-89 by assessing an escaped turnover of Rs. 2,59,200 and raised an additional demand of Rs. 2,074. This was arrived at on the basis that the sale value of cement per bag was Rs. 72.75 as against the sale value conceded by the petitioner at Rs. 62.73. Aggrieved by the reassessment order the petitioner took up the matter in appeal before the Appellate Assistant Commissioner, Agricultural Income-tax and Sales Tax, Alappuzha, who by his order dated July 13, 1993 dismissed the said appeal. In second appeal by the petitioner, the Sales Tax Appellate Tribunal confirmed the said order. It is against this order of the Sales Tax Appellate Tribunal the petitioner has come up in revision. 3. The learned counsel appearing for the petitioner submitted that there is no question of any under-valuation in this case. He submitted that the petitioner had not collected any amount in excess of what is shown in the accounts and that there is absolutely no evidence to establish that the petitioner had received any sum over and above the amounts shown in the sale bills. He submitted that the petitioner had not collected any amount in excess of what is shown in the accounts and that there is absolutely no evidence to establish that the petitioner had received any sum over and above the amounts shown in the sale bills. According to him, the cement purchased from factories outside the State were not brought to the premises of the petitioner and that it was directly despatched to the premises of his customers and the fright, loading and unloading charges, etc., were paid by the customers direct to the lorry drivers. He further submitted that it is pursuant to an oral agreement between the petitioner and his customers that the consignments were re-routed and the freight and transportation charges were paid by the customers. In support of the said submission, the learned counsel also pointed out that the petitioner has given the names and addresses of those customers, who had paid the freight and transportation charges directly to the drivers of the vehicle in the reply to the notice under section 19 of the Act Itself. But, according to the learned counsel, none of the authorities below have verified the correctness of the statements made by the petitioner by summoning them. According to him the authorities were bound to summon those persons and examine them to verify the correctness of the same. Since the authorities have not chosen to do so, according to the learned counsel, it must be presumed that they have not doubted the genuineness of the same. In such circumstances, according to the learned counsel, the freight, loading and unloading charges paid by the customers direct to the lorry drivers and not included in the sale bills or in the accounts do not form part of the turnover of the petitioner. Learned counsel accordingly submitted that there is no justification for the re-opening of the assessment under section 19 of the Act and in adopting the sale value of cement per bag based on comparable cases. He also submitted that in the absence of any positive evidence to show that the petitioner has actually received the amounts in excess of what is shown in the sale bills or in the accounts, the estimate of turnover based on undervaluation is unjustifiable. He also submitted that in the absence of any positive evidence to show that the petitioner has actually received the amounts in excess of what is shown in the sale bills or in the accounts, the estimate of turnover based on undervaluation is unjustifiable. In support of his contention, the learned counsel relied on the decision of this Court in C.O. Devassy v. State of Kerala [1991] 81 STC 2 and also the decisions of the Supreme Court in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh [1969] 24 STC 487 and in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13. Learned counsel also relied on certain observations of the Supreme Court in Ramco Cement Distribution Co. Pvt. Ltd. v. State of Tamil Nadu [1993] 88 STC 151. 4. Learned Special Government Pleader appearing for the respondent submitted that in the instant case the petitioner had purchased cement from factories outside the State by issuing "C" form and that as per the conditions of the contract of sale, freight and transportation charges had to be paid by the petitioner since what was charged by the factories in the sale bill was only the value of cement, excise duty and the Central sales tax and therefore the petitioner was liable to pay the freight, transportation and loading and unloading charges and that in the instant case the petitioner has not shown such expenses incurred by him in the accounts maintained by him. Petitioner had also not included the freight, loading and unloading charges in the bill issued to the various customers. He also submitted that on enquiry with other dealers in the locality, it was found that they have conceded sales of cement at the rate of Rs. 73 or Rs. 72.75 per bag. He further submitted that even if freight, loading and unloading charges were paid to the lorry drivers directly by the purchasers, such payments effected by the customers can only be for and on behalf of the petitioner. Learned Government Pleader also submitted that there is absolutely no material or evidence to show that there was any contract between the petitioner and his customers regarding the payment of freight, etc., by the customers direct to the lorry drivers. Learned Government Pleader also submitted that there is absolutely no material or evidence to show that there was any contract between the petitioner and his customers regarding the payment of freight, etc., by the customers direct to the lorry drivers. He further submitted that all charges incurred by a dealer prior to the sale of the goods to a customer will form part of the turnover of the dealer and that it is only such of those deductions which are permissible under rule 9 of the Kerala General Sales Tax Rules, 1963 that alone can be deducted. Learned Government Pleader also submitted that the decisions relied on by the counsel for the petitioner have no application to the facts of this case. 5. We have considered the matter. Admittedly in the instant case the consignments of cement in question were purchased by the petitioner from the factories outside the State by issuing "C" form and that in the sale bills issued by the factories freight, transportation charges, etc., were not included. It is also a fact that those consignments of cement were sold by the petitioner to various customers inside the State and that such sales effected by the petitioner are exigible to tax under the Kerala General Sales Tax Act, 1963. Under section 5 of the Act, every dealer whose total turnover for a year is not less than rupees on lakh and every casual trader or agent of a non-resident dealer, whatever be his total turnover for the year, shall pay tax on his taxable turnover. 6. The word "turnover" is defined in section 2(xxvii) of the Act. Under section 5 of the Act, every dealer whose total turnover for a year is not less than rupees on lakh and every casual trader or agent of a non-resident dealer, whatever be his total turnover for the year, shall pay tax on his taxable turnover. 6. The word "turnover" is defined in section 2(xxvii) of the Act. The relevant portion reads as follows : "2(xxvii) 'turnover' means the aggregate amount for which goods are either brought or sold, supplied or distributed by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or other valuable consideration, provided that the proceeds of the sale by a person of agricultural or horticultural produce, grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover." "Total turnover" is defined in section 2(xxvi) of the Act, which reads as follows : "(xxvi) 'total turnover' means the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax including the turnover of purchase or sale in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India." The words "taxable turnover" are defined in section 2(xxv) of the Act, which reads as follows : "(xxv) 'taxable turnover' means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover of purchase or sale in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into territory of India." 7. Rule 9 of the Kerala General Sales Tax Rules, 1963 provides fro various deductions to be made for arriving at the taxable turnover. The relevant portion reads as follows : "9. Determination of taxable turnover. - In determining the taxable turnover, the amounts specified in the following clauses shall subject to the conditions specified therein, be deducted from the total turnover of the dealer : - ............ The relevant portion reads as follows : "9. Determination of taxable turnover. - In determining the taxable turnover, the amounts specified in the following clauses shall subject to the conditions specified therein, be deducted from the total turnover of the dealer : - ............ (f) all amounts falling under the following two heads, when specified and charged for by the dealer separately, without including them in the price of goods sold : (i) freight; (ii) charges for delivery." 8. From a reading of the relevant provisions of the Act which are extracted above, it would be evident that all expenses incurred by a dealer in respect of the purchase of the goods effected by him before the same is sold to his customer will form part of the purchase turnover. The definition of "turnover" specifically says that it is aggregate of the amount for which the goods are bought or sold. Further if any deduction is to be allowed from the total turnover to arrive at the taxable turnover for the purpose of levy of tax under the Act, it must be one of the items specified in rule 9. Rule 9(f) specifically provides for deduction in respect of all amounts falling under the head freight and charges for delivery when specified and charged for by the dealer separately without including them in the price of the goods sold. This would clearly show that the expenses referred to in rule 9(f) are expenses incurred in connection with the sale and/or as part of the sale transaction. Surely the deduction contemplated under rule 9(f) does not relate to expenses incurred by the petitioner in connection with the purchase of the goods which is the subject of sale to various customers in the State. In the instant case, the fright and other charges included in the turnover relate to pre-sales expenses incurred by the dealer for bringing the goods to his premises as an incidence of the contract of sale effected by the factories at Madras with the petitioner. Such amounts cannot be deducted by virtue of the provisions of rule 9(f) of the Rules. Further for deducting the freight and delivery charges it is necessary that the said amount is charged for by the dealer separately and such amounts should not form part of the price of the goods sold. 9. Such amounts cannot be deducted by virtue of the provisions of rule 9(f) of the Rules. Further for deducting the freight and delivery charges it is necessary that the said amount is charged for by the dealer separately and such amounts should not form part of the price of the goods sold. 9. In this case, the assessment was originally completed by the assessing authority without taking into consideration the charges incurred for bringing the goods from outside the State pursuant to the purchase of cement from factories outside the State. Under section 19 of the Kerala General Sales Tax Act, 1963, it is open to the assessing authority to issue notice to a dealer, in cases where whole or any part of the turnover of business of a dealer has escaped assessment to tax in any year or has been under-assessed or has been assessed at a rate lower than the rate at which it is assessable or any deduction has been wrongly made therefrom, proposing to reopen the assessment already completed. The reopening can be for any reason. The only inhibition is that the notice under section 19 must be issued within four years from the expiry of the year to which the tax relates and the further condition is that before making an assessment under the said provision the dealer must be given a reasonable opportunity of being heard. In the instant case the assessment has been completed without taking into consideration the freight charges paid. 10. The assessing authority has noted that the price shown in the despatch not issued by the factory is the cost of cement excluding the freight, loading and unloading charges, etc., and therefore freight and loading and unloading charges will form part of the purchase price of the dealer and if the transporting charges were paid by the customers of the petitioner such payment was only on behalf of the petitioner. The first appellate authority noted the fact the during the year the appellant had purchased 146 loads of cement from the factory at Madras for Rs. 18,22,714.66, which represents only the bill amount consisting of value, excise duty and Central sales tax and the freight, loading and unloading charges paid had not been included in the amount. Therefore the sale value will be the total expenses incurred for the purchase including the above with normal gross profit. 18,22,714.66, which represents only the bill amount consisting of value, excise duty and Central sales tax and the freight, loading and unloading charges paid had not been included in the amount. Therefore the sale value will be the total expenses incurred for the purchase including the above with normal gross profit. In this case the petitioner has accounted the sales turnover without taking into account the freight and unloading charges involved in the consignments and further observed that the despatch was also made from the factory to the petitioner and not to any other one as seen accounted subsequently. The appellate authority noted in the appellate order that the only contention raised by the authorised representative of the appellant is that the assessing authority has failed to prove that the assessee received more amount than what is shown in the bills and accounts. In the ordinary course of business freight, and other charges will reflect in the sales turnover of a dealer, and that in this case those amounts were not accounted by the assessee. The Tribunal did not accept the contention of the petitioner in the absence of any evidence to show that the freight and loading and unloading charges are paid by the customers. The Tribunal also found that the estimate made by the assessing authority by adding a sum of Rs. 9 per bag on the basis of the sale value conceded by similar other dealers is reasonable. 11. From the findings of the Tribunal as well as the authorities below, it is clear that except the averments made by the petitioner regarding the payment of freight, loading and unloading charges by the customers, there is no material or evidence produced by him to substantiate the same. The petitioner in the reply to the reassessment notice has given the details of the persons to whom he has sold the cement and requested for summoning them. He did not pursue this matter before the first and second appellate authorities. Even assuming that the petitioner's case is that the freight, loading and unloading charges were paid by his customers, in the absence of any evidence regarding any agreement either oral or documentary, it has to be held that such payments were made by those customers only on behalf of the petitioner. 12. Even assuming that the petitioner's case is that the freight, loading and unloading charges were paid by his customers, in the absence of any evidence regarding any agreement either oral or documentary, it has to be held that such payments were made by those customers only on behalf of the petitioner. 12. As already stated, even assuming that such payments were made by the customers pursuant to any arrangement made between the petitioner and the customers, since the payment of freight, etc., relates to a transaction prior to the sale of the same goods to the customers, those charges can only be part of the purchase price of the petitioner. Considering the matter from all angles, it cannot be said that the petitioner was not liable to include freight, etc., paid on the purchase of 146 loads of cement from factories at Madras and transported to the petitioner's premises. We are also of the opinion that the reliance placed on the decisions of this Court and the Supreme Court have no application to the facts of this case. The decision of this Court in C.O. Devassy v. State of Kerala [1991] 81 STC 2 relates to undervaluation of purchase price with a view to evade payment of tax and the invocation of the provisions of section 19B of the Act. It is true that this Court had held that the vital fact necessary for making the assessments on best judgment basis by invoking section 19B of the Act is to establish that the assessee factually collected more than the ostensible consideration shown in the accounts and that such a finding, essential to sustain the assessments under section 19B of the Act, was not recorded in any of the orders of the authorities below. In this case the authorities have not invoked the provisions of section 19B of the Act. The assessment was reopened only on the ground that the turnover assessable to tax has escaped assessment due to the non-inclusion of the freight charges incurred for transporting the goods purchased by the petitioner from the factories at Madras to his premises and the loading and unloading charges incurred in connection therewith. The petitioner also admits that the freight, loading and unloading charges were paid by his customers. It is only the question of inclusion of the said amount in the turnover of the petitioner. The petitioner also admits that the freight, loading and unloading charges were paid by his customers. It is only the question of inclusion of the said amount in the turnover of the petitioner. Though the assessing authority has stated that the petitioner has undervalued the price of cement in his books, the undervaluation mentioned by the assessing authority is the non-inclusion of the freight, loading and unloading charges in the books of accounts and consequently in the turnover returned. Hence there is no question of application of the decision of this Court mentioned above. Similarly, the decision of the Supreme Court in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 has no application to the facts of the present case. There the appellant before the Supreme Court owned a cement factory at Udaipur which manufactured and sold cement to purchasers both inside and outside the State of Rajasthan. The apellant there 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 condition of supply" adopted by the assessee. Although the price of cement is on the basis of f.o.r. destination railway station, consignments will nevertheless be despatched "freight to pay" and credit afforded in appellant's bills for the amount of freight payable. The purchaser should accordingly arrange to pay railway freight/road transport charges at the destination at the time of taking delivery. Once the consignment is handed over to the carrier and a receipt is obtained, the responsibility of the company ceases. The company does not accept any liability for any delay, shortage, damage or loss of goods in transit. Claim should be lodged with the carriers by the buyer directly. In respect of any claim for overcharge of freight, the purchaser shall put up claim with the concerned railway authorities. The appellate 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 assessee showed the "free on rail destination railway station" price of the cement despatched at the rate of Rs. The appellate 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 assessee showed the "free on rail destination railway station" price of the cement despatched at the rate of Rs. 214.65 per metric tonne and added the amounts representing excise duty and packing charges and deducted the amount of railway freight since it was to be paid by the purchasers. The appellant did not charge 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 in order to provide against a possible claim which might be 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. It is in this context that the question arose as to whether the amount of freight deducted from the free on rail destination railway station price in the invoices made out by the assessee and paid by the purchasers formed part of the "sale price" within the meaning of the definition of that term in section 2(p) of the Rajasthan Sales Tax Act, 1954 and section 2(h) of the Central Sales Tax Act, 1956. The Supreme Court in that context observed that if the obligation to pay the freight were on the purchaser and in fact the purchaser paid the freight, as happened in both the cases in respect of every transaction of sale of cement the amount of freight would obviously be deducted from the f.o.r. destination railway station price in the invoice and only the balance would be realised by the assessee and that there would be no question of the appellant realising the amount of freight from the purchaser because the purchaser would have paid the freight in discharge of his own liability and the assessee would have no claim to recover it from the purchaser. But in that case, the Supreme Court observed that the control order is paramount; it has overriding 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 contrary and it is in that view the Supreme Court held that the amount of freight forms part of the "sale price" within the meaning of the first part of the definition. 13. From the observation of the Supreme Court relying on the dictum laid down by that court in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh [1969] 24 STC 487 it is clear that whether there was an obligation on the part of the purchaser to pay the freight or not can be decided only if there is a written contract between the dealer and the customer. The decision of the Supreme Court mentioned above has no application to the present case. There the question was the deductibility of the amounts of freight paid by the purchasers as part of the obligation under the contract from the f.o.r. destination railway station price in the invoice raised by the dealer. Further the payment of freight by the purchasers direct was pursuant to a contract between the parties. Here the factual situation is totally different. In the instant case, the freight, etc., sought to be included in the turnover of the petitioner relates to the purchases effected by him and not pursuant to the sales effected by him. No contract obliging the customers of the petitioner to pay the freight charges incurred by the petitioner in respect of his purchases was also made out. The decision of the Supreme Court in Ramco Cement Distribution Co. Pvt. Ltd. v. State of Tamil Nadu [1993] 88 STC 15 relied on by the petitioner also does not lay down a different principle. The said decision is also of no assistance to the petitioner. 14. In these circumstances, we are of the view that the decisions of the Supreme Court relied on by the learned counsel for the revision-petitioner have no application. We do not find any serious challenge to the quantum of escaped turnover assessed. There is no merit in the tax revision case. It is accordingly dismissed. But in the circumstances of the case, there will be no order as to costs. Petition dismissed.