The Commissioner of Sales Tax Maharashtra State, Vikrikar Bhavan v. Kolsite Industries

Judgment

1. Heard learned counsel for the Revenue as well as learned counsel for the Respondent.

2. This is a reference under section 61(1) of the Bombay Sales Tax Act, 1959 (“the BST Act” for short) made by the Sales Tax Appellate 2 STR-9-01(1) Tribunal, Mumbai (“the Tribunal” for short) to seek the decision of this Court on the following substantial questions of law : “ 1. Whether , on the true and correct interpretation of the definition of “ sale price” as contained in clause (h) of section 2 of the Central Sales Tax Act, 1956, the Tribunal was justified in law in holding that the insurance charges will not form part of sale price, because the parties did not intend it to be so ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in taking a stand different from that taken by the Division Bench of the Tribunal and refusing to refer the issue of insurance charges to a larger bench for decision, on the ground that “ had the documentary evidence been placed before the Division Bench, the Division bench would have come to a different conclusion” when the Division Bench has based its decision only on the interpretation of statutory definition of “sale price” as contained in clause (b) of section 2 of the Central Sales Tax Act, 1956, and has nowhere in its judgment stated that its decision in respect of insurance charges is on account of non production of any documentary evidence ? The facts:

3. The Respondent M/s Kolsites Industries is a re-seller in machinery and is duly registered under the BST Act as well as under the Central Sales Tax Act, 1956 (“the CST Act” for short). The Respondent was assessed by the Assessing Authority and Vide assessment orders passed under the BST Act and the CST Act for the period from 1.7.1982 3 STR-9-01(1) to 30.6.1983 and from 1.7.1985 to 30.6.1986 raised dues of Rs.28,397/- and Rs.55,302/- respectively.

4. Being aggrieved by the assessment orders, the Respondent preferred four Appeals, two under the BST Act and two under the CST Act, before the Deputy Commissioner (Appeals). After hearing both the sides, the Deputy Commissioner (Appeals), partly allowed the appeals vide common order dated 26.2.1993. Dis-allowance of set-off claimed under Rule 41-D was upheld. However, the set off claim under Rule 43-C was allowed. Consequently, penalty imposed under Section 30(2)(c) Explanation –I was deleted. Against this common order four Second Appeals were preferred on various grounds.

5. In the Second Appeals, it was inter alia contended on behalf of the Respondent that both, the lower authorities have committed an error in treating insurance charges as part of the sale price by imposing tax thereon. However, the Revenue strenuously argued that the insurance charges shall form part of the sale price and both the lower authorities are justified in imposing tax on the insurance charges charged by the Respondent to the purchasers on machinery. After perusing the documentary evidence adduced by the Respondent including the terms and conditions contained in the Agreements between the Respondent sellers and the purchasers of the machinery and the case law cited by both the sides, the Tribunal, contrary to its earlier view in the case of the 4 STR-9-01(1) very same Respondent, by its Judgment dated 5th October, 1996 gave its finding in favour of the Respondent assessee by holding that the assessing authority has committed an error in treating the amount of insurance charges as part of the sale price and by levying tax thereon. The Tribunal also did not accept the submission advanced on behalf of the Revenue that the issue be referred to a larger bench, on the ground that no documentary evidence was tendered by the Respondent in the previous case, whereas ample documentary evidence has been tendered by the Respondent in the case in hand to enable the Tribunal to take a different view in the matter.

6. The Applicant Revenue, not being satisfied with the said judgment of the Tribunal dated 5th October, 1996, preferred an Application under Section 61(1) of the BST Act, requesting the Tribunal to refer certain questions of law to this Court for decision. In view thereof, the above Reference was made by the Tribunal raising the aforesaid questions of law seeking decision of this Court. : Submissions

At the outset, Mr. Sonpal, the learned Advocate appearing for the Revenue submitted that the term “sale price” is defined in Section 2(h) of the CST Act, as follows: “”Sale Price” means the amount payable to a dealer as consideration for sale of any goods, Less any sum allowed as Cash Discount according to the practice normally prevailing in 5 STR-9-01(1) the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charged”

8. Mr. Sonpal submitted that though it is clear from the above definition that the cost of freight, delivery and the cost of installation are excluded from ‘sale price’, the insurance charges are not so excluded and, therefore, any claim seeking deduction of insurance charges from ‘sale price’ is not tenable. Mr. Sonpal further submitted that the definition of ‘sale price’ is “.... inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof.....” The insurance charges are paid by the Respondent to the insurer before the goods are delivered to the carrier or at the most at the time of delivery. No insurance is taken after the goods are put in motion for delivery. The insurance charges are paid before the goods are put on carriage and the insurance must be termed as something done by the dealer. To read the provision without the words “ at the time of or before the delivery” will frustrate the purpose of the Act. The claim that the delivery is ex-factory is not true where insurance charges are recovered. Even if, the delivery is ex factory, the insurance charges paid before or at least at the time the goods are loaded on the carriage ought to be added to the sale price. Again, the risk is accepted by the Respondent, if insurance is taken. The Insurance policy is taken in the name of the Respondent. All these facts leave no scope to contend 6 STR-9-01(1) that the sale price is to be calculated by excluding the insurance charges.

9. It is also submitted that the definition of sale price under Section 2(29) of the BST Act specifically provides for exclusion of insurance charges which is absent in the CST Act. Therefore it can be safely inferred that in CST Act sale price is not exclusive of insurance charges. The conclusion by the Tribunal that the sale price does not include insurance charges is paradoxical and perverse and deserves to be set aside. In support of its submission, the Applicant has inter alia relied on the decision of the Hon’ble Supreme Court in Hindustan Sugar Mills Ltd. Vs. State of Rajasthan [1979]43 STC 13.

10. It is also submitted that once the first question raised in the above Sales Tax Reference is answered by this Court, the second question raised would be of no consequence. Mr Sonpal has, therefore, not made any submissions as regards the second question, referred by the Tribunal seeking decision of this Court. Per Contra:

11. Learned Advocate appearing for the Respondent submitted that in the present case, Agreements, quotations, invoices, marine cover notes, pertaining to the transactions between the Respondent and its purchaser are available. All these documents were produced before the Tribunal and are also produced before this Court. The said documents 7 STR-9-01(1) reveal in no uncertain terms that the insurance charges were inclusive of sale price.

12. The learned Advocate for the Respondent has submitted that the Tribunal has noted the following facts as emerging from documents produced by the respondent i.e. the Agreement, Marine Cover Note, quotation and invoice. i. ii. iii. iv. v. vi. Agreement: The price of machinery quoted is based on level of price prevailing on the date of agreement and unless otherwise agreed, the quoted price is exclusive of charges payable of packing, carriage, freight and insurance. The buyer shall not be entitled to take delivery of goods unless the entire balance amount is paid to the company. The delivery of machinery is to be taken at the works of the Company i.e. the Respondent herein. However, if the machinery is desired to be delivered at a particular site, the same can be arranged at the discretion of the company at the buyers’ risk and cost. The Respondent cannot accept the responsibility of damage or delay during the transit unless specifically agreed in writing to cover such risk by insurance. The Respondent may cover insurance on buyers instructions at an extra costs payable in advance by the buyer. Marine Cover Note: Marine Cover Note shows that the amount deposited by the dealer was towards the deposit for insurance amount and not 8 STR-9-01(1) towards the insurance charges. It further shows that the declaration for insurance is to be made immediately after the dispatch of goods. This fact is further confirmed by the addendum to the Marine Cover Note by which the sum insured was increased by Rs.10000/- and thereby the insurance company collected extra sum for the additional premium vii. Quotation: The terms of delivery set out in the quotation clearly states that “the delivery of equipment will be made at our work. We shall, if so required by you arrange for transportation from our works at your site on your behalf and at your cost”. The column referring to ‘Price’ specifically states that the quotation only refers to the goods and articles specified therein and are based on the cost of the present day labour and material. In the column referring to ‘Insurance’ it is specifically stated that the same to be covered as per the instructions of the buyer at extra cost. viii. Invoice: The specimen of sale invoice makes it clear that in addition to the prices of spares, the excise duty and packing charges are added and on the total amount, central sales tax is charged at the rate of 4% against C Form. The loading charges and the insurance charges are charged separately.

13. It is submitted that the evidence on record pertains to various different parties. However, the terms are identical in nature. The price is always quoted Ex works and unpacked. The delivery is always stated to be at works. Insurance is always stated to be governed as per the risk and instructions of the buyers at extra cost. The assessee has not collected any tax on these insurance charges. The price of goods 9 STR-9-01(1) is always mentioned as referring to the goods and articles specified therein.

14. It is submitted that after appreciating the entire evidence, the Tribunal has correctly observed/confirmed, in paragraph 20 of its judgment, that the documentary evidence produced by the Respondent positively reveals that the party has specifically agreed that insurance charges were to be borne by the buyer separately and such charges were not to be included in the sale price.

15. It is submitted that the decision of the Tribunal is supported by the decision of the Division Bench of this Court in Commissioner of Sales Tax Vs. Ballarpur Industries Ltd. reported in 99 STC 101 (Bom). By this Judgment, the Division Bench of this Court, after referring to various judgments of the Hon’ble Supreme Court in Hindustan Sugar Mills Vs. state of Rajasthan [1979] 43 STC 13, Ramco Cement Distribution Co. Ltd. Vs. State of Tamil Nadu [1993] 88 STC 151 and Hyderabad Asbestos Cement Products Ltd. Vs. State of Andhra Pradesh [1969] 24 STC 487, has clearly distinguished the F.O.R. contracts destination railway station and the contracts which are not F.O.R. destination railway station but only the price is stipulated on that basis. Paragraph 6 of the said Judgment on which reliance is placed reads thus: 10 STR-9-01(1) “6. F.o.r. Contracts may be of two types. First, it may be a contract of sale f.o.r. Destination railway station. Second, it may not be a contract of sale for destination railway station but price alone may be so. In the first type of f.o.r. contracts, the seller undertakes an obligation to put the goods on rail and arrange them to have them carried to the destination railway station at his expense. The delivery of the goods to the purchaser in such a case is complete at the destination railway station and till then the risk continues to remain with the seller. The freight is payable by the seller since he has to arrange for the delivery of the goods at the destination railway station. The agreed price being inclusive of freight, it would be merely a matter of convenience whether the seller pays the freight and charges the agreed price which includes freight, or obtains a railway receipt on the basis of “freight to pay” and requests the purchaser to pay the freight at the time of taking delivery of the goods from the railway at the destination railway station and gives the purchaser credit for the amount of the freight against the agreed price. When the purchaser pays the freight in such a case, it would be as a part of the agreed price and not as a freight vis-a-vis the seller. The amount of freight paid by the purchaser and shown in the bill as deducted from the agreed price would, in such a case, form the part of the “sale price”. The position would, however, be different in the second type of f.o.r. contracts, where a contract or sale is not f.o.r. destination railway station but the price alone is so. In such a case, the contract does not have all the incidents of an f.o.r. destination railway station contract, but merely the price is stipulated on that basis. The terms of such a contract may provide that the delivery shall be complete when the goods are put on rail and thereafter it shall be at the risk of the purchaser. Such a stipulation would make the railway the agent of the purchaser for taking delivery of the goods. The freight in such a case 11 STR-9-01(1) would be payable by the purchaser through the price agreed upon is f.o.r. destination railway station. The price of goods receivable by the dealer would, in that event, be the f.o.r. destination railway station price less the amount of freight payable by the purchaser. That would be the consideration payable by the purchaser to the seller for the sale of the goods and the amount of freight being payable by the purchaser would not be included in the “sale price”. The position would be the same even if the seller pays the freight and obtains railway receipt “freight pre-paid” and claims the full f.o.r. destination railway station price in the bill. The amount representing freight would not be payable as part of the consideration for the sale of goods but by way of reimbursement of the freight which was payable by the purchaser but in fact disbursed by the seller and hence it would not form part of the sale price.” It is therefore submitted that in the instant case, the Tribunal, considering the documentary evidence placed by the Respondent, came to the correct conclusion that the insurance is not intended to be part of the sale price and insurance charges have to be borne by the buyers independently and separately and such insurance charges are not to be included in the sale price.

16. It is submitted that the decision of the Hon’ble Supreme Court in Hindustan Sugar Mills case (supra) relied upon by the Applicant has been distinguished in the said decision of the Division Bench of this Court as can be seen from paragraphs 8, 9 and 10 of the said decision, which are reproduced hereunder: 12 STR-9-01(1) “8. In Hindustan Sugar Mills Ltd. case [1979] 43 STC 13, the Supreme Court reiterated and reaffirmed the ratio of its earlier decision in Hyderabad Asbestos Cement Product Ltd. case [1969] 24 STC 487 but arrived at a different conclusion in view of the provisions of the Control order governing the sales of cement which having statutory force and authority had an overriding effect over the terms and conditions of the contract between the parties. This is evident from the following observations: “....... The scheme of the Control order clearly proceeds on the basis that the freight is payable by the producer and he recovers it form the purchaser as part of the f.o.r. destination railway station price. The provision in the contract that the delivery to the purchaser shall be complete as soon as the goods are put on rail and payment of the freight shall be the responsibility of the purchaser is wholly inconsistent with the scheme of the Control Order and must be held to be excluded by it. 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. The conclusion is, therefore, inevitable that the amount of freight forms part the ‘sale price’ within the meaning of the first part of the definition.”

9. This position was reiterated by the Supreme Court in its recent decision in Ramco Cement Distribution Co. Pvt. Ltd. Vs. State of Tamil Nadu [1993] 88 STC 151. Referring to its decision in Hindustan Sugar Mills Ltd.[1979] 43 STC 13 (SC), it is observed: “.....This Court, after referring to the above contentions, pointed out that, if the terms and conditions of the contract had stood alone, the assessee might have been entitled to succeed in excluding the freight charges on the principle of 13 STR-9-01(1) Hyderabad Asbestos Cement Products Ltd. case [1969]24 STC 487 (SC) but that relief could not be given to the assessee in view of the scheme and provisions of the Cement control Oder and their implications.”

10. From the above discussion, it is clear that the ratio of the decision of the Supreme Court in Hyderabad Asbestos Cement Products Ltd.[1969]24 STC 487 (SC) is still valid and binding. Different conclusion was arrived at in Hindustan Sugar Mills Ltd.[1979] 43 STC 13 (SC) and Ramco Cement Distribution Co. Pvt. Ltd. Vs. State of Tamil Nadu [1993] 88 STC 151 (SC), because of the scheme and provisions of the Control Order which, having statutory and binding force and authority, had an overriding effect on the terms of contract.”

17. The learned Advocate appearing for the Respondent also relied on the decision of the Madras High Court in Seshasayee Industries Ltd. Vs. State of Tamil Nadu 92 STC 565 (Mad) and the decisions of the Allahabad High Court in Commissioner of Trade Tax (UP) Vs. Indian Alluminium Cable Co. Ltd. 115 STC 444 and Hyderabad Asbestos Cement Products Ltd. V/s Commissioner of Sales Tax 114 STC 564, wherein it is held that if insurance charges are charged separately, the same are not liable to be included in the taxable turnover of the dealer.

18. The learned Advocate appearing for the Respondent has further submitted that the Hon’ble Supreme Court has, in the case of CIT VS. Brij Lal Lohia and Mahabir Prasad Khemka [1972] 84 ITR 273(SC) 14 STR-9-01(1) held that the Tribunal, on the basis of the evidence, can take a different view in the later assessment years. In the instant case too, the Tribunal, on the basis of the documentary evidence produced by the Respondent for the assessment years in question, has taken a different view than the view taken earlier. It is therefore submitted on behalf of the Respondent that the decision of the Tribunal dated 5th October, 1996 in the second appeal filed by the Respondent is correct and not perverse as alleged. Conclusion:

19. We have perused the documents on record. We have also considered the submissions advanced on behalf of the Revenue as well as the Respondent.

20. The agreement entered into by and between the Respondent and its purchaser/s setting out the terms and conditions of the sale of goods was produced before the Tribunal as well as this Court. Under Clause-1 of the Terms and Conditions pertaining to “PRICE, PAYMENT AND TRANSFER OF PROPERTY, IN GOODS” an express agreement is reached by and between the Respondent and its purchaser/s as follows: “.......... unless otherwise agreed, the quoted price is exclusive of the charges payable on packing, carriage freight and insurance. ......” 15 STR-9-01(1) Clause - 3 of the Terms and Conditions pertains to “DELIVERY”. Sub clause (A) to Clause 3 inter alia provides that “ The delivery of machinery/equipment is to be taken at the works of the Company. If, however, the equipment/machinery is desired to be delivered at a particular site, the same can be arranged at the discretion of the company at the buyers’ risk and cost, irrespective of which the delivery shall be construed as complete at the works of the company .” (emphasis supplied)

21. Relevant terms and conditions found in the quotation issued by the Respondent pertaining to the delivery and insurance are as under: DELIVERY : Delivery of the equipment will be made at our works. We shall if required by you, arrange for transportation from our works to your site on your behalf and at your cost. The Company shall not in any event be liable for any special consequential or indirect loss or damage (including but without limitation any loss of or in respect profits or wages or overheads) suffered by the buyer as a result of any delay in or failure of delivery. INSURANCE : To be covered as per your instructions at extra cost.”

22. From the Marine Cover Note, it is clear that the amount paid by the Respondent is “deposit” for insurance amount and not towards 16 STR-9-01(1) insurance charges. Addendum to the said Cover Note shows that the sum insured was increased by Rs.10000/- and thereby the insurance company collected extra sum for the additional premium. It is specifically clarified in the Cover Note that “declaration for insurance is to be made immediately after the dispatch of the goods. This being the essence of the contract.” The specimen Sale Invoice produced by the Respondent shows that in addition to the price of spares, excise duty and packing charges are added and on the total amount, central sales tax is charged at the rate of 4% against C Form. Loading charges and the insurance charges are shown separately.

23. The aforesaid terms in the documents clearly reveal that the delivery of the goods was to be effected by the Respondent to the buyers ex-works and the Respondent had not taken any risk upon themselves qua the goods upon delivery. The Respondent, in no uncertain terms clarified in the agreement that unless otherwise agreed, the quoted price is exclusive of the charges payable of packing, carriage, freight and insurance. There is no material to show that there was any agreement to the effect that the quoted price is inclusive of insurance. It is also categorically agreed that the delivery of the equipment/machinery is to be taken at the works of the company. However, if the equipment/machinery is desired to be delivered at a particular site, the same can be arranged at the discretion of the Respondent at the buyers cost and risk, irrespective of which the delivery shall be construed as complete at the works of the 17 STR-9-01(1) company. These clauses clearly establish that the transaction/s was/were entered into by and between the Respondent and the buyer/s on a clear understanding that the insurance charges would be charged separately and therefore it cannot be construed to be forming part of the “sale price”. Again, the Marine Cover Note further goes to show that the declaration for insurance is to be made immediately after the dispatch of the goods. Since the delivery is ex-works and the amount acknowledged in the Marine Cover Note is only a deposit, the Tribunal was correct in reaching a conclusion that the insurance came into force after the dispatch of the goods. This finding as well as explanation of the Respondent that the amount of insurance charges were paid by the buyer subsequently after adjusting the amount of deposit mentioned in the Marine Cover Note is also supported by the addendum to the Cover note, by which addendum the sum insured was increased by Rs.10000/- and thereby the insurance company collected extra sum for the additional premium. The decisions cited by the Respondent also supports its case.

24. Under the circumstances, we are of the view that the Tribunal, after examining the entire transaction between the Respondent and its buyers, on the basis of the documents produced before it by the Respondent, has came to a correct conclusion that the insurance is not intended to be treated as part of the “sale price” and the insurance charges have to be borne by the buyers independently and separately and such insurance charges are not to be included in the sale price. In 18 STR-9-01(1) view thereof, the submissions made on behalf of the Revenue cannot be accepted. We are also of the view that the Tribunal, in view of the evidence submitted by the Respondent, was entitled to take a different view from its earlier view, pertaining to the same issue, in respect of the different assessment years. We therefore answer the questions set out in Paragraph-2 of this judgment in the affirmative i.e. in favour of the Respondent and against the Revenue.

25. Order accordingly. ( S. J. KATHAWALLA, J.) (V. C. DAGA, J.)