Commissioner of Sales Tax vs Delhi Coal Suppliers Association

B.N. Kirpal, J.—The Appellate Tribunal, Sales Tax, Delhi, has, u/s 45 of the Delhi Sales Tax Act, 1975, referred one question of law to this Court in respect of the assessment year 1963-64.

Briefly stated, the facts are that the dealer is carrying on the business of coal, coke, etc. Initially assessment for the said period was made on 28th March, 1964 and an additional demand of Rs. 3,078.07 was created. Subsequently a notice u/s 20(3) of the Bengal Finance (Sales Tax) Act, 1941, as then extended to the Union Territory of Delhi, was issued on 13th March, 1968, proposing to revise suo motu the said assessment, on the ground that a portion of turnover had escaped assessment. The dealer raised objection that the notice was too short and it was vague as it did not indicate precisely what portion of the dealer''s turnover had escaped assessment. It was also contended that the proper course was to proceed, u/s 11A and not u/s 20(3) if the turnover of the business of the dealer had escaped turnover. It was also stated that the sale figures of coal were duly accounted for and properly taxed and the assessment order was quite valid. The learned revisional authority Shri B. K. Sharma, Commissioner, Sales Tax, rejected the plea raised by the dealer and observed that the dealer had disposed of wagons in bulk after having taken delivery of the same from the railway and it becomes liable for payment of sales tax on the sale proceeds of all such wagons including freight and octroi, etc. He, Therefore, directed that full enquiry be made in all aspects of coal transactions made by the dealer and to pass fresh assessment order.

After remand, the sale of the dealer was estimated at the rate of Rs. 1,425 per wagon on an average including freight and octroi charges, etc.

An appeal was filed against the order of the Commissioner of Sales Tax before the Tribunal. The Tribunal did not allow the dealer to plead that no tax should have been levied on the sale of coal under the local Act and that the same should be treated as a sale in the course of inter-State trade and commerce.

The Tribunal, however, came to the conclusion that freight and octroi charges should not be included in the sale price of the wagons for the purpose of levy of tax on the dealer. In arriving at this conclusion, the Tribunal noted that there was no entry in the account books of the dealer of realisation of freight and octroi. The cash book only indicated price of the "soft coke". It was also observed that in case the dealer had realised freight and octroi charges from the retailers, then there would have been no reason why he had not shown the same in the books of accounts.

On an application u/s 45 being made, at the instance of the Commissioner of Sales Tax, the following question of law has been referred to this Court :

"whether, on the facts and circumstances of the case, the Tribunal was right in holding that freight and octroi should not be included in the sale price of the wagons for the purpose of levy of sales tax on the dealer ?"

As is noted in the order of the Appellate Tribunal, the dealer purchased coal from the collieries. It is not in dispute that the freight and octroi in respect of the coal which was dispatched from the collieries to Delhi, did not form part of the sale price of the collieries. The question of such a procedure being adopted for purchase, sale and movement of coal was the subject of control with the promulgation of the Colliery Control Order. The dealer could not make any sales except to the persons who were authorised to act as retailers of the Civil Supplies Department of the Delhi Administration. It is these retailers who took physical delivery of the coal and paid railway freight and octroi to the railway authorities.

It is contended by the learned counsel for the Commissioner that the liability to pay freight and octroi was that of the dealer. The retailer who purchased the coal from the dealer took upon itself to discharge the liability of the dealer and Therefore, the freight and octroi really and in effect formed part of the sale price.

As we have already noted, it is not in dispute that the freight and octroi in question did not form part of the sale price of the colliery which dispatched the coal to the dealer at Delhi. The reason for this is that according to the terms of the Colliery Control Order and the notification issued there under, the prices of coal were fixed for delivery for at the loading point nearest to the colliery or free on tramway or road vehicle at the colliery. The implication of this was that the title in the goods, in law, would pass to the purchaser at least when the coal was loaded at the loading point. Thereafter the property in the coal stood transferred to the dealer and if any loss had been suffered in respect thereto, that would have been to the account of the dealer. To put it differently, the carrier, which was the railways in the present case, acted as an agent of the dealer. Therefore, freight and octroi charges which were payable after the goods had been loaded, did not form part of the sale price of the colliery. The dealer did not pay to the colliery any money in respect to the freight and octroi charges of the goods.

From the facts found by the Tribunal, it is clear that the dealer sold the coal to the retailers before taking physical delivery of the coal from the railways. The retailers were required to pay to the dealer the price fixed under the Colliery Control Order. What was paid to the dealer by the retailers was the price of coal which had been charged by the colliery plus the commission which the dealer was entitled to charge under the provisions of the said Order. Freight and octroi charges were not included in the invoice value. The dealer did not receive any money by way of freight or octroi nor did it pay freight or octroi to the railway authorities. Thus after the title in the coal had stood transferred to the retailers, it is they who took physical delivery of the coal. The liability to pay the freight and octroi charges was of the person who took physical delivery from the railways. It was never the intention of the contracting parties, viz., the dealer and the retail purchasers that the freight and octroi charges were to form part of the sale price of the coal.

In this connection it would be relevant to refer to some of the provisions of the Colliery Control Order. Clause 4 provides that the Central Government, may, by notification, fix the price at which the coal may be sold by the colliery owner. Clause 5, which is important, inter alia, states that no colliery owner or his agent shall sell and no person shall purchase coal at a price which is in excess of the maximum or below the minimum fixed under clause 4. According to clause 6, a middleman employed by a colliery owner is not to receive a commission exceeding thirty-seven paise per tonne.

The dealer in the present case was a del credere agent and according to clause 6(2) of the said Order, he could only receive from his customer the price fixed under clause 4 plus the commission fixed under clause 6(2). The said order does not contain any provision with regard to payment of freight and octroi charges by the del credere agent or the customer except that clause 12B, inter alia, provides that no person to whom coal has been allotted, shall divert or transfer such coal to any other person except under a written authority from the Central Government and at such price as may be fixed by that Government. It is while fixing the said price that it is stipulated in the said clause that the Central Government shall have due regard to the prices fixed under clause 4 of the order and the freight, cesses, taxes, middlemen''s commission and other incidental charges, etc., paid by the original allottee. There is nothing in this order to show that the freight was at any point of time regarded as a part of the sale price under the provisions of the Colliery Control Order. The entire sale and purchase was regulated by the provisions of this Order, read in conjunction with the notification which was issued under clause 4 of the said Order, fixing the prices of coal. The prices which were fixed were for station or place of dispatch and not for destination. This also shows that the freight was not to be regarded as an element of sale price.

When this freight was not to be considered as a part of the selling price of the colliery, it would stand to reason that in a subsequent transaction, under the provisions of the Colliery Control Order, the transfer of title by the dealer in favor of the authorised customers was also to be of the same nature, viz., the freight was not to form part of the selling price. At this juncture, it would be pertinent to refer to the decision of the Supreme Court in the case of Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 While considering the question as to whether the freight formed part of the sale price or not, where cement was dispatched by the manufacturer under the provisions of the Cement Control Order, the Supreme Court also examined a case like the present, where the delivery of the goods took place when the goods were put on rail at the work siding. It was held by the Supreme Court that the risk, in such a case, would then pass to the purchaser and the payment of freight would be his responsibility. The Supreme Court observed at page 33 of the judgment that :

"This would be the position apart from the provisions of the Control Order and, on this position, there can be no doubt, for reasons already discussed, that the amount of freight would not form part of the ''sale price''."

As already observed, the freight did not form part of the sale price of the colliery and when further sale took place in accordance with the provisions of the Colliery Control Order, the only price which could be realised by the dealer was the price fixed under clause 4 of the Colliery Control Order and his commission. The order does not envisage freight and octroi charges being received by the dealer. Of course, if the dealer had taken delivery of the goods after paying the freight and octroi charges and had then sold the coal, then in all probability, the freight so paid would form part of the sale price charged by him. But such is not the case here because the dealer sold the goods to its customers on the clear understanding that it is the retailers who were under legal obligation to take delivery of the goods after paying the freight and octroi charges.

Before concluding, we would like to refer to the decision of the Division Bench of this Court in the case of Arjan Dass Gupta & Bros. v. Commissioner of Sales Tax [1980] 45 STC 52 This was also a case under the Delhi Coal Control Order and the main contention which was raised was whether the sale made by the dealer, who was a del credere agent, in favor of the customer, was an inter-State sale or not. We are not concerned with that question here. Another question which was raised was whether the freight charges which were paid by the coal retailers, were liable to be included in the sale price and turnover of the dealer. In respect thereto, this Court observed as follows :

"The words cost of freight ''separately charged'' occurring in section 2(h) connote that the intention of the parties (as disclosed in the contract of sale) must unequivocally be that freight charges will not form part of the sale price. In the absence of any such evidence produced by the dealer, our view is that freight charges should be included in the sale price, since, as a commercial transaction, it is inconceivable that a dealer will bear the freight charges himself. However, in this case, the department may examine whether the dealer is entitled to the benefit of the circular referred to in para 7 of the order of the Deputy Commissioner (M. D. Singh) dated 25th October, 1972."

This Court, Therefore, held, as is evident from the above, that it is not in every case that freight charges would form part of the sale price. If it was unequivocally disclosed in the contract of sale that freight charges will not form part of the sale price, then no sales tax would be payable in respect thereto. The court decided against the dealer in that case because there was no proof with regard to the question as to whether the freight charges were payable by the dealer or the customer.

In the present case, however, it is clear that the contract of sale between the parties as interpreted in the light of the provisions of the Colliery Control Order clearly provided that the freight and octroi charges were not to form part of the sale price. The Tribunal was, Therefore, right in coming to the conclusion that no sales tax was payable on freight and octroi.

For the aforesaid reasons, the question of law referred to us is answered in the affirmative and in favor of the dealer.

There will be no order as to costs.

Reference answered in the affirmative.