South India Carbonic Gas Industries Ltd. vs State of Kerala

G. Sivarajan, J.—These three tax revision cases are at the instance of an assessee to sales tax under the Kerala General Sales Tax Act, 1963 (for short "the Act"). The petitioner in all the three cases is same, though in T.R.C. No. 42 of 2001 the name of the petitioner is shown as Sicgil India Limited. The assessment years concerned are 1991-92, 1992-93 and 1993-94. The only question that arises for consideration in all these cases is as to whether the cleaning and testing charges of cylinders which are used for filling carbon dioxide incurred by the assessee will fall within the definition of turnover u/s 2(xxvii) of the Act. According to the petitioner, the said charges will not form part of the definition of "turnover" whereas the assessing authority has taken the view that the said charges are liable to be included in the turnover and liable to be assessed u/s 5(1)(iii) of the Act.

The petitioner is engaged in the business of supply of carbon dioxide in cylinders. Under the provisions of the Gas Cylinders Rules, 1981, the petitioner is obliged to clean and test the cylinders before filling it with carbon dioxide. The petitioner had incurred charges for cleaning and conducting hydraulic test of the said cylinders before filling it with carbon dioxide during the three assessment years concerned. The petitioner filed returns for the assessment years mentioned earlier including the said charges in the total turnover and claimed exemption in respect of the service charges incurred while arriving at the taxable turnover. The assessing authority initially completed the assessment for the years 1991-92 and 1992-93 granting exemption in respect of the charges claimed. However, the assessing authority reopened the assessment for the said two years and disallowed the exemption already granted and included the service charges collected from the customers as part of the taxable turnover and assessed the same to tax u/s 5(1)(iii) of the Act. This order of the assessing authority was confirmed by the first appellate authority following the decision of the Andhra Pradesh High Court in Industrial Oxygen Company Pvt. Ltd. v. State of Andhra Pradesh [1992] 86 STC 539. The original assessment for the year 1993-94 was also completed disallowing the exemption and bringing the same to tax. The first appellate authority confirmed the said order also. The petitioner filed appeals against the said orders of the first appellate authority. The Tribunal after due consideration of the matter took the view that the charges for cleaning and testing of the cylinders collected from the customers will fall within the definition of "turnover" since the expenses incurred are integrally connected with the sale of carbon dioxide. The Tribunal also found that this amount can be assessed under the provisions of Section 5(1)(iii) of the Act.

Smt. S.K. Devi, the learned counsel appearing for the petitioner, submits that since there is no sale of cylinders involved in the transaction whatever charges incurred for cleaning and testing of the cylinders in view of the statutory requirements under the provisions of the Gas Cylinders Rules cannot be brought under the definition of "turnover" in Section 2(xxvii) of the Act. The counsel also brought to our notice the explanation to Section 2(xxvii) and submitted that in order to bring any charges collected from the customers within the definition of "turnover", it must be a charge in respect of the goods sold at the time or before the delivery thereof. The counsel further submitted that from this explanation, it is clear that the expenses incurred for cleaning and testing of the cylinders cannot be treated as an expense which is in respect of the goods sold. The counsel relied on the decisions of the Supreme Court in Collector of Central Excise, Bombay-III v. Century Spg. & Mfg. Co. Ltd. (1997) 94 ELT 16 and in Collector of Central Excise, Madras v. Indian Oxygen Ltd. [1989] 72 STC 118 Collector of Central Excise, Madras Vs. Indian Oxygen Ltd., . The counsel on these basis submitted that the assessing authority as well as the two appellate authorities had acted erroneously in disallowing the claim for exemption in respect of the charges incurred for cleaning and testing the cylinders and collected from the customers at the time of sale of carbon dioxide in cylinders.

The learned Government Pleader appearing for the respondent submits that the cleaning and testing of the cylinders are required to be made under the provisions of the Gas Cylinder Rules and, therefore, the charges incurred for the same is integrally connected with the transaction of sale of carbon dioxide in cylinders. He further submitted that whatever expenses incurred in connection with the sale of carbon dioxide in cylinders prior to its sale are liable to be included in view of the definition of "turnover" in the Act. He also relied on the decision of the Supreme Court in State of Kerala v. Madras Rubber Factory [1998] 108 STC 583 ; (1998) 1 KLT 201 and the decisions of this Court in G. Purushothama Panicker v. State of Kerala [1997] 107 STC 391; (1997) 2 KLT 75 and in Seven Seas Distillery (P) Ltd, v. State of Kerala [1991] 82 STC 71.

We have considered the rival submissions. The facts are not in dispute. The petitioner is a supplier of carbon dioxide in cylinders. Cylinder is not the subject-matter of sale. As per the statutory requirements under the Gas Cylinder Rules, the petitioner had cleaned and tested the cylinders before filling them with carbon dioxide and sold carbon dioxide in cylinders and had raised an invoice wherein the petitioner charged the expenses incurred for cleaning and testing the cylinders separately. u/s 5 of the Act every dealer whose turnover exceeds a particular limit (other than casual trader, etc.) shall pay tax on its taxable turnover. Turnover is defined in Section 2(xxvii) of the Act. Section 2(xxvii) with explanations reads as follows :

"(xxvii) ''turnover'' means the aggregate amount for which goods are either bought 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 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.

Explanation (I) :--''Agricultural or horticultural produce'' shall not include :

(i) such produce as has been subjected to any physical, chemical or other process for being made fit for consumption, save mere cleaning, grading, sorting, drying or dehusking ;

(ii) tea, coffee, rubber, cardamom or timber.

Explanation I(A).--(i) The turnover in respect of works contract shall be the aggregate amount received or receivable by the dealer for the transfer of goods (whether as goods or in some other form) involved in the execution of such contract.

(ii) The turnover in respect of delivery of goods on hire-purchase or on any system of payment by instalments shall be the market price of the goods so delivered.

(iii) The turnover in respect of the transfer of the right to use any goods shall be the aggregate amount received or receivable by the dealer as consideration for such transfer.

Explanation (2).--Subject to such conditions and restrictions, if any, as may be prescribed in this behalf,--

(i) the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of, or before, the delivery thereof ;

(ii) any cash or other discount on the price allowed in respect of any sale and any amount refunded in respect of articles returned by customers shall not be included in the turnover ; and

(iii) Where for accommodating a particular customer, a dealer obtains goods from another dealer and immediately disposes of the same to the said customer, the sale in respect of such goods shall be included in the turnover of the latter dealer but not in that of the former."

Thus "turnover" means the aggregate amount for which goods are either bought or sold. In the instant case so far as the purchaser of carbon dioxide is concerned, the consideration is the amount shown in the invoices which includes the price of the carbon dioxide and the charges for cleaning and testing the cylinders. He has to pay the amount shown in the invoice ; he is unconcerned with the component of the price paid shown in the invoice. The question of invoking the explanation (2) to Section 2(xxvii) arises only if something more than the invoice value is to be included. Explanation (2)(i) provides that the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of, or before, the delivery thereof. So by invoking the said provision, it is open to the assessing authority to include other items of expenditure incurred by a dealer prior to the delivery of the goods.

In this case, we are not concerned with a situation attracting the provisions of explanation (2) to the definition of "turnover" in Section 2(xxvii). In fact the petitioner had shown the charges collected from the customers in the turnover returned and had claimed exemption only for the purpose of arriving at the taxable turnover. Once the amounts fall within the definition of total turnover, only those amounts which are specified in Rule 9 of the Kerala General Sales Tax Rules, 1963 are liable to be deducted in the computation of the taxable turnover, which is evident from the definition of taxable turnover u/s 2(xxvi), viz., the taxable turnover means the turnover on which a dealer is liable to pay tax after determining such deductions from the total turnover from the purchase or sale. We also perused the two judgments relied on by the petitioner. According to us these two decisions are of no assistance to the petitioner for the reason that the question involved in these cases has to be decided with reference to the provisions of the Act. The decisions relied on by the petitioner are applicable only in cases where the explanation (2)(i) to Section 2(xxvii) is attracted. However, we will refer to the decisions relied on by the parties.

In Collector of Central Excise, Madras v. Indian Oxygen Ltd. [1989] 72 STC 118; Collector of Central Excise, Madras Vs. Indian Oxygen Ltd., , the Supreme Court was concerned with the question as to whether the rental on cylinders and the interest which accrued on account of deposit receipt for the supply of gases in returnable cylinders is related to the cost of manufacture. The Supreme Court observed that the levy under the Central Excise Act is on the manufacture. Here the sale is of the gases and therefore the excisable goods are gases. The supply of gas cylinders is ancillary to the supply of gases but it is strictly not incidental thereto because there are classes of persons who can take delivery of these gases without supply of cylinders. This activity is not for manufacture, this is ancillary but not incidental but would not be the price for the manufacture. This decision will not help the assessee since the charges collected by the assessee would fall within the definition of "turnover" in Section 2(xxvii) of the Act.

In Collector of Central Excise, Bombay-III v. Century Spg. & Mfg. Co. Ltd. (1997) 94 ELT 16 the Supreme Court Was concerned with the question as to whether service and maintenance charges are deductible from the assessable value u/s 4 of the Central Excise Act. The Supreme Court upheld the finding of the Tribunal that the charges mentioned above formed part of the cost of packing and therefore deductible. This decision is also not applicable in view of the reasons stated earlier.

In Seven Seas Distillery (P) Ltd. v. State of Kerala [1991] 82 STC 71 a division Bench of this Court considered the question whether the value of cartons used for packing bottled beer shown separately in the invoices is includible in the taxable turnover. The court held that though the value of cardboard as cartons was separately shown specified in the sale invoices it is includible in the turnover in view of explanation (2)(i) to Section 2(xxvii) of the Act.

In State of Kerala v. Madras Rubber Factory Ltd. [1998] 108 STC 583 ; (1998) 1 KLT 201 the Supreme Court considered the question whether the rubber cess collected from the manufacturers forms part of the purchase turnover exigible to sales tax. The Supreme Court, referring to the definition of "turnover" observed that, that the excise duty does not physically enter the manufacturer''s till is, as held in the second McDowell case [1985] 59 STC 277 (SO, not the decisive test for determining whether or not it would be a part of the manufacturer''s turnover.

A division Bench of this Court in P. C. Joseph and Sons v. State of Kerala [1981] 48 STC 563 considered the scope of the explanation (2)(i) to Section 2(xxvii). In that case the question was whether the sawing charges paid by the purchasers of timber logs, under separate contracts subsequent to sale of timber logs were liable to be included in the sales turnover when the sawing work was done on the logs before delivery. In that context the court observed as follows :

"Turnover is evidently the aggregate amount for which goods are either bought or sold. This aggregate amount would include anything done by a dealer in respect of the goods sold, at the time of or before the delivery thereof as mentioned in clause (i) of explanation (2). No doubt read by itself the words ''sums charged for anything done by the dealer in respect of the goods sold'' are quite wide in their amplitude. But the explanation does not stand by itself. It is an explanation to the definition and therefore it has to be read in the context of the definition of the term ''turnover''; what the aggregate includes is what is indicated by the main part of the definition. The aggregate is necessarily the amount for which the goods are either bought or sold. It is the sale price. What would not be part of the consideration would not be within the scope of clause (i) of explanation (2). When the contract of sale contemplates that the vendor shall do certain acts in relation to the goods before delivery, the charges for such services would necessarily form part of the price unless it be that parties specifically agree that it need not be so. All such charges would be brought within the scope of consideration for the sale, the aggregate amount referred to in the definition of ''turnover''. If there is an independent contract to pay for services and that contract is executed the amount payable under such contract for services will not be part of the sale consideration. The charges for services to be rendered under the agreement of sale either expressly or otherwise would fall within clause (i) of explanation (2). Reference in the said part of the explanation to ''any sums charged for anything done'' must be understood as anything done in relation to the transfer of property in the goods, and not independent of it."

The court, however in that case held that the sawing charges would not form part of the turnover since it was incurred after the sale of timber logs under a separate contract. However, the principles will apply to the present case also.

We have already come to conclusion that the charges incurred by the petitioner in cleaning and testing the cylinders are collected by the petitioner from the customers by including it in the invoice itself. What is charged in the invoice as consideration for the sale of gases in cylinders will form part of the turnover as per the definition of turnover in Section 2(xxvii) of the Act. A division Bench of this Court in G. Purushothama Panicker v. State of Kerala--judgment dated April 2, 1997 in T.R.C. No. 36 of 1995 [1997] 107 STC 391 ; (1997) 2 KLT SN. 75 held that if any deduction is to be allowed it must be one of the terms specified in Rule 9 of the Kerala General Sales Tax Rules. The petitioner did not establish that the charges collected in the invoice which forms part of the turnover is deductible under any of the clauses in Rule 9 of the Rules. In this view of the matter, we are in full agreement with the decision of the Tribunal. There is no merit in these revisions.

All these tax revision cases are accordingly dismissed.

Order on C.M.P. No. 542 of 2001 in T.R.C. No. 40 of 2001 dismissed.

Order on C.M.P. No. 545 of 2001 in T.R.C. No. 41 of 2001 dismissed.

Order on C.M.P. No. 548 of 2001 in T.R.C. No. 42 of 2001 dismissed.