State of Tamil Nadu vs Chettinad Cement Corporation Ltd.

B. Rajendran, J.—This revision is filed against the order of the Sales Tax Appellate Tribunal (Main Bench), Chennai made in S.T.A. No.

1351 of 2001 dated January 13, 2004.

This tax revision has been preferred by the State, wherein the following substantial question of law is sought to be raised:

Whether, in the facts and circumstances of the case, the Tribunal is legally correct in treating the turnover representing loading charges, transport

charges, unloading charges of fly ash as not includible in the purchase turnover for the purpose of levy of tax u/s 7A of the Tamil Nadu General

Sales Tax Act, 1959?

The order relates to the assessment year 1995-96. The assessee, viz. Chettinad Cement Corporation Limited had purchased fly ash from the

Tamil Nadu Electricity Board, Mettur and transported the same from the Board to their premises. The question involved here was that whether the

expenses incurred by the assessee in transporting the fly ash from the thermal power station to the assessee''s plant was a pre-sale expense or a

post-sale expense.

It is no doubt admitted by both the parties that in respect of the levy of purchase tax, the assessee made payment in respect of the value of the

fly ash, which was given to them by the Board. The only question in dispute was whether the subsequent transport charges effected from the plant

should be included or not. The assessing officer assessed the total purchase value of the fly ash u/s 7A of the TNGST Act inclusive of the

transportation charges, loading, unloading and clearing charges, as given in the table below:

Transporting charges loading and

Year Value of fly ash unloading and clearing charges Total purchase value

1994-95 Rs. 50,35,360 Rs. 2,32,76,073 Rs. 2,83,11,433

1995-96 Rs. 38,98,615 Rs. 2,88,45,683 Rs. 3,27,42,298

The assessing officer, besides imposing tax on such purchase value, also imposed penalty u/s 12(3)(b) of the TNGST Act. Aggrieved against

the order of the assessing authority, the respondent herein filed an appeal before the Deputy Commissioner (CT) Appeals, and took a stand that

the price of the fly ash was ex-site and that the fly ash was only a wastage or waste product for the thermal power station; that the fly ash had no

value at all; and above all these things, the sale and delivery was complete at the thermal power station itself; that anything done thereafter could

not be treated as a part of the sale and that it was only a post-sale operation and therefore, the inclusion of freight in the purchase value of fly ash

for the purpose of levy of tax u/s 7A of the Act was illegal.

The Deputy Commissioner (CT) Appeals, after hearing the case, confirmed the levy of tax u/s 7A of the Act on the amount paid to the Tamil

Nadu Electricity Board, Mettur Dam, and deleted the assessment on the transport charges, etc., on the ground that as per the agreement, the

appropriation of the goods had taken place at the gate of the Thermal Power Station, Mettur Dam, and anything done or any expenses incurred

subsequent to this was outside the sale contract entered into between the Thermal Power Station, Mettur Dam and the dealers and therefore, the

amount paid as per the sale agreement to the tune of Rs. 38,96,615 for the year 1995-96 alone was liable to tax and not the transport or other

charges. Aggrieved by the said finding and the order of the Deputy Commissioner (CT), Appeals, the State filed an appeal before the Sales Tax

Appellate Tribunal for the assessment year 1995-96 in STA No. 1351 of 2001. In the grounds of appeal, the Revenue had contended that the

dealers had procured fly ash at the site of thermal power station, cleared them, dried them and transported to their factory by incurring expenditure

towards clearing, drying, etc., which worked out to Rs. 2,88,45,683 for the year 1995-96 and the expenses were part and parcel of the

procurement of fly ash itself; that the expenses were incurred in pursuance of such purchase of the fly ash, and therefore, they were includible in the

total purchase value for computation of taxable turnover liable to tax u/s 7A.

The Tribunal considered the contentions made on either side in detail and ultimately came to the conclusion relying upon the judgment of this

Court in Givalior Rayon Silk Manufacturing and Weaving Co. Ltd. v. State of Tamil Nadu [1982] 49 STC 73 and the judgment of High Court of

Orissa at Cuttack reported in P.R. Tata & Co. v. Sales Tax Officer, Koraput I Circle [1971] 27 STC 176 that the sale is complete the moment

the delivery was given to the dealer at the site of the thermal power station itself. The Tribunal also noted that the sale price is ex-site and therefore,

whatever expenditure the dealer incurred subsequent thereto cannot be called as a pre-sale expenditure and confirmed the order of the Deputy

Commissioner (CT), Appeals and rejected the application of the State. Aggrieved against this order, the State has come before this Court

challenging the findings of the Tribunal and the Deputy Commissioner (CT), Appeals.

We have heard Mr. Haja Naziruddin, learned Special Government Pleader (Taxes) for the petitioner/State and Mr. N. Inbarajan, learned

Counsel for the respondent/assessee.

The short question, which is to be answered in this case, is whether the expenses incurred by a dealer, who purchases the fly ash from the

thermal power station, which is admittedly a waste product for the thermal power station, and when the delivery took place at the site of the

thermal power station, such expenses incurred by the dealer in transporting such material (fly ash) from the premises of the thermal power station

to that of the dealer, would construe as an expense called pre-sale expense or post-sale expense. Both the Deputy Commissioner (CT), Appeals

as well as the Tribunal has given a categorical finding of fact that the delivery of the material has taken place on the site itself and it was the dealer,

who, on his own motion and volition, had engaged transporters, dried it there and then transported it from the thermal power station. Even as per

the contract of agreement entered into between the parties, such material should be removed at the cost of the dealer from the site at his own risk

and expenses. Therefore, it is quite natural and legal that the sale comes to an end the moment the sale price is paid by the dealer to the thermal

power station and the delivery is accepted by the dealer at that point of time ex-site itself. Therefore, whatever expenses which the dealer incurs

thereafter for the purpose of drying and then transporting to his place is quite natural and it can only be post-sale expenditure and at no stretch of

imagination, it could be concluded or arrived at as pre-sale expenditure. When this question of fact, which has been clearly upheld by both the

appellate authorities concerned, we have no hesitation in accepting the question of fact and there is no need to make our interference with the

finding of fact.

At this juncture, we are fortified by the judgment rendered by this Court in Gwalior Rayon Silk Manufacturing and Weaving Co. Ltd. v. State

of Tamil Nadu [1982] 49 STC 73 wherein it was held that the transport charges, which was incurred by the assessee, in respect of delivery of

goods from the Forest Department, would not attract levy of charges u/s 7A.

The Tribunal, relying upon the said judgment, specifically gave a finding that only the post-purchase expenditure could be included and

therefore, the finding of the Deputy Commissioner in setting aside the assessment made on the value of the purchase of the fly ash from the

Electricity Board and the subsequent expenditure incurred by the assessee to bring the fly ash to his factory, is correct while dismissing the appeal

filed by the State.

In the judgment in Gwalior Rayon Silk Manufacturing and Wearing Co. Ltd. v. State of Tamil Nadu [1982] 49 STC 73, this honourable court,

while dealing with a similar issue whether the transport costs involve transportation of wooden logs from the auction place by the Forest

Department would be included in the sale price, has held as under: (at page 74)

Before doing so, we have to point out one thing with which there cannot be any controversy. As we pointed out already, out of the two amounts

referred to earlier, Rs. 90,525 represents the amount paid by the assessee to the Forest Department and the other amount of Rs. 2,00,990.56

represents the transport and extraction charges incurred by the assessee. It was not the case of the Department that any part of this amount was

paid to the Forest Department or formed part of the consideration for obtaining the coups in question. So long as this Rs. 2,00,990.56 was not

paid by the assessee to the Forest Department as consideration for obtaining the coupe and remained only as expenditure incurred by the

assessee, this amount cannot come within the scope of the Tamil Nadu General Sales Tax Act, 1959, at all as a turnover liable to tax, whether as

sales turnover or as purchase turnover....

The next judgment relied upon by the Tribunal was the decision tendered by the Orissa High Court reported in P.R. Tata & Co. v. Sales Tax

Officer, Koraput I Circle [1971] 27 STC 176, wherein their Lordships have categorically held that the turnover of purchase means the aggregate

of the amounts of purchase price paid and payable by the dealer in respect of the purchase, while purchase price means amount payable by a

person as valuable consideration and shall also include any sum charged towards anything done by the seller in respect of the goods at the time of

or before delivery of such goods. Therefore, it is clear that before the delivery of goods, the thermal power station do not do anything insofar as

the supply of goods is concerned. As it is stated that it is only a waste product, which has been directed to be removed, no further service or

anything is done by the seller, whereas, it is the purchaser, who does everything after the purchase. Therefore, the findings rendered in the above

decision in paragraph Nos. 5 and 6 squarely apply to the facts of the present case. Paragraph Nos. 5 and 6 of the said judgment are extracted

hereunder:

In the present case harida was either on the tree or was to come subsequently. The seller did not incur any expenses towards anything done at

the time of or before delivery of the harida. The purchaser himself was to pluck the harida, collect, transport and crush the same. None of these

things was done by the seller and was accordingly not to be included in the purchase price.

The taxing authorities therefore exercised their jurisdiction wrongly and acted contrary to law in holding that the purchase price included

collection, transport and crushing charges incurred by the petitioner.

Furthermore, factually also, both the authorities have given a categorical and clear finding, and therefore, there is no necessity to cause our

interference in this regard.

For the foregoing reasons, we are in full agreement with the decisions rendered supra by the Madras High Court as well as the decision

rendered by the Orissa High Court, wherein also a similar view had been taken. Since the question of law raised by the petitioner has already been

found in favour of the assessee by the decisions of the Madras High Court as well as the Orissa High Court, we answer the same in favour of the

assessee and against the State.

In the result the above tax case revision fails and the same is dismissed. No costs.