ARVIND MOTORS Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) A Division Bench of this Court consisting of Sri Srinivasa Iyengar and Sri Rama Jois, JJ., has referred the following question of law for the opinion of the Full Bench : "Whether the Division Bench decision of this Court in Webbs Sales and Service (P.) Ltd. v. Commissioner of Commercial Taxes, Bangalore [1969] 24 STC 84 has been impliedly overruled by the decisions of the Supreme Court in Dyer Meakin Breweries Ltd. v. State of Kerala (1970 )3 SCC253 , 1970 Supp(3 )SCC253 , [1970 ]26 STC248 (SC ) and D. C. Johar & Sons (P.) Ltd. v. Sales Tax Officer, Ernakulam [1971] 27 STC 120 (SC) ?"

(2.) In order to appreciate the question referred, it is necessary to notice the facts that are not in dispute, in the first instance. M/s. United Trading Corporation and Workshop Private Ltd., a private limited company incorporated under the Companies Act, and M/s. Arvind Motors, Mangalore, a registered partnership firm engaged in the business of selling motor-cars and trucks, such as Ambassador Cars, Tata Mercedes Benz trucks on agency basis in Mangalore used to get them from their manufacturers having their factories at Calcutta and Jamshedpur. Both of them are registered dealers under the Karnataka Sales Tax Act of 1957 and the Central Sales tax Act of 1956 ("K.S.T. and C.S.T. Acts"). The new cars and trucks are first purchased by the assessees from their manufactures outside the State, and then they are brought and sold to their customers or purchasers within the State of Karnataka. In the normal circumstances, the freight and insurance charges incurred by the assessees prior to the delivery of the vehicles at their place of business to their purchasers or customers, would form part of the sale price recovered by the assessees from their purchasers and customers. But, evidently with the sole object of avoiding payment of sales tax under the K.S.T. Act, on such freight charges collected an arrangement or an agreement is entered into between the assessees and their individual purchasers or customers providing for charging separately the freight and insurance charges incurred by the assessees on each car or truck to be borne by the purchasers, as the case may be, in these terms : "The above car (or commercial vehicle) should be brought on my/our behalf from Calcutta/Jamshedpur to Mangalore and I/we will bear transportation charges and transit insurance that may be incurred thereto."

(3.) In the returns submitted by the assessees for the years in question they included in the taxable turnover only the retail price of the vehicle exigible to tax under the K.S.T. and C.S.T. Acts, and claimed exemption in respect of the freight and insurance charges, for which the assessees had issued separate debit note to their customers.