ASSOCIATED BUILDERS Vs. STATE OF KERALA

JUDGEMENT

(1.) BOTH the revisions are by the same assessee. The matter arises under the Kerala General Sales Tax Act (in short, the act), for the assessment years 1984-85 and 1985-86. The assessee-firm supplied bamboos on a large scale to M/s. Hindustan Newsprint Limited, Velloor, Kottayam. A portion of the bamboos, so supplied, was collected from the "bamboo coupe" worked by the dealers. The other portion was purchased by the dealers from local people in Malabar area. The bamboos were transported to the place where the Hindustan Newsprint Limited was situate at Velloor, Kottayam. They were so transported to Velloor, Kottayam using delivery notes of the assessee, the revision petitioner a dealer under the Act. For the supply of bamboo effected by working the coupe, the dealer showed an "all inclusive price per m. T". But for the supply of bamboo purchased from local people in Malabar, the dealer conceded a lower sale price, and claimed transporting charges to the tune of Rs. 19,85,629. 72 for the year 1984-85 and a sum of Rs. 21,62,93534 for the year 1985-86, and claimed deduction of the said transport charges under rule 9 (f) of the Kerala General Sales Tax Rules, 1963 (in short, the rules ). The sole controversy in these revisions is whether the assessee is entitled to the deduction under Rule 9 (f) of the Rules by way of freight charges, as claimed. The assessing authority negatived the plea. It was confirmed in first appeal by the Additional Appellate Assistant Commissioner and in second appeal by the Sales Tax Appellate Tribunal. The assessing authority also found that out of the total 1,90,500 of the bamboo pieces obtained from the coupe, the transport related to 1,81,372 pieces and the balance unaccounted pieces were determined as 9128 pieces, weighing 230 M. T. This was held to be a suppressed turnover. The Sales Tax Appellate Tribunal affirmed the decision of the lower authorities, negativing the plea of deduction of the transport charges claimed, as also the addition of the turnover of 230 M. T. of bamboos, suppressed. However, the Appellate Tribunal held that the concessional rate of 4% is applicable even to the enhanced turnover, even though they were not covered by form 18 declarations, and gave relief to the assessee since the said turnover was assessed at the enhanced rate of 5%, by the assessing authority and by the 1st appellate authority. In both these revisions, the sole question that was raised was that the assessee is entitled to the deduction of the freight charges in the sum of Rs. 19,85,629. 72 for the year 1984-85 and the sum of Rs. 21,62,935. 34 for the year 1985-86. The addition of suppressed turnover, representing the value of 230 M. T. of bamboos was not questioned before us. These cases were heard along with T. R. C. Nos, 74 to 76 of 1990, wherein we have delivered a separate judgment today.

(2.) WE heard counsel for the revision petitioner-assessee, mr. N. N. Venkitachalam and also counsel for the respondent-Revenue, Mr. N. N. d. Pillai. Admittedly, the revision petitioner-assessee supplied large quantities of bamboo to Hindustan Newsprints Limited, Velloor, Kottayam. The assessing authority found in its order for the year 1984-85, dated 20-1-1987, that the bamboos required for the said supply were procured by the assessee (dealer)from the bamboo coupes, in the bid from the Forest Department, and also purchased from local people, mostly from Malabar area. It was also stated in the assessment order, which was not challenged at any subsequent stage, that for supply of bamboo made from the coupe, worked by the dealer (the assessee )it showed an 'all inclusive price per M. T. ' It is only for the bamboo procured from the local people, mostly in Malabar area, the assessee conceded a lower sale price and claimed receipt of felling and transporting charges in the sums mentioned above Rs. 19,85,629. 72 for the year 1984-85 and Rs. 21,62,935. 34 for the year 1985-86. It has come out in evidence that M/s. Hindustan Newsprint limited (the purchaser) issued notice of "registration of persons" interested in the supply of bamboos fit for pulping, to be delivered and stocked at the Company yard at an "all inclusive price per M. T. ". Reference is made to this aspect and a specimen copy of the notice is available in the assessment files --see assessment order for the year 1984-85 dated 20-1-1987 and page 83 of the assessment file. By the notice for registration, the intending suppliers are required to deliver and stock bamboos at the company yard, Newsprint Nagar, Velloor at an "all inclusive rate per m. T. ". inclusive of sales-tax. Thereafter, negotiations were carried on between the Company and the intending supplier and the terms arrived at. In pursuance thereto, work order was issued by the Company to the intending supplier for the execution of the contract. An agreement was also entered into between the company and the intending supplier to confirm the work order. Bamboos are supplied on the terms as agreed and catalogued in the work order and the agreement In the assessment records for the year 1984-85 at pages 107,116 and 117 of the files we find the work order dated 23-10-1984 and the agreement dated 29-10-1984. The work order Number is 29/84. It should be noticed that the agreement dated 29-10-1984 states that the Tender' notice, acceptance thereof, copy hereto annexed, are all designed to form part of the contract. But in the assessment files and also in the paper book furnished to this Court at the time of hearing, only work order No. 29/84 and also the agreement dated 29-10-1984 are produced. They are as follows: "hindustan Newsprint Limited" xx xx xx xx KNP/fd/ 223/ 15a 23-10-1984 WORK ORDER NO. 29/84 Shri P. A. Jacob Associated Builders Thiruvalla Kuttoor P. O. Sir, Sub: Supply of 6000 MT of bamboos to our Mill Velloor Ref: 1. Tender Notice No. KNP/fd/t/b/7/84 dt. 9-8-1984. 2. Your tender dated 27-8-1984 and letter dated 16-10-1984.

(3.) WE perused through the relevant records placed before us. As stated by the assessing authority, for the bamboos supplied by the assessee from the bamboo coupe worked by it, the assessee showed an "all inclusive price" per MT. It is only for purchase of the bamboos by the assessee from the local people in Malabar, which were transported to the hindustan Newsprint Limited, Velloor, Kottayam, a lower turnover was returned and at the same time charges for felling and transport charges were claimed by way of deduction. The assessing authority held that the work order, taken along with the contract executed between the parties, necessarily showed that the bamboos supplied must be of specified quality and free from any damage or decay, etc. and the payment of consideration for the goods under the contract shall only be on the basis of weight of the bamboos as recorded in the company's weigh bridge at Newsprint Nagar, Velloor and so a perusal of the order font! and the agreement entered into between the parties will show that appropriation of the goods to the contract is at the company's yard and the provision for inspection and rejection of the goods by the company's representative at the company's yard and weighment of the goods at the same place will show that the property in the goods does pass to the company only when the goods are delivered at the company's site and after inspection, approval and weighment, which will show that the sales were effected at the company's promises and till then the goods belonged to the revision petitioner (dealer ). If any loss or damage is caused to the goods by fire, before such delivery it is the revision petitioner who should bear the loss and not the company. Moreover, the facts available in the files pointed out that the goods were consigned by the revision petitioner (dealer) and the innumerable declaration forms available in the files show that the goods were consigned by the revision petitioner to the company's premises, marked 'self. This was held to be a. pointer to show that goods were transported as belonging to the consignor-revision petitioner (dealer) to the yard of the Newsprint Factory at Velloor. The work order no. 29/84 referred to the tender notice dated 9-8-1984, tender of the revision petitioner dated 27-8-1984, and the negotiations held on 16-10-1984. But neither the tender notice, nor the tender, nor the terms of negotiations were made available by the assessee before any of the authorities. On a perusal of the work order and the agreement, the delivery notes which accompanied the transport of the goods from various places in Malabar to the Newsprint Factory at Velloor, Kottayam, wherein mention was made that the bamboos were consigned to the factory premises on "self basis", the Appellate Tribunal held that the property in the bamboos passed only after weighment and quality check at the factory site. The title to the goods passed only after inspection and approval and they did not pass unless they are delivered at the mill site and accepted by the buyer after inspection and approval. On the above premises, the tribunal concluded that the freight charges received by the revision petitioner (assessee ) is for the freight incurred by him before sale and so it is not deductible under 9 (f) of the Rules. It was also stressed that Form 26 delivery notes available in the assessment records, pointed out that the bamboos were transported from various places to the mill site, on "self basis". The delivery notes were obtained by the dealer (revision petitioner}, who has been described as consignor of the goods and the goods were transported to the mill site on "self basis". The authorities also adverted to the delivery of bamboos made by the assesseee prior to the execution of the work order. The goods were supplied by the assessee at an "all inclusive rate" and the same was conceded as the turnover and tax was duly paid on the said sales. Supply of bamboos to the Newsprint Factory as per work order 29/84 was also on the same basis. The transport charges, for which deduction was claimed under Rule 9 (f) of the Rules were not separately charged in the same bills. The split up of the basic price, sales tax and transport charges were no doubt shown in the work order No. 29/1984 and for the transport charges received a separate voucher or receipt was also passed on. It was held that the facts in this case, indubitably pointed out that the property in the bamboos did not pass to the buyer until they were weighed and approved by the buyer and the intention of the parties was that title to the goods would pass only after the goods were delivered at the Newsprint factory and weighed and approved by the buyer. Emphasis was also laid on the condition contained in the work order no. 29/1984 dated 23-10-1984 that the bamboo supplied must be of good quality fit for making pulp, matured, uncharred and free from decay, etc. and the payment of consideration shall be on the basis of consideration of net weight of bamboos as recorded at the company's weigh bridge in the Newsprint Nagar in the presence of company's representatives. In so far as the appropriation of the goods is only at the mill site after the goods were weighed and approved by the buyer, the freight charges obtained by the dealer are the freight incurred prior to sale and so the assessee is not entitled to deduction under rule 9 (1)of the Rules. WE are of the view that on a fair reading of Rule 9 (f) of the Rules and the decision of the Supreme Court explaining the scope of the said rule, the aforesaid conclusion of the Appellate Tribunal is justified in law. Rule 9 (f) of the Rules provides as follows: "9. Determination of taxable turnover - In determining the taxable turnover, the amounts specified in the following clauses, shall subject to the conditions specified therein, be deducted from the total turnover of the dealer,- XX XX XX XX (f) all amounts falling under the following two heads, when specified and charged for by the dealer separately, without including them in the price of goods sold; (i) freight; (ii) charges for delivery;" Explaining the scope of the above rule, the Supreme Court in Dyer Meakin Breweries Ltd. v. State of Kerala (26 STC 248) at p. 250 stated thus: "all the expenditure incurred is prior to the sale and was evidently a component of the price for which the goods were sold. It is true that separate bills were made out for the price of the goods ex-factory and for "freight and handling charges". But, in our judgment, the tribunal was right in holding that the exemption under clause (f) of Rule 9 applies when the freight and charges for packing and delivery are found to be incidental to the sale and when they are specified and charged for by the dealer separately and expenditure incurred for freight and packing and delivery charges prior to the sale and for transporting the goods from the factories to the warehouse of the company is not admissible under Rule 9 (f ). rule 9 (f) seeks to exclude only those charges which are incurred by the -dealer either expressly or by necessary implication for and on behalf of the purchaser after the sale when the dealer undertakes to transport the goods and to deliver the same or where the expenditure is incurred as an incident of sale. It is not intended to exclude from the taxable turnover any component of the price, expenditure incurred by the dealer which he had to incur before sale and to make the goods available to the intending customer at the place of sale. " The said decision was subsequently followed by the supreme Court in D. C. Johar & Sons (P) Ltd. v. Sales Tax Officer, Ernakulam 1969 KLT 640 = 27 STC120 ). The Appellate Tribunal relied on the above decision of the Supreme Court and on the facts of this case, by reference to the work order No. 29/1984, the agreement entered into between the parties and the delivery notes, which accompanied the transport of the goods up to the place of delivery, held that the property in the bamboos did not pass until they were delivered at the mill site and accepted by the buyer after inspection and approval and hence the freight charges received by the assessee is for the freight incurred prior to the sale and so not deductible under Rule 9 (f) of the rules. Pointed attention was made to Form 26 of the delivery notes obtained by the assessee and which accompanied the transport of the goods to the mill site, which showed that the goods were sent on "self basis and in many of the delivery notes the consignee's or the buyer's name was not furnished. WE are of the view, that the reasoning and conclusion of the Appellate Tribunal, aforesaid, is in accord with the decision of the Supreme Court mentioned above and the common order passed by the Appellate Tribunal, dated 31st August 1989 for the two years is justified in law.