KUTTY AND CO Vs. STATE OF KERALA

JUDGEMENT

(1.) THESE tax revision cases are in respect of certain assessments to sales tax passed on the assessee for the assessment years 1968-69, 1969-70 and 1970-71. The assessee is a dealer in firewood, who, according to him, had contracted with the Gwalior Rayons Ltd. for the sale and purchase of firewood. The controversy is in regard to the nature of the contract between the assessee and the Gwalior Rayons and, in particular, the commodity or the article which was really the subject-matter of the contract. The assessee would contend that it was "firewood" assessable at 1 per cent under item 55 of the First Schedule of the Kerala General Sales Tax Act, 1963, read with section 5 (1) thereof. On the other hand, the revenue would contend that what was sold was not "firewood" but something other than the same - whether timber or not - assessable at the residuary rate of 3 percent (during the relevant years in question) under section 5 (2) of the Act. The Tribunal has written a very long order discussing several decisions and various considerations. There was difference of opinion among the members of the Tribunal, the Chairman and the Departmental Member holding against the assessee, that the contract was not for "firewood" but for "pulpwood"; and the Accounts Member taking a view in favour of the assessee. The Appellate Assistant Commissioner had also held in favour of the assessee that the contract was for the supply of firewood.

(2.) WE have been taken though such materials as are available on record to determine the subject-matter of the contract between the assessee and the Gwalior Rayons Ltd. WE have some difficulty on account of the paucity of relevant material, not all of which have, for one reason or other, not been placed on record or incorporated in the record by the authorities below. WE think it was necessary that this should have been done.

(3.) THERE is a second controversy that has been agitated in Tax Revision Cases Nos. 65 and 66 of 1976, with respect to the assessment years 1969-70 and 1970-71. That relates to the exemption from sales tax, under rule 9 (f) of the Kerala General Sales Tax Rules, of the transport charges incurred by the assessee in respect of the article that was the subject-matter of the contract between the assessee and the company. Rule 9 (f) of the Rules reads : " 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 :. . . . . . . . . . (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;. . . . . . . . . . . . . " Under the rule, all that is needed to claim exemption is that freight must have been specified and charged for separately without including it in the price of the goods sold. THERE is abundant material on record which has been referred to by the Tribunal itself and by the Appellate Assistant Commissioner to show that in the cases under consideration the transport charges were specified and charged for separately under the rule. But it is contended by counsel for the revenue that this circumstance by itself would not entitle the assessee to claim the deduction under the rule. For this, reliance was placed on the decision of the Supreme Court in Dyer Meakin Breweries Ltd. v. State of Kerala ([1970] 26 S. T. C. 248 (S. C. ). ). Speaking with respect to the rule, the Supreme Court held that the appellant before it would not be entitled to claim deduction for transport charges of the liquor from its factories to the warehouse at Ernakulam. But it is clear on the facts that the transport was prior to the sale. This was what the court observed : " It is common ground that the sale of the liquor took place in Ernakulam. The company arranges to transport liquor for sale from the factories to its warehouse at Ernakulam. It was not brought for any individual customer. 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 foods 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 decisions of the Madras High Court in State of Madras v. R. M. K. Viswanatha Pillai ([1957] 8 S. T. C. 601.) and of the Andhra Pradesh High Court in Motilal Hari Prasad and Bros. v. State of Andhra ([1959] 10 S. T. C. 20.) support the view, which we have expressed, although we may observe that we do not subscribe to all the reasons given in the first case for the conclusion recorded by the Madras High Court. " Counsel for the assessee drew our attention to a decision that appeared very germane and appropriate to the context, namely, Agricultural Farms Ltd. v. State of Tamil Nadu ([1974] 34 S. T. C. 143. ). That considered the decision of the Supreme Court noticed earlier. It was pointed out by the Madras High Court that the assessee in that case had extracted limestones and transported the same to the buyer's place of business in pursuance of the agreement of sale entered into by it which specifically provided for the price of the limestones at the place of extraction and also for the supply and delivery charges payable to the buyer. In such circumstances, the Madras High Court upheld the claim for deduction in relation to the supply and delivery charges. We think the decision is appropriate and must govern the facts of this case.