KRISHNA MINES Vs. STATE OF TAMIL NADU

JUDGEMENT

(1.) THE appellant-assessee, Messrs. Krishna Mines, tirunelveli, dealers in limestones and jellies, who entered into a contract with the Madras Port Trust, agreeing to supply stones and stone metals at the port Trust Area, reported a total taxable turnover of rs. 27, 70, 191. 47 for the assessment year 1970-71 under the Tamil Nadu General sales Tax Act, 1959. THE assessee claimed exemption from the levy of tax in respect of a sum of Rs. 3, 79, 828. 62 on the ground that the said sum related to transport charges, charged separately, and therefore, the said amount should be deducted from the total turnover under rule 6 (c) (i) of the Tamil Nadu general Sales Tax Rules, 1959. THE Joint Commercial Tax Officer, Tirunelveli, rejected this contention. On appeal by the assessee the Appellate Assistant commissioner, Tirunelveli, held that the freight charges, in respect of which exemption has been claimed could not be included in the taxable turnover as price of the goods, but has to be taken as an item eligible for deduction under rule 6 (c ) (i) and (ii) and accordingly allowed the appeal and ordered deletion of this amount from the taxable turnover assessed already. On a suo motu revision, the Board of Revenue, relying on the decision in State of Tamil Nadu v. Parry & Co. found that the transport charges, though had been separately charged, could not be claimed as deductible from the total turnover as it was an expenditure which had to be incurred by the dealer as per the terms of the agreement before the sale of the goods at site, viz. , the Port Trust, and consequently, set aside the order of the Appellate assistant Commissioner and restored the order of the assessing officer. Hence this appeal by the assessee. THEre is no controversy that as per the terms and conditions of the original contract entered into between the assessee and the port Trust, the stones and stone metals were to be supplied at the harbour site and the rates for the supply of stones at site were inclusive of all charges specified in schedule A-1 to the contract. It seems that on 11th July, 1969, the Tender Committee Meeting of the Port Trust resolved to permit the assessee to prepare the bills for the supply of stones and stone metals in two separate forms, one being for the cost of the materials and the sales tax therefore, and the other for transport charges. Pursuant to that the assessee separately billed and collected the amounts. On behalf of the assessee, it was submitted that from the date of the minute, viz. , 11th July, 1969, the parties to the contract, as a result of a bargain, have altered and varied the terms and conditions attached to the earlier contract and in substitution thereof, have created a new contract in pursuance of which the assessee has been permitted to deliver the stone metals ex-quarry and to bill the price under a separate voucher, and therefore, the finding of the Board that there was no acceptable proof of a new contract pleaded by the assessee is erroneous and unsustainable. It is further urged that in view of the fact that the freight has been separately charged by the dealer without including it in the price of the goods and in view of the varied conditions contained in the new contract, the amount under the head "freight" has to be deducted from the total turnover under rule 6 ( c ) (i ). Mr. S. V. Subramaniam, without any reservation, conceded that only in case the court reaches a conclusion that there was a novation of the contract on account of the minute of the Tender Committee, the assessee could succeed; if not, he has no arguable case. THE pivotal question on which the decision of the case in either way has to rest is, "is there any proof of the novation " ". Whether or not there is novation of the contract is a question of fact in each case. Suffice it to say, in a novation there is annulment of an existing contract and the creation, in its place, of a new contract, which, as pointed out by numerous authoritative judicial pronouncements, must be a valid and legally enforceable one to be effective as a novation, because, if, by reason of any want of legal formality or sanction, the new contract becomes unenforceable; only the original contract will still hold the field and be operative. It has, therefore, become necessary to examine the facts of the present case to find out whether the minute dated 11th July, 1969, of the Tender Committee of the Port Trust granting permission to the assessee to bill the price of the stone metals and the transport charges under two separate vouchers, has given rise to the creation of a new valid and legally enforceable contract in the place of the original contract, altering and varying the terms and conditions of the original contract. Section 87 of the Madras Port Trust Act, 1905 (hereinafter referred to as the Act), empowers the Board, which is constituted by the Trustees of the Port of Madras appointed under the Act, to enter into contracts for carrying into effect the purposes of the Act, but subject always to a condition that no contract, under or by virtue of which a sum greater than two lakhs of rupees may in any event be payable by the Board, shall be valid without the assent of Central Government. Section 88 of the Act gives the discretionary power to the Chairman, on behalf of the Board, to enter into contract or agreement whereof the value or amount shall not exceed five thousand rupees. THE latter part of the section is emphatic that every other contract and garment on behalf of the Board shall be in writing, signed by the chairman and by two other trustees and sealed with the common seal of the board, and that no contract or agreement not executed as is in the said section provided shall be binding on the Board. A combined reading of sections 87 and 88 of the Act shows that for the creation of valid and legally enforceable contract under the provisions of the Act, a strict compliance with the following conditions is a sine qua non. THEy are : (1)It must be in writing; (2) it must be signed not only by the Chairman but also by two other trustees; (3) it must be sealed with the common seal of the Board; and (4) if it is a contract under and by virtue of which a sum greater than two lakhs of rupees may in any event be payable by the Board, it should receive the assent of the Central Government. If the contract or the agreement has not been executed in compliance with the above conditions, it will not be binding on the board. In other words, it is not a valid and enforceable contract as against the Board. Admittedly the total amount under the contract in question exceeds 26 lakhs of rupees. Under these circumstances, therefore, can it be said in the present case that the minute of the Tender Committee dated 11th July, 1969, on which the assessee very much relies in support of its contention that there is novation of the contract satisfies all the essential and requisite ingredients for constituting a valid contract as contemplated under sections 87 and 88 of the Act " Barring the contentions based on the passing of the minute by the Tender Committee of the Port Trust permitting the assessee to bill the price of the goods in one voucher and based on the letter of the port Trust dated 28th December, 1971, the assessee has not placed any acceptable material to substantiate his case of novation. It may be noted here that the Appellate Assistant Commissioner has simply drawn his inspiration for his conclusion from the letter of the Port Trust dated 28th December, 1971, permitting the assessee to prepare the bills in two separate vouchers. But, he has not gone deep into the matter to see whether the minute dated 11th July, 1969, has given rise to the creation of new contract. THErefore, in the absence of legal proof that the parties have created a new contract under a bargain, the only irresistible conclusion would be that the Port Trust has permitted the assessee, obviously at his request, to prepare two vouchers at his convenience. This can be taken only as a mode of preparation of the bills, but not in any way altering or modifying the stipulations of the original contract, which alone, in the circumstances, would continue to bind the parties. It would be appropriate to mention here that section 6 of the Act, which imposes certain duties on the Board, reads that the duty of carrying out the provisions of the act shall, subject to certain conditions and limitations as contained in the act, be vested in the Board of Trustees. So, if the Board does not comply with the said conditions imposed on it under the provisions of the Act while entering into a contract with third parties, that would certainly render such a contract invalid and unenforceable. A Bench of this Court, in State of Tamil Nadu v. Parry & Co. while dealing with a case on similar facts, held thus : "in order to claim deduction of freight, not only the freight will have to be shown and separately charged in the bill, but there should be evidence to show it was not included in the price in the bargain made between the dealer and the purchaser. If the bargain between the parties was for payment at a particular price, the mere fact that the dealer had bifurcated the price and shown the total amount under separate headings will not enable the dealer to get the deduction of the freight from total taxable turnover. . . . . . . . We are, therefore, of the view that the freight and other charges included in the bill are towards pre-sale expenses incurred by the dealer and not incidental to the sale itself. " *

(2.) IN view of the above discussion, we unreservedly hold that there was no novation of the contract and hence only the terms of the original contract have to prevail. On behalf of the assessee, Mr. S. V. Subramaniam drew the attention of this Court to the decision of this Court in Agricultural Farms limited v. State of Tamil Nadu IN that case, the assessees, who were limestone suppliers to INdia Cements Limited at Thalaiyuthu, claimed deduction of freight and transport charges from the total turnover returned by them on the ground that the said charges had been separately and specifically charged in the invoice without including the same in the sale price of the goods. This Court upheld the claim of the assessees since in that case the facts clearly showed that there was a fresh bargain between the parties, in pursuance of which they had varied the terms of the original agreement. On a reading of the judgment in that case, it is clear that the parties had virtually entered into a new agreement and there was nothing to show that the said new agreement was in any way vitiated so as to make it null and void. Therefore, the decision in that case cannot be of any avail to the assessee in the present case where the terms and conditions of the original contract have not been in any way affected by the mere passing of the minute which we had held, cannot alter or vary the terms of the original contract. IN the result, we hold that any component of the sale price including the transport charges in the present case has necessarily to be incurred by the assessee as an incident of sale which was, according to the contract, to be effected only at the harbour site. Accordingly, the assessee would not be entitled to the deduction of the transport charges under the head "freight" under rule 6 (c ) (i), from the total turnover. We, therefore, confirm the order of the Board of Revenue and dismiss this appeal with costs Counsel's fee Rs. 250.