ORIENT PAPER MILLS LTD Vs. STATE OF ORISSA

JUDGEMENT

(1.) SIX questions have been referred by the Additional Sales Tax Tribunal (hereinafter to be referred to as the Tribunal ). They are :

(2.) FACTS may be stated clearly to answer the questions referred. The Orient Paper Mills Ltd. (the petitioner) is a company registered under the Indian Companies Act, 1956, having its registered office at Brajarajnagar in the district of Sambalpur in Orissa. The petitioner is a registered dealer under the Orissa Sales Tax Act, 1947, and the Central Sales Tax Act, 1956 (hereinafter to be referred to as the Act ). The assessment relates to the period April, 1967, to March, 1968. The petitioner manufactures and sells paper. At all material times a mill rate for the various types of papers is in vogue. The petitioner has uniform mill rate throughout India which is maintained to meet competition. The amount of the freight payable in respect of the consignments despatched used to be deducted from the bills raised on the purchaser. The petitioner agrees to reduce the mill rate by negotiations with its purchasers in respect of each transaction. The reduction so offered from the mill rate to its purchasers is referred to by the petitioner as discount. The consideration for the sale of paper is the price agreed with the purchaser after granting deduction from the mill rate, and the discount never forms part of the consideration for the sale of paper. In the agreement there is a provision for appointment of distributors and direct sales to distributors on principal to principal basis and sales to others against orders procured by the distributors and accepted by the petitioner. A true copy of the specimen agreement for the appointment of distributors had been annexed and marked 1. The petitioner used to receive orders wherein the mill rate and the reduction allowed therefrom used to be shown and against those orders the petitioner used to sell and deliver paper. In the bill prepared by the petitioner, both the mill rate and the reduction allowed therefrom to the purchasers and the amount of freight which the purchasers had to pay used to be separately shown. The petitioner used to receive from its purchasers, who were registered dealers, declarations in form C in respect of the said transactions. In the declaration forms the purchasers used to mention, amongst other particulars, the bill number, date of the bill and the net amount. The net amount mentioned in the declaration forms is the agreed price which was the mill rate less the reduction allowed by the petitioner. The sale of paper was in the course of inter-State trade and commerce. The petitioner filed returns for the aforesaid period. In the said returns, through error and inadvertence the petitioner had included the amount of freight in respect of the consignments of paper in the turnover and did not claim that the said freight was not taxable under the Act. At the time of the assessment, however, the petitioner submitted a statement before the assessing officer showing a break-up of the amount of the freight relating to the said sales and claimed that they should not be taxed under the Act. On 11th March, 1971, the order of assessment was passed determining the taxable turnover of the petitioner at Rs. 11,94,99,304. 61. In computing the aforesaid taxable turnover the Sales Tax Officer included Rs. 50,12,383. 29 on account of the discount and levied tax on this sum at the rate of 10 per cent as this amount had not been included in the declaration form C. The Sales Tax Officer further imposed tax on the freight payable by the purchasers. There were some other items which need not be referred as they are no longer in controversy. An appeal to the Assistant Commissioner of Sales Tax in respect of the aforesaid items was dismissed. In second appeal, the Tribunal remanded the case after recording the finding that the discount claimed by the petitioner was in the nature of a cash discount within the meaning of section 2 (h) of the Act. It held that there was no sufficient material before it to show that there was a practice normally prevailing in the petitioner's trade to allow cash discount to the retailers or distributors and the matter required further examination. The case was remanded to the Assistant Commissioner of Sales Tax to give an opportunity to the petitioner to prove the practice prevailing in the trade to give trade discount to genuine distributors. Regarding freight, the Tribunal gave a direction to the Assistant Commissioner to give an opportunity to the petitioner to produce relative documents to show that freights were being separately charged so as not to be taxable. It did not decide the petitioner's stand regarding the declarations in C forms and directed that in case it was finally found that the petitioner failed to prove the prevailing practice of allowing trade discount in the trade, it would be allowed to take back C forms for necessary corrections. Against the order of the Tribunal two reference applications were filed before it, one at the instance of the petitioner and the other at the instance of the State of Orissa. The Tribunal dismissed the reference application by the petitioner. Accordingly the petitioner came up in this application to this court. By an order dated 18th May, 1973, it was called upon by us to make a statement of the case on the first three questions. On the reference application made by the State of Orissa, the Tribunal has referred questions (4) to (6 ).

(3.) BEFORE examining the questions of law arising out of the appellate order of the Tribunal it would be appropriate at this stage to extract and construe the material terms of the specimen agreement (annexure 1) under which the transactions of sale take place :