Hindustan Steel Ltd. vs The State of Tamil Nadu

Ramanujam, J.—The assessee in this case is M/s. Hindustan Steel Limited and in this appeal it has questioned the order of the Board of

Revenue dated 16th October, 1976, setting aside the order of the Appellate Assistant Commissioner dated 30th October, 1971, and restoring the

orders of the assessing authority dated 2nd March, 1971.

For the assessment years 1965-66 to 1968-69, the assessee was assessed to various sums of taxable turnover. While passing final orders, the

assessing officer allowed the assessee''s claim for deduction of bending and cutting charges in respect of M.P. rounds, M.P. angles and M.P.

plates on the ground that they are post-sale charges not liable to be included in the taxable turnover. Subsequently, the assessing officer reopened

the assessments for the four years by an order dated 2nd March, 1971, and included the bending and cutting charges collected by the assessee

from the purchasers as part of the taxable turnover, and the amounts so included by the assessing authority in his revised order dated 2nd March,

1971, were as follows :

Aggrieved against the inclusion of those amounts as part of the taxable turnover for the years, the assessee filed appeals before the Appellate

Assistant Commissioner contending that the bending and cutting charges were charged for separately in the bills drawn on the customers, that these

charges were post-sale charges not liable to be included in the taxable turnover that such charges were independent of the sales effected by them

and that the assessee rendered the service of bending and cutting only on the request of the buyers after the completion of the sales for the purpose

of easy transport. In support of the said submission, the assessee relied on the decision of this Court in Srinivasa Timber Depot v. Deputy

Commercial Tax Officer, Choolai Division [1969] 23 STC 158. The Appellate Assistant Commissioner upheld the assessee''s contention holding

that as per the delivery orders, the dealer supplied M.S. rounds, M.S. plates and M.S. angels and collected tax for the cost of the material sold ex-

yard, that note 4 of the delivery order clearly indicated that the bending and cutting charges were independent of the sales effected by the dealer,

that they related to the services rendered after sale at the request of the customers and in that view, he deleted such charges and cancelled the

revised assessment.

The Board of Revenue in exercise of its suo motu powers issued a notice to the assessee to show cause why the orders of the Appellate

Assistant Commissioner should not be set aside and those of the assessing authority restored. The assessee showed cause, but the Board had

chosen to confirm the proposal to set aside the order of the Appellate Assistant Commissioner and restore the revised orders of the assessing

authority. The order of the Board of Revenue is challenged in this appeal by the assessee.

The question that arises for consideration in the appeal is as to whether the bending and cutting charges collected by the assessee from the

customers can be included in the taxable turnover. The answer to the said question will mainly depend on the fact whether such charges are pre-

sale charges or post-sale charges. The question will also depend on the fact whether the bending and cutting charges were paid as part of the price

for the goods sold or whether it was paid independently of the contract of sale for the services rendered at the instance of the purchasers for easy

transport of the goods sold. On the facts and circumstances of this case, we are of the view that the bending and cutting charges are only post-sale

charges and not pre-sale charges as has been held by the Board of Revenue. It may be true that the charges are collected before delivery. But that

is not determinative.

In this case, the customer places an indent on the assessee for the supply of a specified quantity. On receipt of the indent, the assessee offers the

materials as against the said indent either from the ready stock or from the incoming stock subject to prior sales. In that offer, the assessee normally

refers to the size, the quality, the quantity and the price per metric tonne ex-yard, Madras. The said letter contains the following clauses :

We shall thank you to kindly send us a sum of Rs. being the approximate full value of the above materials to enable us to issue necessary

delivery order. Please note that the advance called for should reach us within three days from the date of this letter. Otherwise, we may be

compelled to treat this offer as cancelled without any further reference to your good selves. If payment is made by cheque or demand draft, the

cheque/demand draft should be drawn in favour of Hindustan Steel Limited, Branch Sales Office, and should be on a scheduled bank in Madras.

In the case of cheques delivery order will be issued only after encashments of the cheque. We will separately submit necessary bills for the delivery

made against this order. The advance made by you will be adjusted against our bills, or, we will arrange to issue necessary delivery order on

receipt of your confirmation of this offer. Full payment should be made by you within 12 days of the presentation of our bills without any deduction

whatsoever.

3 and 4 . . .

You have to take delivery of the materials ex-yard on production of our delivery order and make your own arrangements for transporting them

to your desired destination.

Thus, it is seen that while offering the materials intended for by the purchaser, the assessee has made it clear that the price payable is ex-yard,

Madras, per metric tone and the delivery of the materials will be on production of the delivery order and the purchaser has to make his own

arrangement for transporting them to his desired destination. Subsequently, after the purchaser pays the necessary advance, a delivery order is

issued by the assessee which contains details as to the quantity and the category of material, the quality and the rate per metric tonne ex-yard.

Note 4 in the delivery order reads as follows :

Delivery will be made to the customer/his authorised representative on all working days upto 5.30 p.m. provided this order is surrendered to

our stores superintendent before 4.30 p.m. If the materials are to be bent/cut the charges thereon will be extra and sufficient time ''should be given

to enable us to keep the materials ready. The charges for bending is Rs. per m/t.''

The above clause in the delivery order indicates that the bending and cutting charges are payable by the purchaser, apart from the price payable

for the articles. It also shows that it is not a charge collected by the assessee universally from all the purchasers, and it is collected only in cases

where the purchasers require the bending and cutting of the materials for the purpose of easy transport. Therefore, the bending and cutting charges

are collected at a particular rate agreed upon only from such of the customers who want the materials to be bent and cut for the purpose of easy

transport of the materials. Note 4 extracted above clearly indicates that there is a separate bargain between the assessee and some of the

purchasers for the payment of certain amounts for services rendered by the assessee in cutting and bending the materials supplied to the customers.

The delivery order itself indicates that the price paid for the article sold is separate and independent of the charges which the assessee had

collected as cutting and bending charges from the customers. In cases where the materials do not require to be bent or cut for easy transport, the

purchaser is not bound to pay any amount in excess of the rate shown for the article in the delivery order. Thus, the cutting and bending charges

collected by the assessee are for certain specific services which are done by the assessee at the instance of the customers depending upon the size

and nature of the materials allotted to the purchaser by the assessee. In the face of note No. 4, we do not see how the Board of Revenue could

treat the cutting and bending charges collected from the customers in particular instances when the materials supplied cannot be transported

without bending and cutting, as sales turnover especially when the parties have entered into a separate bargain as regards certain services to be

rendered by the assessee before the actual delivery of the goods.

The learned counsel for the revenue submits that the cutting and bending charges will come under the expression ""any sums charged for anything

done by the dealer in respect of the goods sold at the time of or before the delivery"" occurring in explanation (2) to section 2(r) of the Tamil Nadu

General Sales Tax Act. The expression ""any sums charged for anything done by the dealer in respect of the goods sold at the time of or before the

delivery"" occurring in explanation (2) to section 2(r) of the Act came up for interpretation before this Court in Srinivasa Timber Depot v. Deputy

Commercial Tax Officer [1969] 23 STC 158. In that case, this Court held that the charges paid on a percentage basis by the customers for

picking out or selecting timber from the timber depots described as lot cooly charges and shown separately in the bills cannot form part of the

turnover of the dealer and that lot cooly is only the charges paid to the labourers for selecting the timber and nothing was done by the dealer in

respect of the goods sold and therefore the payment is only for selecting the timber required by the customers. Dealing with the expression ""any

sums charged for anything done by the dealer in respect of the goods"", the court had expressed the view that it can only relate to something done

by the dealer in respect of the goods which involves transfer of property in the goods and for consideration and that something should have been

done in respect of the goods at the time of or before the delivery of the goods. The court further held that what is chargeable to tax is not any sum

charged at the time of or before the delivery of the goods, but any sum, charged for transfer of property in the goods, involved in anything done by

the dealer in respect of the goods at the time specified by the explanation. The learned Judges were of the view that though the explanation read in

the abstract is, of course, of wide scope and may possibly take in any sum charged for anything done by the dealer in respect of the goods whether

or not it involved also transfer of property in the goods, the fact that it is an explanation to the definition of ""turnover"" and the ""turnover"" is but the

aggregate amount of the consideration of sales shows that it has to be read in the context and no de hours it. The principle laid down in that case

squarely applies to the facts of this case.

The learned counsel for the revenue relied on the decision in Mettur Chemical and Industrial Corporation Ltd. Mettur Dam v. State of Tamil

Nadu (T.C. Nos. 320 to 326 of 1971, judgment dated 22nd April, 1976) in support of the view taken by the Board of Revenue. In that case, the

assessees claimed that they had contract to sell their goods to the customers on ex-factory or ex-work house price, that they charged handling and

loading charges separately, that the said handling and loading charges would not constitute part of the price charged by the assessees to their

buyers in respect of the goods sold and that therefore the charges cannot be included in the sale price for the purpose of assessment under the

Central Sales Tax as well as the Tamil Nadu General Sales Tax Acts. This Court held that such handling and loading charges collected from the

customers would form part of the sale price and are liable to be included in the taxable turnover. But the said decision is inapplicable to the facts of

this case. Here, there is separate bargain between the parties as regards the services to be rendered by the assessee for cutting and bending the

article purchased by the customer for the purpose of easy transport. When there is a separate bargain stating that the bending and cutting charges

are to be paid separately, it is not possible to include such charges as part of the sale price. What is the price payable in respect of an article has to

be determined with reference to the bargain between the parties. In this case, the parties have agreed for payment of a separate charge having

regard to the nature of the goods sold to a particular customer apart from the sale price agreed for the articles sold. In such circumstances, it is not

possible to include the said charges in the sale price and make it a part of the taxable turnover. It is also to be noted here that the charges are not

collected by the assessee from each and every customer. But it is collected only from (those) customers who want the cutting and bending to be

done in respect of the articles purchased by them for the purpose of easy transport.

It is not in dispute in this case that the cutting and bending charges are collected apart from the sale price and it is not also in dispute that no

sales tax has been collected by the assessee on the said charges and the assessee has collected sales tax only in respect of the actual sale price of

the articles. In this view of the matter, we are not inclined to agree with the view taken by the Board of Revenue in this case. The order of the

Board of Revenue is therefore set aside and that of the Appellate Assistant Commissioner is restored. The appeal is accordingly allowed and there

will be no order as to costs in this appeal.