M/s. Indo French Traders vs M/s. MMTC Limited

N. Kumar, J.—This is a defendant''s appeal challenging the judgment and decree of the Trial Court, dated 22.7.2010 which has decreed the suit of the plaintiff for recovery of a sum of Rs. 9,83,017/ - with interest at 18% p.a. from the date of suit till realisation.

For the purpose of conveniences the parties are referred to as they are referred to in the original suit.

The plaintiff-M/s. MMTC Limited is a Government of India undertaking and a Government Company as defined under the Companies Act. The plaintiff-company was authorised to import gold and silver and selling the same in the domestic market. The plaintiff-company is also authorised to act as a buying agent for importing gold from foreign, market and to sell the same to the wholesale dealers for local consumption for export of gold ornaments.

The defendant-M/s. Indo French Traders is a partnership fern engaged in the business of selling gold bullion in the domestic market. The defendant is one of the wholesalers who used to purchase gold bars imported by the plaintiff and making payments accordingly.

The defendant like other customers had approached the plaintiff-company at Bangalore sometime in the last week of December, 1998 and informed the plaintiff of its requirement of gold bars.

On the basis of the said demand of purchase of gold bars by the defendant and other customers, the plaintiff-company imported about 6000 T.T. (10 Tola) bars of gold and informed the defendant and other customers about the availability of gold for sale. The defendant accordingly ordered tor supply of T.T. gold bars and lifted 295 T.T. gold bars on 5.1.1999 and 6.1.1999.

During January, 1999, the custom duty for gold bars was increased from Rs. 250/- to Rs. 400/- per 10 grams as per the custom Notification No.2/1999 w.e.f. 5.1.1999, due to which the sale price of T.T. bars was increased and accordingly the total price for gold bars which were lifted by defendant after 4.1.1999 was charged taking into consideration the increase in custom duty effective from 5.1.1999. The defendant has lifted its consignment of 295 T.T. bars on 5.1.1999 and 6.1.1999. Therefore, the sale price according to the plaintiff has to be fixed taking into consideration the increase in custom duty. Accordingly, the plaintiff issued a Debit Note dated 9.2.1999 for a sum of Rs. 5,18,832/- being the difference in custom duty plus sale tax and other cess, etc. Defendant did not pay the said amount in spite of several remainders. The defendant challenged the correctness and legality of the Debit Mote before this Court in WP.No. 12074/1999. The said writ petition came to be dismissed on 5.6.1999, on the ground that a mixed question of fact and law is involved and same cannot be gone into in writ proceedings. Aggrieved by the same, the defendant filed WA.No.6541/1999, which also came to be dismissed on 21.2.1999 upholding the order of the learned. Single Judge. Thereafter review petition No.350/2003 was filed for reviewing the order passed in WA.No.6541/1999 which also came to be dismissed on 10.2.2004. Thereafter the plaintiff issued a legal notice on 29.5.2003 claiming the aforesaid amounts. As the same was not paid, the plaintiff was constrained to file the present suit for recovery of a sum of Rs. 5,18,482/- being the difference amount in custom duty, KST and cess for 295 T.T. bars sold on 5.1.1999 with interest for said aforesaid amount from 9.2.1999 to 31.1.2004 at the rate of 18% p.a. i.e. Rs. 4,59,175/- and the legal notice charges of 5,000/-. In all, a sum of Rs. 9,83,017 is claimed by the plaintiff.

The defendant, after service of summons entered appearance, filed a detailed written statement denying the claim of the plaintiff.

On the aforesaid pleadings, the trial Court framed the following issues:-

Whether the plaintiff proves that the defendants who had placed orders for purchase of Gold Bars, for purchase of the same as per the delivery notes and invoices dated 5.1.99 and 6.1.99 failed to pay the increased custom duty, sales tax and other cess, admissible as on the date of purchase according to the Central Government Order and as such the plaintiff is entitled to recover the suit claim with interest at 18% p.a. as prayed for?

What order

Subsequently, the written statement came to be strucked out on the ground that the person who has filed the written statement is not the partner of the defendants'' firm and he had no authority to file the written statement.

The plaintiff in order to substantiate his claim examined one Sri. Jayaprakash, Senior Manager as PW.1 and has produced 25 documents, which are marked as Exs.P.1 to P.25. He has not been cross-examined. As the defense was strucked out, no evidence was adduced.

The trial Court on appreciation of the oral and documentary evidence on record held that though the defendants had placed orders on 30.12.1998 for purchase of gold bars from the plaintiff, the delivery was taken on 5.1.1999 and 6.1.1999 and the plaintiff Company has paid the price of purchased gold with customs duty etc. as on the date of its purchase from the foreign markets. When the revised customs duty came into effect on 5.1.1999, the defendants have taken the delivery of gold bars on 5.1.1999 and 6.1.1999, the revised customs duty referred above is applicable for them to pay. Admittedly, they have not paid the same Therefore, decreed the suit of the plaintiff as prayed for Aggrieved by the said judgment and decree of the trial Court, the defendants haw preferred this appeal.

Learned counsel for the appellant assailing the impugned judgment and decree contends that in view of what is contemplated u/s 64-A, it is only when increased tax is paid or is payable, the seller may add so much of the contract price as will be equivalent to the amount paid or payable in respect of such increase of tax and he shall be entitled to be paid and sue for and recover such addition. Admittedly, in this case, the gold bars are imported prior to the date of defendants placing orders for purchase. Though, the delivery is taken subsequent to 4.1.1999 where the customs duty was raised and increased, when admittedly the plaintiff has not paid any additional customs duty, the plaintiff is not entitled to claim any customs duty from the defendants. Therefore, he submits that the trial Court totally erred in decreeing the suit of the plaintiff.

Per contra, learned counsel for the plaintiff submitted that whether the plaintiff has paid the increased customs duty or not, when the defendants took delivery of the gold bars subsequent to the date of the notification where the customs duty was increased, the plaintiff is entitled to increased customs duty. Therefore, he submits that the decree is passed in accordance with law and the same does not call for any interference.

In the light of the aforesaid facts and the rival contentions, the only point that arises for our consideration is:

When admittedly the plaintiff seller has not paid or is payable the increased customs duty is entitled to pass on the said burden to the customers i.e. purchaser?

The facts are not disputed in this case. The plaintiff imported 6000 T.T. (10 Tola) gold bars. The request made by the defendants and other persons who are similarly placed was in the last week of December, 1998, After such import of the gold bars, the plaintiff informed the defendants and other customers about availability of the gold bars for sale. The defendants placed orders for supply of 295 TT gold bars on 30.12.1998. However, he took delivery of the gold bars on 5.1.1999 and 6.1.1999. He paid the market value of the gold bars as well as the customs duty and other duties payable on such gold, which he purchased. The customs duty was revised by a Notification bearing No.2/1999 dated 4.1.1999, which, came into effect from 5.1.1999. Though on the day, the defendants received the supply of gold bars, this notification had come into existence, the revised customs duty was not levied. Subsequently, a debit note dated 9.2.1999 was raised in a sum of Rs. 5,18,832/- being the difference in customs duty as well as tax and others etc. The same was not paid. In fact, the defendants have challenged the said debit note before the Court in a writ petition, which came to be dismissed. Writ appeal against that order also came to be dismissed. Review petition also came to be dismissed. It is thereafter, the plaintiff has filed the suit to recover the said amount with interest. It is in this context, it is useful to refer Section 64-A of the Sale of Goods Act, 1930, which reads as under;

64- A In contracts of sale, amount of increased or decreased taxes to be added or deducted - (1) Unless a different intention appears from the terms of the contract, in the event of any tax of the nature described in sub-section (2) being imposed, increased, decreased or remitted in respect of any goods after the making of any contract for sale or purchase of such goads without stipulation as to the payment; of tax where tax was not chargeable at the time of the making of the contract, or for the sale or purchase of such goods tax-paid where tax was chargeable at the time:-

a) if such imposition or increase so takes effect that the tax or increased tax, as the case may be, or any part of sum tax is paid or is payable, the seller may add so much to the contract price as mill be equivalent to the amount paid or payable in respect of such tax or increase of tax and he shall be entitled to he paid and to sue for and recover such addition; and

b) if such decree or remission so takes effect that the decreased tax only, or no tax, as the case may be, is paid or is payables the buyer may deduct so much from the contract price as will he equivalent to the decrease of tax or remitted tax, and he shall not be liable to pay or he sued for, or in respect of, such deduction.

A careful perusal of the aforesaid provision makes it clear that if any customs duty or excise duty or tax are imposed, increased, decreased or remitted in respect of any case after making of any contract for the sale or purchase of such goods, even in the absence of any contract to the contrary, such imposition or increase tax, if it is paid or is payable by the setter, he may add so much of the increased tax paid to the contract prices and he shall be entitled to pay and to sue for or recover such addition. Therefore, the condition prescribed for suing and recovery of any such increased tax, he should have paid the said tax, or he is liable to pay the said tax. If he has not paid the tax and if he is not liable to pay the tax, notwithstanding, the said increase in the tax, he is not entitled to receive the said differences in the amount and he cannot sue or recover such addition. All these taxes referred to in Section 64-A being indirect taxes which can be passed on the customers, the seller should have paid the said tax or she should be liable to pay the said tax, If he has not paid or If he is not liable to pay, the question of passing of the said tax to the customer would not arise. In the instant case, on the day the plaintiff imported 6000 TT bars of gold and he paid the prices of the gold with customs duty as prevailing on the day. i.e. last week of December, 1999. The defendants placed orders for supply of 295 TT bars of gold on 30.12.1999. The defendants have taken delivery of the aforesaid quantity of gold bars on 3.1.1999 and 6.1.1999. Whatever customs duty paid by the plaintiff is based on the prices and paid the said amount. The notification dated 4.1.1999 increasing the customs duty from 250-400 per grain came into effect from 5.1.1999. In pursuance of the said Notification, the plaintiff has not paid any additional tax. ''The plaintiff is also not liable to pay any additional tax. The said additional tax is payable only for import from the date of 5.1.1999, Therefore, merely because, the defendants received the gold bar in pursuance of the order dated 31.12.1998 on 5.1.1999 and 6.1.1999, there is no liability caused on him to pay customs duty, which came into effect from 5.1.1999, as it has not been paid by the plaintiff. The principle laid down u/s 64-A is in the absence of contract between the parties to the contrary, if a seller is made to pay any additional tax as well as customs duty, excise duty as well as tax subsequent to the date of the agreement, then he is entitled to pass on the said additional tax liability which he has incurred, but if he has not incurred any liability he cannot pass on the liability, in that view of the matter, when admittedly in this case the plaintiff has not paid the customs duty in terms of the Notification No.2/1999, which came into effect from 5.1.1999, merely because, the defendants have received the supply on 5.1.1999, the plaintiff is not entitled to claim the difference in the customs duty and other taxes, which he has not paid. The Trial Judge has completely erred in not noticing when exactly liability to pay the additional tax raised u/s 64-A of the Act. It is not the date of delivery of the goods, it is on the basis that the seller has paid the additional tax in excess of the tax payable by the purchaser either at the time of contract or at the time of taking delivery. Therefore the judgment and decree of the trial Court is not correct. Hence, we proceed to pass the following:

ORDER

Appeal is allowed.

Judgment and decree passed by the Trial Court is hereby set aside. THE suit of the plaintiff is dismissed.

Parties to bear their own cost.