Important pointThe transportation charges and agent’s commission paid by a manufacturing company to the agent together with the cost of raw materials constitute ‘turnover’ under section 2(s) and is liable to sales tax under Section 6-A of the Andhra Pradesh Sales Tax Act, 1957.

Headnote:Andhra Pradesh Sales Tax Act, 1957—Sections 6A and 2(s)—Turnover—Respondent is a public limited company engaged in the activity of manufacturing paper—Hard wood used for manufacture of pulp is purchased by respondent from unregistered dealers through agents—Agents are supplying raw materials in the factory of respondent on contract rates which includes cost of raw materials, transportation charges and agents commission—Commercial Tax found that respondent was paying sales tax u/s 6-A of the Act only on cost of raw materials purchased from unregistered dealers leaving out transportation charges and the commission paid to the agents—Whether the transportation charges and agent’s commission paid by the respondent to the agent together with cost of raw materials constitute ‘turnover’ u/s 2(s) and is liable to sales tax u/s 6A of the Act—(Yes).
Held : It is an admitted fact that the respondent purchased the hard wood from unregistered dealers through agents and that the respondent appointed certain agents who have opened depots for buying hard wood and transporting the same to the factory premises of the respondent and that the agents were paid a total amount which included the cost of raw material, transportation charges and commission. The assessing Authority is right in levying the tax on the total amount paid to the agents for purchasing hard wood from unregistered dealers. It was contended by the learned counsel for the respondent that the respondents are entitled to claim exemption on transportation charges and commission on the ground that they would not form part of the turnover under Section 6A of the Act. This contention was rejected by the assessing authority, rightly so, in our opinion, on the ground that the respondents were liable to pay tax on the total amount of purchase price of hard wood. We have already extracted the definition of “turnover” under Section 2(s) of the Act. The expenses for procuring hard wood, in our opinion, would become part of the total turnover. The assessing authority dismissed the appeal on the ground that the respondent did not transport hard wood after purchase that the agent was made responsible for transportation etc. and that, therefore, total consideration paid for the purchase of the goods would form the turnover. The said submission, in our opinion, has no force. (Para 13)
The finding of the Tribunal and the High Court that the transport and commission were charges incurred subsequent to the purchase of the hard wood and such charges do not represent the sale consideration is against the admitted fact on the side of the respondent who have clearly made the statement that the agents were paid a total amount which included the cost of raw material, transportation charges and commission. When the facts are not in dispute, the Tribunal and the High Court have erred in rendering a finding against the revenue. (Para 15)

Judgment

Dr. AR. Lakshmanan, J.—The short question involved in this appeal is whether the transportation charges and agent’s commission paid by the respondent—M/s A.P. Paper Mills Ltd. to the agent together with the cost of raw materials constitute “turnover” under Section 2(s) and is liable to sales tax under Section 6-A of the Andhra Pradesh Sales Tax Act, 1957 (6/1957).

2. The respondent is a public limited company engaged in the activity of manufacturing paper. The respondent is a registered dealer under the A.P. Sales Tax Act, 1957 (hereinafter called as “the Act”) and is an assessee on the rolls of the Commercial Tax Officer, Aryapuram, Rajahmundry.

3. The respondent purchased hard wood (raw material) from unregistered dealers through persons called agents. The hard wood is used for the manufacture of pulp. The agents are engaged in the business of purchase of raw material from the unregistered dealers and supplying the same in factory of the respondent on contract rates which included the cost of raw materials, transportation charges and the agent’s commission. The respondent filed their returns under the provisions of the Act. The Commercial Tax Officer found out that the respondent was paying sales tax under Section 6-A of the Act only on the cost of raw materials purchased from the unregistered dealer leaving out the transportation charges and the commission paid to the agents which amounted to Rs. 48,50,735/-.

4. The Commercial Tax Officer made an assessment including the transportation charges and the agent’s commission paid in the taxable turnover under Section 6-A of the Act after issuing a show cause notice. The amount of tax determined to be paid was Rs.2,42,537/-. The Commercial Tax Officer held that the respondent is liable to pay tax on the total amount of purchase price as per the definition of total turnover under Section 2(s) of the Act which also included the transportation charges and the agent’s commission for procuring the raw materials. The respondent filed an appeal before the Appellate Deputy Commissioner against the order of the Commercial Tax Officer dated 22.3.1993. The appellate Authority held that the respondent did not transport the raw materials after purchase but the agent was made responsible for purchase of raw materials and transportation of the same to the respondent’s factory for a total consideration which included the cost of raw materials, transportation charges and agent’s commission. The appellate Authority held that the entire consideration paid by the respondent as the purchase value of the raw materials liable to tax under Section 6-A of the Act.

5. The respondent filed a second appeal before the Sales Tax Appellate Tribunal which allowed the appeal directing the Commercial Tax Officer to delete the additions made towards transportation charges and agent’s commission from the gross and the net turnovers. The Tribunal held that the purchases made by the agents from unregistered dealers are the purchases made by the respondent and any expenses incurred subsequent to the purchase of raw materials would not be included in sale consideration flowing from the agent to the respondent. Aggrieved by the order of the Tribunal dated 13.5.1998, the appellant filed a Tax Revision case in the High Court of Andhra Pradesh. The High Court, without going into the merits of the case, dismissed the revision on the summary ground that the transportation charges and agent’s commissioner were incurred subsequent to the purchase of the raw materials and the said charges, therefore, do not represent the sale consideration which had passed from the buyer to the seller is a finding of fact.

6. Aggrieved by the order passed in the revision by the High Court of Andhra Pradesh, the above appeal by way of special leave petition was filed by the State of Andhra Pradesh.

7. We have heard Mr. Debojit Borkakati, learned counsel appearing for the appellant and Mr. P.N. Gupta, learned counsel appearing for the respond

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2005 Supreme(SC) 7

Important pointThe transportation charges and agent’s commission paid by a manufacturing company to the agent together with the cost of raw materials constitute ‘turnover’ under section 2(s) and is liable to sales tax under Section 6-A of the Andhra Pradesh Sales Tax Act, 1957.

Cases Referred (1)