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G.K. Misra, P.K. Mohanty, JJ.
ORIENT PAPER MILLS LTD.
Versus
STATE OF ORISSA
S.J.C. No. 42 of 1973
Decided On: Decided On : 25-02-1974
CENTRAL SALES TAX ACT, 1956 - SECTION 2(H) - SALE PRICE - TRADE DISCOUNT - FREIGHT - DECLARATION IN FORM C - INTERPRETATION AND APPLICATION: 1. Trade discount is an allowance made by wholesale dealers to retailers off the catalogue or invoice price. It is a deduction from the quoted price and is not a part of the sale price within the meaning of section 2(h) of the Central Sales Tax Act, 1956. 2. Freight paid by the purchasers is not to be included in the sale price if it is separately charged. 3. Declarations in form C are valid if they are properly filled up and there is no omission of any column. If the net amount mentioned in the declaration form is less than the actual sale price due to the exclusion of trade discount, the revenue can call upon the petitioner to pay the excess amount at the concessional rate of 3% on the discount and not at 10%.
Fact of the Case:
The petitioner, a paper manufacturer, sold paper to various purchasers at a mill rate less a discount. The petitioner included the amount of freight in the turnover and did not claim that it was not taxable under the Act. At the time of assessment, the petitioner submitted a statement showing a break-up of the amount of freight relating to the said sales and claimed that they should not be taxed under the Act. The Sales Tax Officer included Rs. 50,12,383.29 on account of the discount in the taxable turnover and levied tax on this sum at the rate of 10%. The Sales Tax Officer further imposed tax on the freight payable by the purchasers. The petitioner filed an appeal to the Assistant Commissioner of Sales Tax, which 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.
Finding of the Court:
The court held that the discount granted by the petitioner was not a part of the sale price. It further held that freight paid by the purchasers was not to be included in the sale price if it was separately charged. The court also held that the declarations in form C were valid if they were properly filled up and there was no omission of any column.
Issues: 1. Whether the discount granted by the petitioner was a part of the sale price within the meaning of section 2(h) of the Central Sales Tax Act, 1956? 2. Whether the freight paid by the purchasers was to be included in the sale price? 3. Whether the declarations in form C required correction?
Ratio Decidendi: 1. The court held that trade discount is an allowance made by wholesale dealers to retailers off the catalogue or invoice price. It is a deduction from the quoted price and is not a part of the sale price within the meaning of section 2(h) of the Central Sales Tax Act, 1956. 2. The court held that freight paid by the purchasers is not to be included in the sale price if it is separately charged. 3. The court held that declarations in form C are valid if they are properly filled up and there is no omission of any column.
Final Decision: The court allowed the application and held that sales tax was not exigible from the petitioner on the discount and freight and the declarations in form C were valid.
JUDGMENT
G. K. MISRA, C.J. - Six questions have been referred by the Additional Sales Tax Tribunal (hereinafter to be referred to as the Tribunal). They are :
"(1) Whether, on the facts and in the circumstances of the case, the reduction granted by the assessee to its buyers from the mill rate was part of the amount payable to the assessee as consideration for the sale of the paper and/or part of the sale price within the meaning of section 2(h) of the Central Sales Tax Act, 1956 ?
(2) Whether, on the facts and in the circumstances of the case, the Additional Sales Tax Tribunal was right in holding that the declaration in C forms required any correction ?
(3) Whether, on the facts and in the circumstances of the case, the freight in respect of paper sold by the assessee was part of the amount payable to the assessee as consideration for the sale of the paper and part of the sale price within the meaning of section 2(h) of the Central Sales Tax Act, 1956 ?
(4) Whether, on the facts and in the circumstances of the case, the Member, Additional Sales Tax Tribunal was right in holding that the trade discount is one kind of cash discount ?
(5) Whether, on the facts and in the circumstances of the case, the Member, Additional Sales Tax Tribunal was right in holding that the discount in question is a cash discount ?
(6) Whether, on the facts and in the circumstances of the case, the Member, Additional Sales Tax Tribunal was right in excluding the discount in question from the sale price of paper subject to the discount being allowed according to the practice normally prevailing in the trade ?"
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
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