Case: State Of A.P Vs. M/S.A.P.Paper Mills Ltd

tax levied is not a tax on railway freight; it is a tax on turnover, that is, on the aggregate of sale price received by the dealer in respect of sale of goods. 15. Earliest decisions on this point is in the case of Dyer Meankin Breweries Ltd. vs. State of Kerala, 1970 (Vol.26) STC 248. In this case, the appellant-Company manufactured liquor at various places in U.P. and Haryana, transported the goods from its breweries and distilleries to its place of business in Ernakulam and sold them there. When selling liquor to the customers, the appellant made out separate bills for ex-factory price and for freight and handling charges. The appellant claimed that the amount charged for freight and handling charges incurred by it in transporting the goods from the breweries and distilleries to the warehouse at Ernakulam had to be deducted under rule 9(f) of the Kerala General Sales Tax Rules, 1963, in determining its taxable turnover. 16. This Court held that all the expenditure incurred by the appellant towards freight and handling charges was incurred prior to the sale and was a component of the price for which the goods were sold and the appellant was not entitled to the deduction claimed. 17. Hindustan Sugar Mills Ltd. vs. State of Rajasthan & Ors. 1979(Vol.43) STC 13: This case relates to pre-sale charges. The question that arose in the assessment of the assessee to sales tax under the Rajasthan Sales Tax Act, 1954, and the Central Sales Tax Act, 1956, was whether the amount of freight deducted from the free on rail destination railway station price in the invoices made out by the assessee and paid by the purchasers formed part of the sale price within the meaning of the definition of that term in section 2(p) of the Rajasthan Act and section 2(h) of the Central Act. The sales tax authorities and the High Court took the view that the amount of freight formed part of the sale price and was, therefore, liable to be included in the turnover of the assessee for the purpose of assessment of sale tax. On appeal to this Court, this Court held as under: That the scheme of the Control Order was that the freight was payable by the producer and he recovered it from the purchaser as part of the f.o.r. destination railway station price. The provision in the contract that the delivery to the purchaser was complete as soon as the goods were put on rail and payment of the freight was the responsibility of the purchaser was wholly inconsistent with the scheme of the Control Order and must be held to be excluded by it. The Control Order was paramount, it had overriding effect and if it stipulated that the freight was payable by the producer, such stipulation must prevail, notwithstanding any term or condition of the contract to the contrary. Therefore, by reason of the provisions of the Control Order, which governed the transactions of sale of cement entered into by the assessee with the purchasers, the amount of freight formed part of the sale price within the meaning of the first part of the definition of that term in section 2(p) of the Rajasthan Act and section 2(h) of the Central Act and was includible in the turnover of the assessee. Under the first part of the definition of sale price in section 2 (p) of the Rajasthan Act, the expression meant the amount payable to a dealer as consideration for the sale of any goods and, therefore, the concept of real price or actual price retainable by the dealer is irrelevant. The test is, what is the consideration passing from the purchaser to the dealer for the sale of the goods. It is immaterial to enquire as to how the amount of consideration is made up, whether it includes excise duty or sales tax or freight. The only relevant question to be considered is as to what is the amount payable by the purchaser to the dealer as consideration for sale and not as to what is the net consideration retainable by the dealer. 18. The decision of the Rajasthan High Court was affirmed by this Court. In a recent decision in the case of Greaves Chitram Limited vs. State of Tamil Nadu, 2003(133) STC, the Madras High Court held that freight is includible if the contract is for delivery at buyers place. In the above judgment, the Madras High Court held that: Though no written contract or agreement between the parties was available, from the purchase orders and invoices, a clue could be obtained to determine the nature and character of the transaction entered into between parties. These documents reveal that the dealer agreed to effect the delivery of the goods at the place of the buyer. What was further agreed to by the dealer was that freight charges would be pre-paid by it. If the contract was one for delivery at the destination railway station, risk continues to be that of the seller-dealer and consequently the freight charges paid are includible in the sale price exigible to tax. If the contract is one in which delivery to the purchaser would be complete as soon as the goods are put on rail at the place of despatch, the risk is that of the purchaser and the freight charges incurred are not includible in the sale price exigible to tax. Of course, this is not the invariable rule in all eventualities and circumstances, e.g. goods covered by the control orders like Cement Control Order. The dealer agreed to effect delivery at the place of the buyer and that apart, it had also paid the transport charges besides including the same in the invoice. Therefore the transport charges are includible in sale price. 19. In Ram Oxygen (P) Ltd. vs. Joint Commissioner (CT). 2004 (Vol.134) STC 240, the Tamil Nadu Taxation Special Tribunal took the similar view and held that freight is includible in turn over.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]12. 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 revenue18. The decision of the Rajasthan High Court was affirmed by this CourtIn a recent decision in the case of Greaves Chitram Limited vs. State of Tamil Nadu, 2003(133) STC, the Madras High Court held that freight is includible if the contract is for delivery at buyers place. In the above judgment, the Madras High Court held that:Though no written contract or agreement between the parties was available, from the purchase orders and invoices, a clue could be obtained to determine the nature and character of the transaction entered into between parties. These documents reveal that the dealer agreed to effect the delivery of the goods at the place of the buyer. What was further agreed to by the dealer was that freight charges would be pre-paid by it. If the contract was one for delivery at the destination railway station, risk continues to be that of the seller-dealer and consequently the freight charges paid are includible in the sale price exigible to tax. If the contract is one in which delivery to the purchaser would be complete as soon as the goods are put on rail at the place of despatch, the risk is that of the purchaser and the freight charges incurred are not includible in the sale price exigible to tax. Of course, this is not the invariable rule in all eventualities and circumstances, e.g. goods covered by the control orders like Cement Control Order. The dealer agreed to effect delivery at the place of the buyer and that apart, it had also paid the transport charges besides including the same in the invoice. Therefore the transport charges are includible in sale price19. In Ram Oxygen (P) Ltd. vs. Joint Commissioner (CT). 2004 (Vol.134) STC 240, the Tamil Nadu Taxation Special Tribunal took the similar view and held that freight is includible in turn over.