Case: M/s India Meters Limited Vs. State of Tamil Nadu

3. Brief facts which are necessary to dispose of these appeals are recapitulated as under:The Deputy Commercial Tax Officer, Group-VIII, the Assessing Officer, Enforcement South passed two separate orders under the Tamil Nadu General Sales Tax Act (hereinafter referred to as TNGST Act) and Central Sales Tax Act (hereinafter referred to as CST Act) on 30.6.1989 holding that the freight and insurance charges were liable to be taxed and the same are to be included in the turnover and thus a sum of Rs.7,97,864/- was sought to be included towards the taxable turnover for the assessment year 1986-87 under the TNGST Act taxable at 10% and a sum of Rs.8,48,265/- relating to the same period under the CST Act.4. The appellant preferred appeals under TNGST Act as well as CST Act before the Appellate Assistant Commissioner (CT), Kancheepuram, Tamil Nadu. The Appellate Assistant Commissioner remanded the matters to the Appellate Assistant Commissioner for passing fresh orders of assessment.5. The appellant had filed two appeals before the Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench), Madras and the appeals were registered as T.A. Nos. 766 of 1991 and 767 of 1991. Both the appeals were allowed by the said Tribunal.6. The respondent aggrieved by the judgment of the said Appellate Tribunal filed two Revision Petitions before the High Court, which were registered as Tax Cases Nos. 979 of 1993 and 980 of 1993. Consequent upon the constitution of the Tamil Nadu Taxation Special Tribunal, under the TNGST Act, the Revision Petitions were referred to the said Tribunal.7. The Tamil Nadu Taxation Special Tribunal, Chennai, by order dated 19th September, 2000 held that the freight charges formed part of sale price and the matter was remanded to the Assessing Authority to work out the actual freight charges. Consequently, the order of the Appellate Assistant Commissioner (CT), Kancheepuram was restored and with the result the Revision Petitions filed by the respondent were allowed.8. The appellant filed a Writ Petition in the High Court of Madras against the order of the Tamil Nadu Taxation Special Tribunal. It was urged in the High Court that the clause in the contract dealing with payment, provided that "payment for 100 per cent value of each consignment together with full excise duty and sales tax will be made in Central Payment, Madras, immediately on receipt of certified copies of acknowledgement of delivery challans from the Chief Store Keepers of the systems concerned, subject to purchase order terms."9. According to the clause provided in the contract the transfer of title to the goods was to take place only on delivery of goods at the customers place and that the customers obligation to pay would arise only after the delivery had been so affected. The contract also provided in the clause dealing with the price that it was payable per unit ex-factory delivery. It provided for the payment of excise duty and statutory levies, in addition to such ex-factory price, as also the fact that the ex-factory price mentioned was exclusive of sales tax.10. The clause dealing with Sales Tax in clause 3 (b) further provided that "appropriate Sales Tax, if any, found leviable in accordance with the provisions of the relevant Sales Tax Act in force will be paid over and above the price of goods accepted in this order". The clause also provided that Sales Tax and excise duty will be payable only on ex-factory price.11. The appellant, initially, did not include the freight charges in its taxable turnover. The original assessment was made without taking the freight charges into account for the year 1986-87. There was an inspection on 27.2.1987 in which the inspecting officer had found that the assessee had collected freight charges and insurance charges separately under the debit notes for a total sum of Rs.16,96,530/- but the same had not been shown in the monthly returns. The assessing authority, therefore, determined 50% of that amount of Rs.16,96,530/- as freight charges, after making allowance for the insurance amount and levied tax on that amount of the freight, charged by the assessee forming part of the sale price. The assessees appeal against that order having succeeded, a further appeal was preferred by the Revenue, which came to be allowed by the Tamil Nadu Special Taxation Tribunal. The assessee is now before us questioning the correctness of that order of the Tribunal.12. The appellant claims that since the contract separates the ex-factory price and the insurance and freight charges, and, under Rule 6(c) of the Tamil Nadu General Sales Tax Rules, the freight when specified and charges for by the dealer separately, without including the same in the price of the dealer, the freight charged here could not have been treated as part of the sale price and subjected to tax.

Court's reasoning:
26. According to the facts of this case, Dyer Meakin Breweries Ltd. is registered as a dealer in "Indian made foreign liquor" under the Kerala General Sales Tax Act, 1963. The company has a place of business at Ernakulam, Kerala. The liquor sold by the company is manufactured or produced in distilleries or breweries at different places in the State of U.P. and Haryana. Liquor is transported for sale by the company from its breweries and distilleries to its place of business at Ernakulam. It is the practice of the company to maintain a uniformprice" in respect of each brand of liquor sold at different centers after adding to theprice the appropriate amount attributable to freight and other charges.27. In proceedings for assessment of sales tax forthe company claimed under Rule 9(f) of the Kerala General Sales Tax Rules, 1963, Rs.59,188.99 as an admissible deduction in respect of charges for "freight and handling charges" collected from the customers, in the computation of the taxable turnover. The Sales Tax Officer rejected the claim, and the order was confirmed by the Appellate Assistant Commissioner and by the Sales Tax Tribunal. A revision application filed before the High Court of Kerala was summarily dismissed. The company has appealed to this Court with special leave.The company claims that the amount spent by it for freight and for "handling charges" of goods from the factories to the warehouse at Ernakulam is liable to be excluded from the taxable turnover and the taxing authorities and the High Court were in error in refusing to allow the deduction.30. This court while interpreting Rule 9 (f) of the Kerala General Sales Tax Rules, 1963 observed that it is not intended to exclude from the taxable turnover any component of the price, expenditure, incurred by the dealer which he had to incur before sale and to make the goods available to the intending customer at the place of sale.31. This court had an occasion to deal with identical issues in the case of Hindustan Sugar Mills (supra). P.N. Bhagwati, J. (as His Lordship then was), clearly held that 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 in both the appeals before us, the amount of freight formed part of the `sale price.In State of A.P. v. A.P. Paper Mills Ltd. (2005) 1 SCC 719  the short question arose for consideration was whether the transportation charges and agents commission paid by the respondentM/s. A.P. Paper Mills Ltd. to the agent together with the cost of raw material constitute "turnover" under Section 2(s) and is liable to sales tax under Sectionof the Andhra Pradesh General Sales Tax Act, 1957. This court relied on Hindustan Sugar Mills (supra) and came to the conclusion that the transportation charges and agents commission would be inclusive in "turnover" under Section 2(s) and is liable to Sales Tax under Section 6(a) of the Andhra Pradesh General Sales Tax Act, 1957.41. When we apply the ratio of the judgments of the English Courts and of our Courts, the conclusion becomes obvious that the amount of freight and insurance charges incurred by the dealer forms part of the sale price.