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

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, Rajahmundry3. 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 the factory of the respondent on contract rates which included the cost of raw materials, transportation charges and the agents 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 dealers 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 agents 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 as per the definition of total turnover under Section 2(s) of the Act which also included the transportation charges and the agents 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 respondentants factory for a total consideration which included the cost of raw materials, transportation charges and agents 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 Act5. 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 agents 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 agents 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

Court's reasoning:
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.