Supreme Court of India
M/S. INDIA METERS LTD.versusSTATE OF TAMIL NADU
- Citation
- 2010 INSC 575
- Decided
- 7 September 2010
- Disposal
- Dismissed
- Bench
- DALVEER BHANDARI
Holding
Freight and insurance charges incurred by the seller form part of the sale price and must be included in the taxable turnover, making them liable to sales tax.
Summary
India Meters Ltd., a dealer in electric meters, collected freight and insurance charges separately from its customers but omitted them from its declared turnover. The assessing authority treated 50% of these charges as part of the sale price and levied sales tax. The dealer appealed, arguing that under Rule 6(c) of the Tamil Nadu Sales Tax Rules such charges could be deducted from turnover. The Supreme Court examined the definitions of "sale" and "turnover" in Sections 2(n) and 2(r) of the Tamil Nadu General Sales Tax Act and held that when the seller is obligated to transport goods to the buyer, freight and insurance expenses become part of the consideration and thus part of the sale price. Consequently, these charges must be included in taxable turnover and are subject to sales tax. The Court dismissed the appeals, affirming the lower tribunals' orders.
Issues considered
- The applicability of freight and insurance charges to the definition of "sale" under Section 2(n) of the Tamil Nadu General Sales Tax Act, 1959.
- Whether such charges form part of the turnover under Section 2(r) of the same Act.
- The relevance of Rule 6(c) of the Tamil Nadu General Sales Tax Rules, 1959 in allowing deduction of freight costs.
- The liability of the dealer to pay sales tax on the freight and insurance charges.
Legislation cited
- Central Sales Tax Act, 1956
- Tamil Nadu General Sales Tax Act, 1959s. 2(n), s. 2(r)
- Tamil Nadu General Sales Tax Rules, 1959s. Rule 6(c)
Subjects
sales taxturnoverfreight chargesinsurance chargessale pricedefinition of saledefinition of turnoverTamil Nadu General Sales Tax ActCentral Sales Tax Actcontractual obligationtaxability
Judgment
[2010) 11 S.C.R. 22
A MIS. INDIA METERS LTD.
v.
STATE OF TAMIL NADU
(Civil Appeal Nos. 1032-1033 of 2003)
SEPTEMBER 7, 2010
B
(DALVEER BHANDARI AND DEEPAK VERMA, JJ.]
Sales tax - Freight and insurance charges incurred by
the dealer - Levy of Sales tax on - Held: Freight and
C insurance charges incurred by the dealer form part of the sale
price - Therefore, ·the same would fall within scope of 'turnover'
and sales tax is leviable on it - Tamil Nadu General Sales
Tax Act, 1959 - ss. 2(n) and (r) - Tamil Nadu General Sales
Tax Rules, 1959 - r. 6 (c) - Central Sales Tax Act, 1956.
D
Words and Phrases - 'Sale' and 'Turnover' - Meaning of,
in the context of ss. 2(n} and (r) respectively of Tamil Nadu
General Sales Tax Act, 1959.
The appellant-assessee did not include the freight
E charges in its taxable turnover. On inspection it was
found that the assessee had collected freight charges
and insurance charges separately under the debit notes,
but the same had not been shown in the monthly returns.
The Assessing authority assessed 50% of that amount,
F as freight charges, and levied tax on that amount of the
freig~t charged by the assessee forming part of the sale
price. Assessee's appeal against the order succeeded.
Further appeal by the Revenue was allowed by the Tamil
Nadu Special Taxation Tribunal. The assessee filed a writ
G petition against the order of the Special Tribunal. The High
Court upheld the order of the Special Tribunal. Therefore,
the instant appeals were filed.
Dismissing the appeals, the Court
H 22
INDIA METERS LTD. v. STATE OF TAMIL NADU 23
HELD: 1. The amount of freight and insurance A
charges incurred by the dealer forms part of the sale
price. In the instant case, there was specific contract
entered into by and between the parties and according
to the relevant clause of the contract, the ownership of
the goods would remain with the supplier till they are B
delivered at the destination station. Thus, the High Court
was justified in affirming the judgment of the Special
Tribunal. [Paras 41, 42 and 43) [37-E-G]
-
2. In the instant case, the obligation to pay the freight C
was clearly on the appellant as there wa~ no sale at all,
unless the goods were delivered at the premises of the
buyer and in order to so deliver, the assessee necessarily
had to incur freight charges. [Para 14] [29-B]
3. It is true that Rule 6(c) of the Tamil Nadu General D
Sales Tax Rules, 1959 permits deduction of the cost on
freight while determining the taxable turnover. However,
that provision must be read in the context of definition
of "turnover" as also the definition of "sale" in Sections
2(r) and 2(n) respectively of the Tamil Nadu General Sales E
Tax Act. The turnover of an assessee/dealer would
include the aggregate amount for which goods are
bought or sold. It is, therefore, the amount for which the
goods are bought or sold, which form part of the
turnover, and a thing can be said to be sold only when F
the transaction falls within the scope of the definition of
"sale". When the transfer of the property or the goods is
to be at the place of the buyer to which the seller is under
an obligation to transport the goods, these expenditures
incurred by the seller on freight in order to carry the G
goods from his place of manufacture to the place at which
he is required under the contract to deliver, would thus
become part of the amount for which the goods are sold
by the seller to the buyer and would fall within the scope
of "turnover". [Paras 18 and 20) [30-C-D; G-H; 31-A]
H
24 SUPREMEtCOURP REPORTS· . .[2010]' 11- S:G.R.
A "Dyer Meakin Brewerles,Ltd. v; State.of Kera/a (1970) 3
SCC 253;Hindustan Sagar· Mills v: State .of, Rajasthan 1and
Ors.1 ·(1978)14 SCC 271;Gement.~Marketing. Go ... of India.Ltd.·
v.' Assistant• GommisEfioner• of 1Sales1<I Tm<,; Indore ·and 1 Ors.•
(1'980)<.1 :sec 71 ;i Cement. Marketing.co.> of:Jndia 1,, ,Lfd.. v!
B Comrrfissioner. of; commercial ffaxesr, Karnataka1.1980.1(~upp)
scc::373; ~ TV/.ljRamco .cement rDistNbutioh co: (P)1Ltd.\ etc..
etc.· v.:: Stateiof.'fami/Naduietc. teto:i:(1993) 11SGC~192;tBihar
State Electricity Board ahdlArif. vcrUsha Martin Industries and
Anr. (1997) 5 SCC 289; Black Diamond Beverages and Anr.
c v.' lcom'metcilll 'Tax . 'oftiger, cJntrat 1Sectloh,As'sessment
Winf}i?, ''Caicuffa' and ·ori}j (199$t1'~scc 45B~Comfnis$iciher
oPcehtra't~lEJlcis'e, 8Da1H1 V. "'MarLfi/JuC!yog l.'.td.' 1(2002) 3~scc
547; 2§tai~?JP/...·P. 0v. "'A P~1 Paf)er'Mills''UCI. (2065)'1 rscC'-719!
relied on. [fl::''>] tt t 0 ·, :, h.q1s.', 1n1~•.,,i1 w •. <~· 01 ••n;r.
D '!i ''· 'HyaerabJd 'Asbestos: ·cein~nt 1 PJoducts' 'Ltd.V. :St~te of
Ji.?idlifii .PrJa~'sh(t969f2~ stc.1·4s7 ~?f19s9)' 1 1 >scwR'
1
sso;
£:/'tY ·F>IiJ.,Y (iJ rod. ''AssiStanr· ·v.
corRmtssionePorcomirierc1a1
rctx~s'¥h'Ct Jin?(2oo6> ·2 1scct321, r~ferreci ta!".· --·ci 1r;n1
"· ··1·.·J~ '· t•.-,e· ! · •<J!,.·L1L ·.jf,j Och"" .Jv ..-r .... · lo
E ~ · · ·"'Paprika'Ltd. ~and Anr.. v.i Board'.of, 1Trade·(1 ~44) All>E:R.
312·;-' Love v.<.:Norman 'Wright (Builders)<LtdJJ(1944) 11 All E.R.
618,ireferred to." ·- ui. ·." 1.. t'ibps1p11,. ~··11 ~tu:1n1
;t: J 1"1~11\".1 .,, • '. 1 1~.• , .- .1rt1 J·uia, }..-·j .?i j~ t"'c)·~ h.) Jr.c ... ,(r
s ' I u ~' r . " Case. L~w J~e~~re.i:i.~e,; ' . '.) ~ b - :i ') () 2
F '~-'''(19G9) 24;STC 4871 · '~ ReferrecVto'.' 6 m 5 Pahf·13' 1
:J P<J:J~f1'1~LJ .ui"' ! ·~·'.•'•JG' t 1if:ti\'- ?! 1 51 nt)~.:·~:.:: ~-Jt." ~;r1J
-~i ;.(2090) 2 SCC 32kc 1R~feq:E;?d,Jo. 9 ru n,.,para3 ~7,
--b~n· , ·•-1!··~.- ... <>11·~ t' . . . . ·!. ,1·1rt Q,;~ i 0 ·':lt~ c ':i.,.1 .. t.:. y,--· i:-1
· (1944) All E.R. 372.. Referred to... ' ·Para 23
-·.'°1J,uJr"H::~4J.:',j '5t'!3-~~ • .r~oc·.g b'1".' _,1i:)aan.jj1t fJi' 1tfe.gi·c~1 :s
" 1 (1944).-1 AILE.Rr·618f!: .Referredlt-0" 9rlJ \· P.ara,2411
.-:-·f'\ :·1 Jr;; f!~Jl..it> · rt'J - •• ,- .d ;t.;fltfl;Rff. ;C" ~:>stq t_:,· ·11r,-,l l'b- ~~J
... t <~~JP) 3 .§~C.(~~~ • ~t,J;te! 1 ';~11°nJt•nu ._.,.I( -r~~a,,~~rl
c)I (1978) 1 4 SCC 211'' .v 'Reliedron.9r1J lu ,ic <Para-31 1d
~lr.~.r ,:? l ~ '· · ·. 1 i~~· :;.-1,..., 13\: ~ .,l!i · .Ji~J -'lf
1
.t •·) st 9rl1 · ·-J
:(19~0-)·1 .scp 71.; 1 ' R~l!e~. o"!,, 0,':, ,, • ~~rn,3~u
H
).-: JNOIA MIEfERS Ll-TD! . li'' STATE.0F TAMJL'NADU 25
,-ij;; )i,1980;1(.S1,1pp)sec 373 r Relied. on. ,Para. 35" .C .; A
'..l• r>n(1993/ 1'"'·scc' fsz 1b ' • R:~ned 'o~.. T • ar · ""'Para ·js
1
' . . . . ·'..d· 2-~·s:·· b'ti·i~~~J b··--s · 1 ·-\ : ,· c 1 ,1: ie-;E • 1 ; hc.;1~ -~·:-i~
t~ • · ! (1997) 15' SCCC289) (!· 1 /1 Relied.on::.·· 1·0'') "P.ara 3.7•:
'J(tfi b'·fic:f;1 '?,.Q 1...11-:= . : .. · ~;1,':l\··1 <'?P"\Lr. 1 ·, _ .~c·.i : :1r-,~: ~1"1'._;i':_,·t ~.lri!
!n rnJ1~96~) 1~~ cs,~c. 4,~.~.• ~ q,.... R~lied on, , , ,, . ~~r~,~~.. 8
~1.·1"'·<(2002)'3' 1 $GC 547A. ' "Relied•on.' <. · ' '~.·Para 39:'
i:::>A TC,i Wff srH .:,r·,ra; i a1<.. w , : ,. ··:1?.:cc' ~ct-; -•1 1
• ,f'l '•!'-'; ,•1 '
•-1rn 6 .A~.Qp§)E;1~1!?C<:; ?~t~ 8P..8 ,Rel!~d. on .. ·•r.c: : (; 1· P,~rfl•Aq
CIVIL APPELLATE JURISDICTIOt·l: Civll ~;a:pp'eal ;Nos.
:>1,0,~?-1,0~A~of ~9.93.: ,. , ._.r,-•J. _ 9 ," ,~ <: . ,, 1·c.q"'r· , · •.
· .'1· ''From ti~ !fuei9fnent"'&'or8efdat~<f2d:f1:2001~ot'tlie f-li9h
1
colirtb'iJ~Clic~t'ure
....
afMaciP~~l\n
· ··.t-:,q .."":lTJh.r
.,..,~~i,..---~Ap~8 ,~,,,,.,.'._
w.P.:;;No~'21291f6f
'""h · .·•
2001 ~nci
.,r .,r-,,
1 1~'l(1t_..'
"T\.,. ·No·. '9 O"'of 1993. ' ·' ' - · .·. ' ,,
..'-:~,c')m;~c,·,::.;.• ;:1 ~~;._:,.1,"' :···,.::_, ~:·~c:t: i V/ h-J· 1C: _, .. ~,,..,..,r:.
K.K. Mani, Ankit Swarup, Mayur R, Shah for the ~pp,ellant. .p
i1Jl1bl H1--;! ,·, 10ttv:; ,~:_,_c,.''-i\ fu .}V? ~ O·~i, ,,_ :1 t.,"lt:~li.q··?qJ-~ erl I .t~
'-·~·." ~o -~,(•". ~~ 11 rt
1
<:Jr:b ·, i Cl :·, _, _ 1 ··~"'.:., ~•• · ·J~: ~ft: 'j,~(H' · t• 1~~
. s _, ;rhe ,Jt;1dgm~nt ofth,e.,C.our:t was deliver!3d by,; r; 1 • ,
DALVEER BHANDARI, J. 1. These appeals are hir'e~t~d E
tagais;i.st tl1~;judg~mentr~n«:l.1 org~r d_a~ed, 2~Q, ~J,~Q013 passed by
the. High_ Goust;:;of,Ju9icature at1 Maciras1'ins)/Vrl~1Pe~ition_ 1 Nq .
. 21298,of2001 and.,a:ax G\:lse,No,,Q.8.9 1pt 19~3,: !iiilv r1,,. :)
1!,.·!-, 1 .• !') rJ: . ~ ·t..;,,,.i~~ _.~rt ;• t ···I :J~-,*?'-;f'.J) .Cl;t--,·· )L r-1,'-~ tf'b
. .~. Ttie ~ppellant 1s a company ,in9orr:>orafed .under tlie F
.----~· ~:.;: ~I' • ·.
i . i:io ...,·-:..H.. r., '''·~··;bXb' ! /
prov1s1onst)P''
of the Companies '.f 'J·
Act. lhe·-~)'"
appellant.manufactures
r1 . ".'\hd·~4--;
..- l_H,.-·--~h-"'"I ,._1-1
electric meters and supplies· it to the Electridty' Boa'ras. The
appellant is also a dealer registered ,under. the provisions . of the
Tamil·Nadu General Sales,Ta_x Act,J 1959 as. well asJh~LCe,r:itr.91
.:.Sales•Tax ,A.ct,,1!:)5_6.. . . , "'..'!· '~·Jt G
=;\..,,'.le~ lt;~·"·<' -1~ t i -~ • .' . . .. i· ,r!·1 . ;.,....
, 3. Brief,".:.!',facts wtiich are necessary to dispose of
LI ')I~ ' I • , ~'
'
these \
appeals are. recapitulated as un_der.: _ .
l ,, }.;J Ji1... ' '!:) ·i ) ;. ' ' ,f. .... .,_.'1f.:_..:; .. '
~' · Tne':oeputy commercial Tax· Officer. Group~\/111, the
.H
26 SUPREME COURT REPORTS [2010] 11 S.C.R.
A 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
B 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.
c 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.
D
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
E 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
F 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
G 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
H allowed.
INDIA METERS LTD. v. STATE OF TAMIL NADU 27
[DALVEER BHANDARI, J.]
8. fhe appellant filed a Writ Petition in the High Court of A
Madras against the order of the Tamil Nadu Taxation Special
Tribunal. If 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, B
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 C
of goods at the customer's place and that the customer's
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 D
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 E
leviable in accordance with the provisions o~ 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 F
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 G
debit notes for a total sum of Rs.16,96,530/- but the same had
not been shown in the monthly returns. The assessil19 authority,
therefore, determined 50% of that amount of Rs.16\96,530/- as
freight charges, after making allowance for the1, insurance
amount and levied tax on that amount of the freight, charged H
28 SUPREME COURT REPORTS • )[2010] 11"S.C.R.
A by the assessP-e forming part of the sale. price:The assessee's
appeal againstthat ortler ha\t·ing succeeded\' a .further.appeal
was preferred by the Revenue, which cam~tto be allowediby
the Tamil·Nadu.Special Taxatiori Jribur:ial. The assessee is now
befor.e .us1 questioning the. corre(::tness ·of. that:orderrof, the
s Tribunal. · .. ·.,, ·" r ., . , · ; • • •, .. '.) .
• ·i '. "11' il ,II·, -~·O:.,' ,._ , , · ~
,.''" 12., . ' The.
appellant
. . ' .
claims thatsince
' . '. . -'
the contract
..
separates
. ~. , ' ..
the ex-factory price.and the ins.uranc:~ and freight c.~arges, and,
under Rule 6(c) of the Tamil Nadu General Sales Tax Rules, the
freight. when, specified and charges tor by the dealer
c separately, without including the same jn Jhe ·price of the' dealer,
the .freight·charged here could ·not·have been treated1·as;part
1
of.the sale. price and subjected to tax. · , v" ..,,.
.c:: ·. ,'.J·''-~ ' ' ,; ~ ·•. l .'' .....! \ ~'.. _} ' ' l. ~,· '111 .. ·.~· 2.
: , 13. ,~o,un~~lf9r;.t~e apRel\fin!/e~e.d CH~ a 1ju~gment,oy th.is
D Court in1 the. c~~!; ()f, Hyg~raba<j Asbestos ,~err:i.en~tFf.rod,uc,ts
Ltd. v.. $_{ate of Aridhra Prades~ .(1~69) 124 STC ,48_7 : .(1969)
1 SCWR 560,. In .that . -.
decision,
,
r.endered
'i \ .
by a Bench of three
~ ~ --~·
learned Judges of this Court, it was held that the assessee
therein had only received as priGe.the amount·-0fthe·.·catalogue
E: price less ·the freight charges, which the buyer. had paid •and,
therefore;' whati:was taxable was only the price actually
received. That decision was rendered in the background of the
facts found which showed thatthe assessee had despatched
the goods. to the.stockist with, the stipulation,~'date of<delivery"
F: shall mean the date of railway rece_ipt. The Court having found
that'th'e'•agreement on
the 'part of the buyer/stockist't~ pay the
freight'charges· anti' such freight charges beerH:lecll.iCted 'from
the catalogue price, 'tt\e ffoighf charges did not forin'part ofthe
price ofthe goods sold. this judgment was•'e'xplal~ed by a later
two Judge Bench of this Court in the·case of Hindustan.Sugar
G. Mills·v. 1'State ofRajasthan'& ors! (1978) 4 sec· 271. 'This
Court in the tater' part rQf~he' )udgrttent e'xtractecJl'the"folfowing
statement 'in the ·case of Hyderabad Asbestos· Cement
Products 'Ltd. (su·~'ra)'. ' ' '• · ·
;~ ,_ i J '. : ' 'i
H 1
! , " ... , .. :In our judgment; under'the terms .of the contract, there
\ .'IN:DiA ME':fE:RS LTD11 v:~s:TATEOF'TAM1l::iNAQU 29
[DALVEER BHANDARI, J.]
~y: l· is;nm.ob1igation,on'the>compqny:to pay Jhe freight;•and A
V"': under the terms otothercontractthe:price receivEidfby·the
5r., kcompanyJor the sale of.goods'is the.-invoice(amountfless
... n 1~!he freight": ,,,.i ,, n-::ivi·_ . , .: .,F.:; ·, · ~-. •..,n· - ·.· · . '
JBii 1fJ.2\·:t1'._. .._ " 11 , • -· (··1~Ju9 9f;j tr. '<:Y':i1-\;; · ;;"; ·: 1'.:·,;~,- ~~.' Ji~'l~---·,
;ei.in• ,1j'"~,n.the if")§t~[lt<C~§~;J!°l~-oR!!g'!,~ioi;tt~y~y ~h~ fr!?igl)t yi.ias 8
(,c!eerly, op'~~~ ~ppe:l~r;it)~!i· tQ,eJ;e ,yva~ n<? §~Je at all, ur;i,l~ss.,the
goods were delivered at the premi.~_e~ qf: t~~ buy~r.andJ9 f>sger
to so deliver, the assessee necessarily had to incur freight
'charges. ,,· .. ',:J f!rlt le '; :Jiu;· :€ ... ·'(. J : uni) 'J:' <:' !' b.
\1dGX1...:: '~ 1 11 ij1,;f •li'.L81 ..1L SiH, ,\i· f'" _,,,~-~- -,1 n'", ,;. ;.J ~' ·~ r,,_1 f1~1lJJUb-et.=
.... J~r ':t5. 0 J:h~ 1 t~J!,n.,sfe~.. o.fot!W~ t~),h.~~gQo,<!~ ~~,provi9~,c1 in c!~.Y.~~ C
n1 Or~?l_d v.vlth,s!~µ~~& gf 1 ~h.~J:igr~~m~ntwas to.9e,~t;~n.e.pJac,e
of delivery in the premises.of the buyer.• .Jhough
'V··· ••• ··~:v1,·..,,; - · J ' , .....
·-""F
the contract
·1, · .• ..... l.··~J 8
J r:Q_e,nti9~c!Jb~.;P.QC,e of HI~,,i:r.le..,ctrig rnet~.n,; as e~ifpctory_,prige,
1 t)1e"'d.~~y~,Y. V'{?J.cP.9t)et 1t,h§ ·~ec,t9ry, gatE5. ;;tbe . 9p~5ifi<:~~i9f'.1&f
·~'1et.:.t~~ pri~~ ,wq4l,d~9~,atJhe1facto.rY .ga~eu!her.yfpfei . dpe§ r;iot ·D
in the context of the term subject to which the sale was agreed
to be effected, render it the point or the location at which the
sale can"beisaid(to•havebeen,completed!'Hadcthe:sale been
. completed atthe fa'ctory·gat~.•the expenses incurred.thereafter
rby1way.:of freight;charges would1then£be capable <Oft.being E
· regardedas'expenditure which was:in the. nature of a post-sale
:expenditure and, •ifipaid~by the1seller,.,,regarded .as an amount
rpaid byt.SUCh<Seller•Of'l:behalf•Of the buyer!'• , , : F "'Ol · ...: /
<;r•.~·•11i,)•Ci.J)'.' .,....-,3,o.,.i!sr.k1.\·",, , .•.. ,. 9to.2 •o
•1 16_..,Bo~h· t~e. ~foremen!i~:i,i;ie<! 1 p51se,~. e~eha.sis~.;~t)_e, 1::{~st
!he~ experis@s incurr~5Lby,Jatsejle~,_o,Q;]f~e1g~t,vyould !?e..,.:p_ag .of F.
::.tfJEt sal~ ;p_ri~e.las~uri~!l !'h.~.~t.rar:i§f~r1 oJ1 title to the-1 gops~~,ta~~s
,plf3ce that.being the;only. 1way. made ,ir:i which
· ·~· ·1'" ....,. • ..
,_,;....,.
sale•• could
X· .. · hav,e
· ... ...,.,J.:.,,,,~,~ ~·-..... v . ..,._,
taken place prior to the introduction of clause .29A,of,.Article
366 of the Constitution. · ·· , ·. .. · · ' ~-
t
·· _·:..J(\..' ·-,-: '( ':·~-~11·l~ 1 J:.?.·~ !Okj12.\'b;'·J;·~n.;.~r 1 ,,·~ ~-~ .G:
·
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c(ec1s1oq.of:_th1.s~ Cg~_rtJ l[);~h.~tCa_$,,,e,pf ffr...Q, 1/j'a(ry r(/), f::~c;J,ri,\(.
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~..c2poo),:?_ §C~ 321, T.:.h~,que.sti.9n ,~~ri~idegi~ .tt;i.~r~tq w9s th_e
·Lnc::l~dabjlity_ 9f 1 t!{rn_sp9_r~cSY~~igy«g!v~ri.... ~X !'1e ,,s_ugar 171
30 SUPREME COURT REPORTS [201 O] 11 S.C.R.
A manufacturer to the cane growers, who, under the terms of the
contract were required to supply the sugarcane at the factory.
The subsidy so given was held by the Court to be part of the
price as that amount had been given by the manufacturer, no
doubt, to secure the supply of the goods from the grower/seller.
B The Court in that case did not consider Rule 6(c), framed under
the Tamil Nadu General Sales Tax Act, as there was no
occasion to refer to the same.
18. It is no doubt true that Rule 6(c) of the Rules permits
C deduction of the cost on freight while determining the taxable
turnover. However, that provision must be read in the context
of definition of "turnover" as also the definition of "sale" in
Sections 2(r) and 2(n) respectively of the Act. "Turnover" is
defined in the Act, inter alia, to mean "the aggregate amount
for which goods are bought or sold or delivered or supplied or
D otherwise disposed of in any of the ways referred to in clause
(n)".
19. "Sale" is defined in Section 2(n), inter alia, as meaning
"every transfer of the property in goods (other than by way of a
E mortgage, hypothecation, charge or pledge) by one person to
another in the course of business for cash, deferred payment
or other valuable consideration". The definition goes on to
include a number of other transactions also within that definition
of "sale". The turnover of an assessee/dealer would include the
F aggregate amount for which goods are bought or sold. It is,
therefore, the amount for which the goods are bought or sold,
which form part of the turnover, and a thing can be said to be
sold only when the transaction falls within the scope of the
definition of "sale".
G 20. When the transfer of the property or the goods is to
be at the place of the buyer to which the seller is under an
obligation to transport the goods, the expenditure incurred by
the seller on freight in order to carry the goods from his place
of manufacture to the place at which he is required under the
H contract to deliver, would thus become part of the amount for
INDIA METERS LTD. v. STATE OF TAMIL NADU 31
[DALVEER BHANDARI, J.]
which the goods are sold by the seller to the buyer and would A
fall within the scope of "turnover".
21. The learned counsel for the State of Tamil Nadu
submitted that freight and insurance charges are included in the
sale price of the goods. Even if freight and insurance charges B
are shown separately in the Bill and added to the price of the
goods, the character of payment would remain the same. Since
freight and insurance charges represent expenditure incurred
by the dealer in making the goods available to the purchaser
at the place of sale, they would constitute an addition to the cost C
of the goods to the dealer and would clearly be a component
of the price to the purchaser. The amount of freight and
insurance charges would be payable by the purchaser not
under any statutory or other liability but as part of the
.consideration for the sale of the goods and would therefore,
form part of the sale price. D
22. In order to crystallize the legal position, we would like
to refer important English and Indian cases.
ENGLISH CASES:
E
23. In Paprika Ltd. & Anothe1 v. Board of Trade (1944)
All E.R. 372, the court observed as under:
"Whenever a sale attracts purchase tax, that tax
presumably affects the price which the seller who is liable F
to pay the t~x demands but it does not cease to be the
price whicl) the buyer has to pay even the price is
expressed ~s 'x' plus purchase tax."
'
24. In this case, the learned Judge also quoted with
approval wha~ Goddard, L.J., said in Love v. Norman Wright G
(Builders) Ltl/l. (1944) 1 All E.R. 618:-
"Where an article is taxed, whether by purchase tax,
customs duty, or excise duty, the tax becomes part of the
priqe which ordinarily the buyer will have to pay. The price H
32 SUPREME COURT REPORTS [201 OJ 11 S.C.R.
A of an ounce of tobacco is what it is because of the rate of
tax, but on a sale there is only one consideration though
made up of cost plus profit plus tax. So if a seller offers
goods for sale, it is for him to quote a price which includes
the tax if he desires to pass it on to the buyer. If the buyer
B agrees to the price, it is not for him to consider how it is
made up or whether the seller has included tax or not."
and summed up the position in the following words :
"So far as the purchaser is concerned, he pays for the
C goods what the seller demands, namely, the price even
though it may include tax. That is the whole consideration
for the sale and there is no reason why the whole amount
paid to the seller by the purchaser should not be treated
as the consideration for the sale and included in the
D turnover."
INDIAN CASES:
25. In Dyer Meakin Breweries Ltd. v. State of Kera/a
(1970) 3 SCC 253, Chief Justice, Shah (as His Lordship then
E was), speaking for the court observed that expenditure incurred
for freight and packing and delivery charges prior to the sale
and for transporting the goods from the factories to the
warehouse of the company is not admissible under Rule 9 (f) ·
of the Kerala General Sales Tax Rules, 1963.
F
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
G 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
uniform "ex-factory price" in respect of each brand of liquor sold
H
INDIA METERS LTD. v. STATE OF TAMIL NADU 33
[DALVEER BHANDARI, J.]
at different centers after adding to the ex-factory price the A
appropriate amount attributable to freight and other charges.
27. In proceedings for assessment of sales tax for 1963-
64 the company claimed under Rule 9(f) of the Kerala General
Sales Tax Rules, 1963, Rs.59, 188.99 as an admissible 8
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 C
dismissed. The company has appealed to this Court with
special leave.
28. Rule 9 (f) of the Keral3 General Sales Tax Rules, 1963,
provides: D
"In determining the taxable turnover, the amount specified
in the following clauses shall, subject to the conditions
specified therein, be deducted from the total turnover of
the dealer....
E
x x x
(f) all amounts falling under the following two heads, when
specified and charged for by the dealer separately, without
including them in the price of goods sold; F
(i) freight,
(ii) charges for packing and delivery."
29. The company claims that the amount spent by it for G
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.
H
34 SUPREME COURT REPORTS [2010] 11 S.C.R.
A 30. This court while interpreting Rule 9 (f) of the Kerala
General Sales Tax Rules, 1963 obseNed 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
B 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
C 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'.
32. In this judgment, the court comprehensively explained
D the entire principle of law by giving an example in para 8 of the
judgment which reads as under:-
"8. Take for example, excise duty payable by a dealer who
is a manufacturer. When he sells goods manufactured by
him, he always passes on the excise duty to the purchaser.
E
Ordinarily it is not shown as a separate item in the bill, but
it is included in the price charged by him. The 'sale price'
in 5uch a case could be the entire price inclusive of excise
duty because that would be the consideration payable by
the purchaser for the sale of the goods. True, the excise
F
duty component of the price would not be an addition to ·
the coffers of the dealer, as it would go to reimburse him
in respect of the excise duty already paid by him on the
manufacture of the goods. But even so, it would be part of
the 'sale price' because it forms a component of the
G consideration payable by the purchaser to the dealer. It is
only as part of the consideration for the sale of the goods
that the amount representing excise duty would be payable
by the purchaser. There is no other manner of liability,
statutory or otherwise, under which the purchases would
H be liable to pay the amount of excise duty to the dealer.
INDIA METERS LTD. v. STATE OF TAMIL NADU 35
[DALVEER BHANDARI, J.]
And, on this reasoning, it would make no difference A
whether the amount of excise duty is included in the price
charged by the dealer or is shown as a separate item in
the bill. In either case, it would be part of the 'sale price'.
So also, the amount of sales tax payable by a dealer,
whether included in the price or added to it as a separate 8
item as is usually the case, forms part of the 'sale price'. It
is payable by the purchaser to the dealer as part of the
consideration for the sale of the goods and hence falls
within the first part of the definition."
33. This judgment has been followed in a large number of C
subsequent judgments in other cases by this Court.
34. In Cement Marketing Co. of India Ltd. v. Assistant
Commissioner of Sales Tax, Indore & Others (1980} 1 SCC
71 similar question arose for consideration. In this case, while D
following the case of Hindustan Sugar Mills (supra} this court
came to the clear conclusion that the amount of freight formed
part of the sale price within the meaning of the first part of the
definition of the term contained in Section 2 (p} of the Rajasthan
Sales Tax Act, 1954. E
35. In Cement Marketing Co. of India Ltd. v.
Commissioner of Commercial Taxes, Kamataka 1980 (Supp}
sec 373 this court observed as under:
"This question is no longer res integra and it stands F
concluded by a recent decision given by this Court in
Hindustan Sugar Mills v. State of Rajasthan (1978} 4 SCC
271. It has been held by this Court in that case that by
reason of the provisions of the Cement Control Order which
governed the transactions of sale of cement entered into G
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(h} of the
Central Sales Tax Act, 1956 and was includible in the
turnover of the assessee. This decision completely covers H
36 SUPREME COURT REPORTS [2010] 11 S.C.R.
A the present case and hence we must hold that the High
Court was right in taking the view that the amount of freight
formed part of the sale price and was rightly included in
the taxable turnover of the appellant." .
36. In TVL Ramco Cement Distribution Co. (P) Ltd. etc.
B etc. v. State of Tamil Nadu etc: etc. (1993) 1 SCC 192 this
court while following the ratio in the case of Hindustan Sugar
Mills (supra) observed as under:
"(i) that the freight charges should be included in arriving
c at the taxable turnover for purposes of Central Sales Tax
and Tamil Nadu Sales Tax; and
(ii) that packing charges and excise duty thereon should
also be included in arriving at the taxable turnover for
purposes of both Central Sales Tax and Tamil Nadu Sales
D
Tax."
37. In Bihar State Electricity Board & Another v. Usha
Martin Industries & Another (1997) 5 SCC 289 this court
relied on the judgment of this Court in the case of Hindustan
E Sugar Mills (supra) and reiterated legal position that sale price
would be the entire price inclusive of excise duty because that
would be the consideration payable by the purchaser for the
sale of goods.
F 38. In the case of Black Diamond Beverages and Anr. v.
Commercial Tax Officer, Central Section, Assessment Wingh,
Calcutta & Others (1998) 1 SCC 458 this court observed that
freight and handling charges would be included in the sale
price.
G 39. In Commissioner of Central Excise, Delhi v. Maruti
Udyog Ltd. (2002) 3 sec 547 this court observed as under:
" ......... The sale price realised by the respondent has to
be regarded as the entire price inclusive of excise duty
H because it is the respondent who has, by necessary
INDIA METERS LTD. v. STATE OF TAMIL NADU 37
[DALVEER BHANDARI, J.]
implication, taken on the liability to pay all taxes on the A
goods sold and has not sought to realise any sum in
addition to the price obtained by it from the purchaser. The
purchaser was under no obligation to pay any amount in
excess of what had already been paid as the price of the
scrap." B
40. 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 agent's commission paid by the
respondent - M/s. AP. Paper Mills Ltd. to the agent together C
with the cost of raw material constitute "turnover" under Section
2(s) and is liable to sales tax under Section 6-A of 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 agent's commission would be
inclusive in "turnover'' under Section 2(s) and is liable to Sales D
Tax under Section 6(a) of the Andhra Pradesh General Sales
, Tax Act, 1957.
I
41. When we apply the ratio of the judgments of the English
Courts and of our Courts, the conclusion becomes obvious that E
the amount of freight and insurance charges incurred by the
dealer forms part of the sale price.
42. We may reiterate that in this case, there was specific
contract entered into by and between the parties and according F
to the relevant clause of the contract, the ownership of the
goods will remain with the supplier till they are delivered at the
destination station.
43. In view of the clear clause of the contract, no other view
is possible. In our considered view, the High Court was totally G
justified in affirming the judgment of the Tribunal. No
interference is called for. These appeals being devoid of any
merit are dismissed with costs.
K.K.T. Appeals dismissed. H
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