M/S. India Meters
Ltd. Vs. State of Tamil Nadu  INSC 707 (7 September 2010)
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.1032-33 OF 2003 M/s India
Meters Limited .. Appellant Versus State of Tamil Nadu .. Respondent
Dalveer Bhandari, J.
appeals are directed against the judgment and order dated 20.11.2001 passed by
the High Court of Judicature at Madras in Writ Petition No. 21298 of 2001 and
Tax Case No. 980 of 1993.
appellant is a company incorporated under the provisions of the Companies Act.
The appellant manufactures electric meters and supplies it to the Electricity
Boards. The appellant is also a dealer registered under the provisions of the
Tamil Nadu General Sales Tax Act, 1959 as well as the Central Sales Tax Act,
facts which are necessary to dispose of these appeals are recapitulated as
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.
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.
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
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.
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 4 Assessing Authority to work out the actual freight charges.
order of the Appellate Assistant Commissioner (CT), Kancheepuram was restored
and with the result the Revision Petitions filed by the respondent were
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
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 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 5 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
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.
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 6 for the insurance amount and
levied tax on that amount of the freight, charged by the assessee forming part
of the sale price.
The assessee's 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
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.
for the appellant relied on a judgment of this Court in the case of Hyderabad
Asbestos Cement Products Ltd. v. State of Andhra Pradesh (1969) 24 STC 487 :
(1969) 1 SCWR 560. In that decision, rendered by a Bench of three learned
Judges of this Court, it was held that the assessee therein had only received
as price the amount of the catalogue 7 price less the freight charges, which
the buyer had paid and, therefore, what was taxable was only the price actually
received. That decision was rendered in the background of the facts found which
showed that the assessee had despatched the goods to the stockist with the
stipulation "date of delivery" shall mean the date of railway
receipt. The Court having found that the agreement on the part of the
buyer/stockist to pay the freight charges and such freight charges been
deducted from the catalogue price, the freight charges did not form part of the
price of the goods sold. This judgment was explained by a later two Judge Bench
of this Court in the case of Hindustan Sugar Mills v. State of Rajasthan &
Ors. (1978) 4 SCC 271. This Court in the later part of the judgment extracted
the following statement in the case of Hyderabad Asbestos Cement Products Ltd.
judgment, under the terms of the contract, there is no obligation on the
company to pay the freight, and under the terms of the contract the price
received by the company for the sale of goods is the invoice amount less the
the instant case, the obligation to pay the freight was clearly on the
appellant as there was no sale at all, unless the goods were delivered at the
premises of the buyer and in order 8 to so deliver, the assessee necessarily
had to incur freight charges.
transfer of title to the goods as provided in clause 10 read with clause 6 of
the agreement was to be at the place of delivery in the premises of the buyer.
Though the contract mentioned the price of the electric meters as ex-factory
price, the delivery was not at the factory gate. The specification of what the
price would be at the factory gate, therefore, does not 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 be said to have been completed. Had the
sale been completed at the factory gate, the expenses incurred thereafter by
way of freight charges would then be capable of being regarded as expenditure
which was in the nature of a post-sale expenditure and, if paid by the seller,
regarded as an amount paid by such seller on behalf of the buyer.
the aforementioned cases emphasise the fact that expenses incurred by a seller
on freight would be part of the sale price, as until the transfer of title to
the goods takes place that being the only way made in which sale could have
taken 9 place prior to the introduction of clause 29A of Article 366 of the
learned counsel also drew our attention to the decision of this Court in the case
of E.I.D. Parry (I) Ltd. v. Assistant Commissioner of Commercial Taxes &
Another (2000) 2 SCC 321. The question considered therein was the includability
of transport subsidy given by the sugar 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. 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.
is no doubt true that Rule 6(c) of the Rules 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
Act. "Turnover" is 10 defined in the Act, inter alia, to mean
"the aggregate amount for which goods are bought or sold or delivered or
supplied or otherwise disposed of in any of the ways referred to in clause
is defined in Section 2(n), inter alia, as meaning "every transfer of the
property in goods (other than by way of a 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
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".
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
11 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
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 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 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.
order to crystallize the legal position, we would like to refer important
English and Indian cases.
Paprika Ltd. & Another 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 to pay the tax demands but it does not cease to be the price
which the buyer has to pay even the price is expressed as 'x' plus purchase
this case, the learned Judge also quoted with approval what Goddard, L.J., said
in Love v. Norman Wright (Builders) Ltd. (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 price which ordinarily the buyer will have to pay. The
price 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 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 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 turnover."
13 INDIAN CASES:
Dyer Meakin Breweries Ltd. v. State of Kerala (1970) 3 SCC 253, Chief Justice,
Shah (as His Lordship then 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
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 uniform
"ex-factory price" in respect of each brand of liquor sold at
different centers after adding to the ex-factory price the appropriate amount
attributable to freight and other charges.
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 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.
9 (f) of the Kerala General Sales Tax Rules, 1963, provides:
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....
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;
(i) freight, (ii)
charges for packing and delivery."
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.
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.
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
this judgment, the court comprehensively explained 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. 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 such 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 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 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 be
liable to pay the amount of excise duty to the dealer. And, on this reasoning,
it would make no difference 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 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
judgment has been followed in a large number of subsequent judgments in other
cases by this Court.
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 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.
Cement Marketing Co. of India Ltd. v. Commissioner of Commercial Taxes,
Karnataka 1980 (Supp) SCC 373 this court observed as under:
is no longer res integra and it stands 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 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
the present case and hence we must hold that the High Court was right 18 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."
TVL Ramco Cement Distribution Co. (P) Ltd. etc. 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 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
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 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.
the case of Black Diamond Beverages and Anr. v. Commercial Tax Officer, Central
Section, Assessment Wingh, Calcutta & Others (1998) 1 SCC 458 this court
19 observed that freight and handling charges would be included in the sale
Commissioner of Central Excise, Delhi v. Maruti Udyog Ltd. (2002) 3 SCC 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 because it is the respondent who has, by necessary
implication, taken on the liability to pay all taxes on the 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."
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. 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 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 20 2(s)
and is liable to Sales Tax under Section 6(a) of the Andhra Pradesh General
Sales Tax Act, 1957.
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.
may reiterate that in this 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 will remain with the supplier till they are
delivered at the destination station.
view of the clear clause of the contract, no other view is possible. In our
considered view, the High Court was totally justified in affirming the judgment
of the Tribunal. No interference is called for. These appeals being devoid of
any merit are dismissed with costs.
21 (Deepak Verma)