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M/s India Meters Limited vs. State of Tamil Nadu dated 2010-09-07

 

                                             REPORTABLE

 
 
 

            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

 
 
 
 

                      JUDGMENT

 
 
 
 
Dalveer Bhandari, J.
 
 

1.   These 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.

                                                               2

 

2.   The 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, 1956.
 
 

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.

                                                                  3

 

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

                                                                     4

 
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 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 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

                                                             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 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.
 
 

13.   Counsel 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. (supra).
 

      ".......In our 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 freight".

 
 

14.   In 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.
 
 

15.   The 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.
 
 

16.   Both 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 Constitution.
 
 

17.   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.

 
 

18.   It 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

 
(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

 
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".
 
 

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


                                                               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 "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 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.
 
 

22.   In order to crystallize the legal position, we would like to

 
refer important English and Indian cases.

                                                                  12

 
ENGLISH CASES:
 

23.   In 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 tax."

 
 

24.   In 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:
 

25.   In 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 Rules, 1963.
 
 

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
 

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.


                                                             14

 

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
 

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.
 
 

28.   Rule 9 (f) of the Kerala General Sales Tax Rules, 1963,

 
provides:
 

      "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....

 
             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."


                                                           15

 

29.   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'.

                                                                16

 

32.   In 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

      definition."


                                                                 17

 

33.   This judgment has been followed in a large number of

 
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

 

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.
 
 

35.   In   Cement     Marketing      Co.   of    India    Ltd.   v.

 
Commissioner of Commercial Taxes, Karnataka 1980
 
(Supp) SCC 373 this court observed as under:
 

      "This question 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."

 
 

36.   In 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 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
 

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.
 
 

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

                                                               19

 
observed that freight and handling charges would be included
 
in the sale price.
 
 

39.   In 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."

 
 
 

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. 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.
 
 

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.
 
 

42.   We 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.
 
 

43.   In 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.
 
 
                                           .................................J.

                                           (Dalveer Bhandari)

 
 
 

                                           .................................J.


                                      21
 
                     (Deepak Verma)
New Delhi;
September 7, 2010.

 

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