1998 (9) TMI 539 - SC - VAT and Sales Tax

Whether the freight charges collected separately by the revision petitioner from the wholeseller for the purpose of transportation of the goods from the factory site to the door of the buyer could be included in the sales turnover of the revision petitioner for the purpose of computation of the sales tax? Whether the octroi charges collected and paid by the revision petitioner on the value of the goods imported into the buyer s place can be charged to sales tax in the hands of the revision petitioner? Held that - Appeal dismissed. We are entirely in agreement with the view taken by the High Court on the question of freight. The facts, as set down in the order of the Tribunal, did not warrant its conclusion that the agreement between the respondent and its wholesalers was a sham in so far as it related to the option regarding transportation of the respondent s products. The only question of law that was raised in the special leave petition relates to freight. There is no question of law that relates to octroi and, therefore, the leave that has been granted must be held to be limited to the aspect of freight.

Summary

Issues Involved:
1. Inclusion of freight charges in the sales turnover for computation of sales tax.
2. Inclusion of octroi charges in the sales turnover for computation of sales tax.

Detailed Analysis:

1. Inclusion of Freight Charges in Sales Turnover:
The primary issue was whether the freight charges collected separately by the petitioner from the wholesaler for transporting goods from the factory to the buyer's location should be included in the sales turnover for sales tax computation. The petitioner argued that these charges were incurred post-sale and were separately billed, thus should be excluded from the taxable turnover. The court referred to the unreported decision in S.T.R.P. No. 59 of 1988 and the Supreme Court's decision in Dyer Meakins' case, which established that costs incidental to the acquisition of goods by the dealer form part of the price when he sells the goods. However, if the cost of freight is charged for transportation on behalf of the purchaser, it is considered post-sale expenditure and is deductible.

The petitioner had a contract stipulating that transportation was optional and charged extra, indicating the sale was completed at the factory site. The court found that the petitioner acted both as a seller and a transporter. The Tribunal's conclusion that delivery at the factory was only on paper was incorrect, as the petitioner collected freight charges separately, indicating a dual role. The court held that the freight charges, collected separately and not included in the regular invoice but through a separate debit note, should not form part of the sale price and thus should not be included in the turnover for sales tax purposes.

2. Inclusion of Octroi Charges in Sales Turnover:
The second issue was whether octroi charges collected and paid by the petitioner on goods imported into the buyer's location should be included in the sales turnover. The petitioner contended that these charges were paid on behalf of the customers and should be excluded from the taxable turnover. The court agreed, noting that the octroi charges were collected and paid by the petitioner in his capacity as a transport agent for the wholesaler, not as a seller. Therefore, these charges were subsequent to the sale and should not be included in the sales turnover for tax computation.

Conclusion:
The court concluded that both the freight charges and octroi charges should not be included in the sales turnover for computing sales tax. The orders of the Tribunal, appellate, and assessing authorities were set aside, and the revision petition was allowed. The Supreme Court upheld the High Court's judgment, agreeing that the agreement regarding transportation was not a sham and that the freight charges should not be included in the taxable turnover. The appeal was dismissed with costs.

Order:
The Supreme Court dismissed the appeal, agreeing with the High Court's judgment that the freight charges collected separately should not be included in the sales turnover for sales tax purposes. The court noted that the special leave petition raised only the question of law relating to freight and not octroi, thus limiting the scope of the appeal.