1991 (8) TMI 298 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Inclusion of loading charges in the sale price.
2. Interpretation of "sale price" under Section 2(h) of the Central Sales Tax Act, 1956.
3. Applicability of the Supreme Court's decision in Hindustan Sugar Mills Ltd. v. State of Rajasthan.
4. Distinction between different types of sales contracts (f.o.r. basis).
5. Relevance of the exclusion clause in Section 2(h) regarding freight and delivery costs.

Detailed Analysis:

1. Inclusion of Loading Charges in the Sale Price:
The primary issue is whether the loading charges incurred before the delivery of "Shahabad stones" to the common carrier should be included in the sale price. The assessing authority, first appellate authority, and the Appellate Tribunal all held that these charges were pre-sale expenses and hence formed part of the sale price. The Appellate Tribunal specifically relied on the Supreme Court's decision in Hindustan Sugar Mills Ltd. v. State of Rajasthan, which stated that "freight and handling charges in respect of the cost of transportation of goods before delivery of the goods will form part of sale price."

2. Interpretation of "Sale Price" under Section 2(h) of the Central Sales Tax Act, 1956:
Section 2(h) defines "sale price" as the amount payable to a dealer as consideration for the sale of any goods, inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof, but exclusive of the cost of freight or delivery if such cost is separately charged. The petitioner contended that the cost of freight or delivery should be excluded from the sale price, arguing that the delivery of goods to the common carrier was incidental to the contract of sale.

3. Applicability of the Supreme Court's Decision in Hindustan Sugar Mills Ltd. v. State of Rajasthan:
The Supreme Court's decision in Hindustan Sugar Mills Ltd. was pivotal in this case. The Supreme Court had held that the freight charges, even if separately mentioned, formed part of the sale price if they were part of the consideration for the sale. The Court distinguished between different scenarios, including those where the sale price was statutorily fixed and included freight charges, and where the dealer's obligation was to deliver goods to a destination railway station at his expense.

4. Distinction Between Different Types of Sales Contracts (f.o.r. Basis):
The Supreme Court identified three distinct situations:
1. The dealer delivers goods at a specific place, and the sale price includes all expenses incurred until delivery.
2. The contract is f.o.r. destination railway station, where the dealer is responsible for delivering goods to the destination at his expense.
3. A contract that superficially resembles an f.o.r. destination contract but places the responsibility for transportation and freight on the purchaser.

The Court emphasized that only the third category would attract the exclusion clause in Section 2(h).

5. Relevance of the Exclusion Clause in Section 2(h) Regarding Freight and Delivery Costs:
The exclusion clause in Section 2(h) specifies that the cost of freight or delivery is excluded from the sale price if separately charged. However, the Supreme Court clarified that this exclusion applies only to the second part of the definition of "sale price." If the freight cost is part of the sale consideration, the exclusion clause does not apply. The Appellate Tribunal did not have the benefit of the petitioner's counsel during the hearing, necessitating a re-examination of facts in light of the Supreme Court's decision.

Conclusion:
The Karnataka High Court set aside the order of assessment, which included the cost of freight/delivery in the taxable turnover, and remanded the matter to the assessing authority for reconsideration. The assessing authority was directed to re-evaluate the issue in light of the Supreme Court's decision and the observations made in this judgment. The petitioner was instructed to be present before the assessing authority for further proceedings.

Final Judgment:
The revision petition was allowed, and the case was remanded to the assessing authority for fresh determination. The order of assessment, as affirmed by the appellate authority and the Appellate Tribunal, was set aside to the extent of the inclusion of the cost of freight in the taxable turnover. The petitioner was to appear before the assessing authority on 30th September 1991.