2001 (2) TMI 1015 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Inclusion of freight charges in the turnover for tax assessment.
2. Validity of separately billed freight charges for exemption.
3. Interpretation of the terms of sale and the nature of the transaction.

Detailed Analysis:

1. Inclusion of Freight Charges in the Turnover for Tax Assessment:
The appellant contested the inclusion of Rs. 10,87,632 relating to freight charges in the turnover for tax assessment. The Joint Commissioner (SMR) of Commercial Taxes included these charges in the turnover, arguing that the freight and handling charges were part of the sale price. The appellant argued that the gas was sold at an ex-factory price and that freight charges were billed separately for delivering the gas cylinders and returning empty cylinders.

2. Validity of Separately Billed Freight Charges for Exemption:
The appellant claimed exemption for freight charges billed separately, citing the safety and handling requirements of the gas sold. The Appellate Assistant Commissioner initially accepted this argument and granted exemption. However, the Joint Commissioner set aside this order, stating that the freight charges were composite and included in the sale price. The appellant referred to previous judgments, including the Madras High Court's decision in T.C. No. 199 of 1992, which excluded separately charged freight from the sale price under the Central Sales Tax Act.

3. Interpretation of the Terms of Sale and the Nature of the Transaction:
The Joint Commissioner noted that the contract indicated a FOR destination, meaning the goods were to be delivered at the buyer's premises. Despite separate billing, the Joint Commissioner concluded that the freight charges were part of the sale price, referencing the Madras High Court's decision in State of Tamil Nadu v. Parry and Company. The appellant argued that the terms of sale were ex-works and that separate invoices for freight charges were raised at the customer's request. The Supreme Court's decision in State of Karnataka v. Bangalore Soft Drinks Pvt. Ltd. was cited, which allowed exemption for separately billed freight charges.

Tribunal's Findings:
The Tribunal examined Rule 6(c) of the Tamil Nadu General Sales Tax Rules, which allows exemption for freight charges if specified and charged separately without being included in the price of the goods sold. The Tribunal found that the appellant's practice of bifurcating the sale price and freight charges did not meet this requirement. The Tribunal referenced the Supreme Court's decision in Hindustan Sugar Mills Ltd. v. State of Rajasthan, which held that splitting the price does not change the nature of the payment if the freight is part of the sale price.

Conclusion:
The Tribunal concluded that the freight charges were part of the sale price, as the delivery of gas cylinders and return of empty cylinders were integral to the sale. The appellant's practice of separate billing did not qualify for exemption under Rule 6(c). The appeal was dismissed, upholding the Joint Commissioner's inclusion of freight charges in the turnover for tax assessment. The Tribunal emphasized that the character of the payment as part of the sale price remained unchanged despite separate billing.