2023 (2) TMI 1384 - HC - VAT / Sales Tax

Scope of definition of sale price as defined under Section 2(h) of the Central Sales Tax Act 1956 - exclusion of cost of freight or the cost of installation in cases where such cost is separately charged from sale price - levy of tax on element of freight on goods against Form C in view of the provisions of Section 8(1) of the Central Sales Tax Act 1956. HELD THAT - On perusal of the provisions of Section 2(36) of the RVAT Act and Section 2(h) of the CST Act as referred above it is beyond doubt that as per the Explanation III of Section 2(36) of the RVAT Act the cost of freight and other related expenses like insurance would not be included in the sale price if the same are charged separately in the invoice even if the same are included by the dealer for or on behalf of the buyer. Similarly as provided under Section 2(h) of the CST Act the cost of freight when the same is separately charged in the invoice would not form part of the sale price. The provisions of both related Acts whose authorities are common have to be interpreted in harmonious peaceful and in the intended manner. Time and again the Apex Court in Baroda Electric Meters Ltd. Vs. Collector of Central Excise 1997 (7) TMI 126 - SC ORDER Escorts JDB Ltd. Vs. Commissioner o Central Excise Delhi-II 2002 (10) TMI 96 - SUPREME COURT has held that the freight separately invoiced will not form part of the sale price as defined in Section 2(h) of the CST Act and Section 2(36) of the RVAT Act. The literal translation of the said provisions is unambiguous and specifically excludes freight from sale price if it is separately charged/invoiced. Even the Division Bench of this Court has categorically held in COMMERCIAL TAXES OFFICER ANTI-EVASION CIRCLE-II JAIPUR VERSUS M/S. ROCA BATHROOM PRODUCTS PVT. LIMITED 2022 (1) TMI 1479 - RAJASTHAN HIGH COURT that freight cannot be added in the assessable value if the same is separately reflected in the invoice. Conclusion - The freight charges being reflected separately in the invoice are held to be permissible deductions. Separately charged freight and insurance should not be included in the sale price for tax purposes under the CST Act and RVAT Act. The questions of law framed above are answered in favour of the petitioner-assessee and against the respondent-Revenue - Revision allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment are:

(i) Whether the Rajasthan Tax Board was justified in ignoring the definition of 'sale price' under Section 2(h) of the Central Sales Tax Act, 1956, which excludes the cost of freight or installation when separately charged from the 'sale price'.

(ii) Whether the Rajasthan Tax Board was correct in not considering that if tax on freight is upheld, the rate should be the same as that levied on goods against Form "C" per Section 8(1) of the Central Sales Tax Act, 1956.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Definition of 'Sale Price' and Exclusion of Freight

Relevant Legal Framework and Precedents: The key legal provisions are Section 2(h) of the Central Sales Tax Act, 1956, and Section 2(36) of the Rajasthan Value Added Tax Act, 2003. These sections define 'sale price' and explicitly exclude the cost of freight when separately charged. The petitioner referenced several judgments to support their argument, including those from the Supreme Court and various High Courts.

Court's Interpretation and Reasoning: The court analyzed the definitions provided in both the CST Act and the RVAT Act, emphasizing that the exclusion of freight from the sale price is clear when it is separately charged. The court noted that the Tax Board's conclusion that freight should be included in the sale price due to F.O.R. destination delivery was incorrect and contrary to the statutes' intent.

Key Evidence and Findings: The petitioner provided invoices where freight charges were separately listed, supporting their claim that these should not be included in the sale price. The court found this evidence compelling and consistent with the statutory definitions.

Application of Law to Facts: The court applied the statutory definitions to the facts, concluding that the separately charged freight should not be included in the sale price, aligning with the legislative intent and previous judicial interpretations.

Treatment of Competing Arguments: The respondent argued that because the goods were delivered F.O.R. destination and the supplier bore the transit risk, freight should be included in the sale price. The court rejected this, citing statutory definitions and precedents that clearly exclude separately charged freight.

Conclusions: The court concluded that the Tax Board erred in including freight in the sale price and ruled in favor of the petitioner, allowing the exclusion of separately charged freight from the sale price.

Issue (ii): Tax Rate on Freight Charges

Relevant Legal Framework and Precedents: Section 8(1) of the CST Act was cited, which pertains to the tax rate applicable to sales against Form "C". The petitioner argued that if freight is taxed, it should be at the concessional rate applicable to goods sold against Form "C".

Court's Interpretation and Reasoning: The court did not need to delve deeply into this issue, as it resolved the primary question in favor of the petitioner by excluding freight from the sale price. However, it acknowledged the petitioner's argument as a valid alternative position.

Key Evidence and Findings: The court noted the petitioner's reliance on past judgments supporting the application of a concessional tax rate for freight if it were to be taxed.

Application of Law to Facts: Given the court's conclusion on the primary issue, this question became moot. However, the court recognized the logic in the petitioner's alternative argument.

Treatment of Competing Arguments: The court did not need to address competing arguments on this point due to its decision on the primary issue.

Conclusions: The court did not make a definitive ruling on this issue, as it was resolved by the primary determination that freight charges are not part of the sale price.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning:

"The freight and insurance charges are deductible and would not come under the definition of 'sale price' even if borne by the dealer on behalf of buyer, if it is reflected/charged separately in the invoice."

Core Principles Established:

- The definition of 'sale price' under the CST and RVAT Acts excludes separately charged freight and insurance.

- The legislative intent is to prevent manipulation of sale price by excluding separately charged freight.

Final Determinations on Each Issue:

- The court ruled in favor of the petitioner, holding that freight charges separately listed on invoices are not part of the sale price and are not subject to VAT.

- The court did not need to rule on the tax rate issue due to its primary decision on the exclusion of freight from the sale price.

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