2006 (10) TMI 378 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Inclusion of freight charges in total turnover for Central Sales Tax purposes.
2. Interpretation of "sale price" under Section 2(h) of the Central Sales Tax Act, 1956.
3. Determination of liability for freight charges under f.o.r. destination contracts.

Issue-wise Detailed Analysis:

1. Inclusion of Freight Charges in Total Turnover for Central Sales Tax Purposes:
The core issue referred to the court was whether the Tribunal was justified in not including the freight charges in the total turnover while holding that the freight charges were shown separately in the bill and paid by the buyer, considering the transactions were f.o.r. destination.

2. Interpretation of "Sale Price" under Section 2(h) of the Central Sales Tax Act, 1956:
The definition of "sale price" under Section 2(h) of the CST Act is crucial to this case. It states that "sale price" means 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 or the cost of installation if such cost is separately charged. The court noted that the definition is specific and makes provisions for due adjustments in respect of discounts and other charges, excluding the cost of freight if separately charged.

3. Determination of Liability for Freight Charges under f.o.r. Destination Contracts:
The court examined whether the freight charges should be included in the sale price when the transaction was f.o.r. destination and the freight was paid by the purchasers. The court relied on several precedents, including the apex court's judgment in Hindustan Sugar Mills Ltd. v. State of Rajasthan, which held that the amount of freight forms part of the "sale price" if the seller is responsible for the freight charges up to the destination. The court also considered the case of Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh, which distinguished between contracts where the delivery is complete upon goods being put on rail (making the railway the agent of the purchaser) and those where the delivery is complete at the destination railway station.

The court further referenced the Division Bench judgment in Straw Products Ltd. v. Commissioner of Sales Tax, M.P., which held that if the delivery of goods was complete when delivered to the carrier, the freight paid by the purchaser would not form part of the sale price. Similarly, the Punjab and Haryana High Court in State of Haryana v. Janki Dass and Co. held that freight charges shown separately and paid by the buyer do not form part of the turnover.

Conclusion:
The court concluded that the Tribunal was not justified in excluding the freight charges from the total sale price without considering the terms of the contract or transaction between the parties. If the contract stipulated that the delivery was complete when the goods were loaded on the railway and the risk of transit was on the purchaser, the freight charges should not be included in the sale price. However, if the seller was responsible for the risk of transportation up to the destination, then the sale price should include the freight charges.

The question referred was answered accordingly, emphasizing the necessity to consider the terms of the contract to determine the inclusion of freight charges in the sale price for Central Sales Tax purposes.