2010 (9) TMI 878 - SC - VAT and Sales Tax

Whether freight and insurance charges were liable to be taxed and the same are to be included in the turnover - seller under obligation to transport goods to place of buyer Held that - amount of freight and insurance charges incurred by the dealer forms part of the sale price specific contract entered into by and between the parties and according to the relevant clause of the contract the ownership of the goods will remain with the supplier till they are delivered at the destination station High Court was totally justified in affirming the judgment of the Tribunal appeals being devoid of any merit are dismissed

Issues Involved:
1. Inclusion of freight and insurance charges in the taxable turnover under the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act) and the Central Sales Tax Act, 1956 (CST Act).
2. Interpretation of contractual clauses regarding the transfer of title and payment terms.
3. Applicability of Rule 6(c) of the Tamil Nadu General Sales Tax Rules, 1959.
4. Precedents and legal principles from Indian and English case law on the inclusion of freight and insurance charges in the sale price.

Detailed Analysis:

1. Inclusion of Freight and Insurance Charges in Taxable Turnover:
The core issue revolves around whether freight and insurance charges should be included in the taxable turnover under the TNGST Act and the CST Act. The Deputy Commercial Tax Officer held that these charges were liable to be taxed and included in the turnover for the assessment year 1986-87. The appellant initially did not include these charges in its taxable turnover, but the assessing authority determined that 50% of the total amount of Rs. 16,96,530, after making allowances for insurance, should be taxed as part of the sale price.

2. Interpretation of Contractual Clauses:
The contract between the appellant and its customers stipulated that the transfer of title to the goods would occur only upon delivery at the customer's place. The payment clause indicated that the price was ex-factory, but payment was due only after delivery. The appellant argued that since the contract separated the ex-factory price from freight and insurance charges, these should not be included in the taxable turnover.

3. Applicability of Rule 6(c):
Rule 6(c) of the Tamil Nadu General Sales Tax Rules, 1959, permits the deduction of freight costs when specified and charged separately by the dealer. The appellant relied on this rule to argue that freight charges should not form part of the sale price. However, the court emphasized that this rule must be read in the context of the definitions of "turnover" and "sale" under sections 2(r) and 2(n) of the Act. The court concluded that since the transfer of property was at the buyer's place, the freight charges incurred by the seller to deliver the goods formed part of the sale price and thus the taxable turnover.

4. Precedents and Legal Principles:
The court referred to several precedents to support its decision. In Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh, it was held that freight charges paid by the buyer did not form part of the sale price. However, this was distinguished from the current case where the obligation to pay freight was on the seller. The court also cited Hindustan Sugar Mills Ltd. v. State of Rajasthan, which held that freight charges form part of the sale price when the seller is obligated to deliver the goods to the buyer's premises.

The court also examined English cases like Paprika Ltd. v. Board of Trade and Love v. Norman Wright (Builders) Ltd., which supported the principle that taxes and additional charges included by the seller form part of the sale price. Indian cases like Dyer Meakin Breweries Ltd. v. State of Kerala and Hindustan Sugar Mills Ltd. were also cited to reinforce the view that freight and insurance charges, when incurred by the seller to fulfill the delivery obligation, form part of the sale price and are thus taxable.

Conclusion:
The Supreme Court concluded that the freight and insurance charges incurred by the appellant were part of the sale price and should be included in the taxable turnover. The court upheld the High Court's judgment affirming the Tamil Nadu Taxation Special Tribunal's decision. The appeals were dismissed with costs, solidifying the legal position that such charges are taxable when the seller is obligated to deliver the goods to the buyer's premises.

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