2017 (10) TMI 490 - HC - VAT and Sales Tax

Valuation - Interpretation of Statute - clause (29) of section 2 of the Bombay Sales Tax Act, 1959 and clause (h) of Section 2 of the Central Sales Tax Act, 1956 - insurance charges and carrying charges - includibility - whether insurance charges and carrying charges forms part of sale price - Whether on the facts and in the circumstances of the case and on a true and correct interpretation of clause (29) of section 2 of the Bombay Sales Tax Act, 1959 and clause (h) of Section 2 of the Central Sales Tax Act, 1956, the Tribunal was justified in law in holding that the insurance charges and carrying charges do not form part of the sale price? Held that - Section 19 of the Sale of Goods Act, 1930, deals with the property passes when intended to pass - The passing of the property in goods depends upon the intention of the parties, as is evident from the terms of the contract, the conduct of the parties, and the circumstances of the case. Under sub section (3) of Section 19, unless a different intention appears, the rules contained in Sections 20 to 24 are the rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. It is thus, the transfer of right to use the goods is deemed to be sale of goods, attracting the incidence of tax. In the present case, passing of the property in goods to the buyer is at the place and time of spot delivery. After the sale is complete, even if the assessee sellor retains the possession of the goods sold and incurs the expenditure of insurance and carrying the goods at the destination of the buyer, he performs these functions in his capacity as a bailee , as contemplated by Section 148 of the Indian Contract Act, 1872, who shall be entitled to reimbursement of such expenses from the bailor , as specified under Section 158 therein. Such charges of insurance and carrying incurred by the assessee sellor cannot, therefore, constitute a sale price within the meaning of Section 2(29) of the BST Act. The Tribunal was justified in holding that the insurance charges and carrying charges do not form part of the sale price for the reason that the sale was completed at the point of spot delivery and the insurance and carrying charges were incurred thereafter - question is answered in the affirmative - decided against Revenue.

Summary

Issues Involved:

1. Whether insurance charges and carrying charges form part of the sale price under the Bombay Sales Tax Act, 1959 and the Central Sales Tax Act, 1956.
2. Whether the penalty deletion by the Tribunal was justified based on the Bombay High Court's decision in Indoswe Engineers (P) Ltd. v. State of Maharashtra.

Issue-Wise Detailed Analysis:

1. Insurance and Carrying Charges as Part of Sale Price:

The primary issue was whether insurance charges and carrying charges should be included in the sale price under the Bombay Sales Tax Act, 1959 (BST Act) and the Central Sales Tax Act, 1956 (CST Act). The Court examined the definitions and relevant provisions of both Acts, particularly focusing on the interpretation of "sale price."

The Court referred to the landmark judgment of the Supreme Court in Hindustan Sugar Mills v. State of Rajasthan, which distinguished between different types of freight charges and their inclusion in the sale price. The Apex Court in Hindustan Sugar Mills held that freight and handling charges included in the price of goods, which are payable by the purchaser to the dealer as part of the sale consideration, form part of the sale price. Conversely, if freight is paid by the purchaser as a reimbursement to the dealer, it does not form part of the sale price.

Applying this principle, the Court noted that in the present case, the Tribunal found that the insurance and carrying charges were post-sale charges. The Tribunal concluded that these charges were incurred after the delivery of goods and were not part of the sale consideration. The Court agreed with this finding, emphasizing that the charges were for services rendered after the sale was complete and thus could not be included in the sale price under Section 2(29) of the BST Act.

The Court further analyzed the definition of "sale price" under Section 2(29) of the BST Act, which includes the amount payable for the sale of goods and any sum charged for anything done by the dealer at the time of or before delivery, excluding the cost of insurance for transit or installation when separately charged. The Court concluded that the insurance and carrying charges in question were not components of the sale consideration and thus did not fall within the inclusive part of the definition of "sale price."

2. Penalty Deletion by the Tribunal:

Given that the first question was answered in the affirmative, the second issue regarding the deletion of the penalty did not arise for consideration. The Tribunal's decision to delete the penalty was based on the precedent set by the Bombay High Court in Indoswe Engineers (P) Ltd. v. State of Maharashtra, which the Court did not need to address due to the resolution of the first issue.

Conclusion:

The Court held that the insurance charges and carrying charges did not form part of the sale price as the sale was completed at the point of spot delivery, and these charges were incurred thereafter. Consequently, the first question was answered in the affirmative, and the second question did not require consideration. The reference was disposed of accordingly.