9911796707
TMI Blog2008 (12) TMI 701X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1-company quoted ex-works price of the insulators, freight and insurance charges, and other charges like excise, sales tax separately. During four quarters ending on March 31, 2000 (1999-2000) petitioner No. 1-company submitted bills claiming price of the insulators and freight and insurance charges and other charges separately. Undisputedly petitioner No. 1-company realised sales tax on the ex-works price but did not charge any sales tax on the freight and insurance charges. During the said assessment year petitioner No. 1-company claimed that no sales tax was payable on Rs. 4,10,397 received as freight from the SEB. In the assessment proceeding for the aforesaid year 1999-2000 the Assistant Commissioner, Commercial Taxes, Taltala Charge, disallowed such claim and levied sales tax on the said freight charges on the view that sale price of insulators was inclusive of freight and insurance charges. Petitioner No. 1 preferred an appeal contending that freight did not form part of the sale price but such contention was not accepted by the Deputy Commissioner, Commercial Taxes, Kolkata (South) circle. Petitioner No. 1-company approached the West Bengal Commercial Taxes Appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ysis of the terms and conditions of the agreement if it is found that freight was included as a component of the consideration for sale, it is not necessary to consider when sale was completed. Sale price was defined in section 2(31) of the West Bengal Sales Tax Act, 1994 (in short, the 1994 Act ). 2. (31) 'sale price' means the amount payable to a dealer as valuable consideration for the sale, other than that referred to in section 15, of any goods, less any sum allowed as cash discount according to ordinary trade practice [or any sum charged as cess leviable under the West Bengal Transport Infrastructure Development Fund Act, 2002 (W.B. Act XXI of 2002), but including any sum charged for anything done by the dealer in respect of the goods at the time of, or before, delivery thereof, other than the cost of freight or delivery or the cost of installation or interest when such cost or interest is separately charged. (emphasis Here italicised. supplied) In Hindustan Sugar Mills Ltd. [1979] 43 STC 13; [1978] 4 SCC 271 the Supreme Court was considering whether the amount of freight charged separately for selling and transporting cement, a controlled commodity unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is only as part of the consideration for the sale of the goods that the amount representing excise duty would be payable by the purchaser. There is no other manner of liability, statutory or otherwise, under which the purchaser would be liable to pay the amount of excise duty to the dealer. And, on this reasoning, it would make no difference whether the amount of excise duty is included in the price charged by the dealer or is shown as a separate item in the bill. In either case, it would be part of the 'sale price'. So also, the amount of sales tax payable by a dealer, whether included in the price or added to it as a separate item, as is usually the case, forms part of the 'sale price'. It is payable by the purchaser to the dealer as part of the consideration for the sale of the goods and hence falls within the first part of the definition. . . We may then take a case where a dealer transports goods from his factory to his place of business and sells them at a price which is arrived at after taking into account 'freight and handling charges' incurred by him in transporting the goods. The amount of 'freight and handling charges' included in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on certainly represents an amount charged for transportation or installation of the goods at the time of or before the delivery thereof and would, therefore, fall within the inclusive clause on its plain terms but it is taken out by the exclusion clause, 'other than the cost of freight or delivery or the cost of installation in case where such cost is separately charged'. This exclusion clause does not operate as an exception to the first part of the definition. It merely enacts an exclusion out of the inclusive clause and takes out something which would otherwise be within the inclusive clause. Obviously, therefore, this exclusion clause can be availed of by the assessee only if the State seeks to rely on the inclusive clause for the purpose of bringing a particular amount within the definition of 'sale price'. But if the State is able to show that the particular amount falls within the first part of the definition and is, therefore, part of the 'sale price', the exclusion clause cannot avail the assessee to take the amount in question out of the definition of 'sale price'. Here, on the view taken by us, the amount of freight forms part of the ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of consideration was made up, whether it included excise duty or sales tax or freight. 'The only relevant question to ask is as to what is the amount payable by the purchaser to the dealer as consideration for the sale and not as to what is the net consideration retainable by the dealer'. It was further held that the concept of real price or actual price retainable by the dealer was irrelevant. Reference in that connection was made by this court to what Goddard, LJ. stated in Love v. Norman Wright (Builders) Ltd. [1994] 1 All ER 618. This court then observed that if the dealer transported goods from his factory to his place of business and sold them at a price which was arrived at after taking into account 'freight and handling charges' incurred by him in transporting the goods, then the said charges would obviously be part of the 'sale price' because it would be payable by the purchaser to the dealer as part of the consideration for the sale of goods. It was also observed that the same would be the position even if the 'freight and handling charges' were shown separately in the bill and added to the price of the goods, for the character of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. [1979] 43 STC 13 (SC); [1978] 4 SCC 271 (at page 30 of STC): This would plainly and indubitably be the position where the contract of sale entered into by the dealer is f.o.r. destination railway station. But here it is necessary to bear in mind a rather important distinction. There may be a case where the contract of sale may not be f.o.r. destination railway station, but the price alone may be so. Where such is the case, the contract does not have all the incidents of a f.o.r. destination railway station contract, but merely the price is stipulated on that basis. The terms of such a contract may provide that the delivery shall be complete when the goods are put on rail and thereafter it shall be at the risk of the purchaser. Such a stipulation would make the railway agent of the purchaser for taking delivery of the goods. The freight in such a case would be payable by the purchaser though the price agreed upon is f.o.r. destination railway station. The price of the goods receivable by the dealer would, in that event, be the f.o.r. destination railway station price less the amount of freight payable by the purchaser. That would be the consideration payable by the purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract. In the present case at the time of entering into contract for sale the goods were unascertained goods. Principles laid down in section 23 of the Sale of Goods Act are applicable. The terms and conditions of the contract are to be examined and analysed to find out the stage of passing of property in the insulators in question. On behalf of the petitioners emphasis has been placed on the clauses for inspection, testing, packing and sealing by the SEB's (buyer) inspector as contained in general conditions of contract for supply and delivery of equipments/materials and the commercial terms and conditions of the agreement, particularly the conditions Nos. 8 and 9 of the general conditions and paragraph 6(a) of the commercial terms and conditions being annexure 1 to the tender notice. By referring to such conditions and clauses it has been argued on behalf of the petitioners that the property in the insulators stood transferred to the buyer SEB in accordance with the provisions of section 23 of the Sale of Goods Act when test certificates approving and accepting particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of ownership relevant clauses of the terms and conditions of the agreement are to be carefully examined and the intentions of the parties are to be ascertained from cumulative effect of those terms and conditions. SEB entered into an agreement with the petitioner and placed orders for supplying and delivering insulators as per specification contained in the technical specification document attached to the agreement. General conditions of contract provide for inspection, testing (clause 6(a)). Different stages from supply of drawing up to delivery of materials are clearly indicated in the agreements. After order for supply was issued, supplier, i.e., the petitioner was to submit outline drawings complete in all respects o the material controller of the SEB for approval. After approval of the material controller, the petitioner was to manufacture or procure insulators satisfying technical specification and approved outline drawing. When the insulators were manufactured or procured the petitioner was to subject each of those materials to routine tests and submit the test reports indicating test results before the material controller. SEB reserved its right to depute its engineers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by referring to the clauses expressly providing that the date of successful testing and inspection would be the date of delivery. Such submission of the petitioners could have been accepted without any hesitation had clause 7 providing for further inspection and reserving right for the SEB to reject the supplied materials if discrepancies were found after re-inspection, not been there. It is thus necessary to examine the impact and effect of the aforesaid clause 7 read with all other relevant clauses and conditions. Aforementioned clause 7 should not be considered in isolation. Before application of clause 7, the goods were duly inspected, tested and certified. The goods were thereafter packed and sealed by the officers of the SEB and kept aside awaiting despatch clearance. The petitioners could despatch only those packed and sealed goods to different stores of the SEB as mentioned in the despatch orders. The goods were not only ascertained but also stood appropriated to the contract as soon as the goods were packed and sealed by the officers of the SEB. It appears to us that stipulation permitting further inspection and testing, was inserted by way of extra caution to ensu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after physical delivery of the insulators. Even under the payment clause (clause 14(d) as applicable in the present case) 90 per cent payment along with taxes and duties was to be made ready after inspection, i.e., date of legal delivery and before physical despatch. The petitioner was required to submit pro forma invoice to the paying authority within seven days from the date of offering inspection. SEB was obliged to send intimation regarding readiness of payment after receipt of despatch clearance from the Superintending Engineer (Inspection). Ready cheque was to be delivered upon production of receipted challans signed by the authorised officer of the SEB. Reading all the stipulations as contained in the general terms and conditions and the detail commercial terms and conditions together it appears to us that legal title of the goods stood transferred to SEB as and when the ascertained goods were packed and sealed by the officer of the SEB and despatch clearance was issued and physical despatch was a responsibility or obligation after transfer of title as the petitioner had taken such responsibility under the agreed terms and conditions of the contract. Clause 7 was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty in the logs stood transferred only at Ambernath after factory manager there accepted those logs upon measurement and examination. The Supreme Court took several features of the agreement therein in arriving at its conclusion. The Supreme Court observed (at page 309 of 10 STC): . . . It is true that in this later contract clause 2 is differently worded and there is no express provision that the goods should be delivered at Ambernath. There are, nevertheless, several other provisions in the later contract indicating that property in the logs loaded in the wagons will not pass to WIMCO until after the goods arrive at Ambernath and are inspected, measured and accepted by WIMCO's factory manager. Clause 2 of the later contract quite clearly reserves the right of WIMCO to examine the goods on arrival and to reject the same if they are found, in the opinion of its factory manager, not to conform with the specifications. This reservation, which is made notwithstanding the fact that the logs may have been accepted by its representative before they were railed to Ambernath, clearly indicates that the so-called acceptance by the representative was not final but was entirely te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... livery and all other sub-clauses of clause 11, i.e., 11(b) to 11(f) dealt with physical delivery . It is well-known that property in the goods may pass even before actual physical delivery and even before payment of price. Clause 7 of the terms and conditions should not be read in isolation. All the terms and conditions are to be read together to ascertain intention of the parties to the contract and total effect of the agreement. Reading all the terms and conditions of the agreement provision for post-delivery checking of materials as contained in clause 7 does not appear to be a mandatory or compulsory exercise to be undertaken before giving assent to appropriation. There is no finding by the sales tax authorities that post-delivery checking was being done before accepting physical delivery and granting receipt. The documents annexed to the application show that the stores-incharge of the stores were receiving goods and issuing receipts on the dates of physical delivery. Although the receipts issued by the stores contained a rider 'subject to further inspection and testing' payment was to be made on the basis of those receipts without actually making any further ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r inspection/despatch in the absence of such notification, the manufacturer's despatch note shall be considered as date of delivery or the contracted delivery date (including any agreed extension thereto) whichever shall be earlier. Contracted date of delivery was the date of receipt of offer for inspection of the materials along with works test certificate provided the materials passed in inspection and testing. Admittedly the seller, i.e., the petitioner did not have reserved any right over the goods accepted, packed and sealed by the SEB, i.e., the buyer. Once despatch clearance was issued signifying assent of the SEB, the petitioner was under obligation to deliver those packed and sealed goods physically to SEB even before receipt of the price. Goods were to be despatched on freight paid basis. SEB was not to pay the freight at the time of taking physical delivery. The petitioner did not even have the right to withhold physical delivery for receiving payment of agreed price. In this connection reference may be made to the observations of the Supreme Court in Mahabir Commercial Co. Ltd. v. Commissioner of Income-tax, West Bengal reported in [1972] 86 ITR 417; AI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause 9(b) of the general terms and conditions and 11(a) of the commercial terms and conditions which expressly provided that the date of receipt of offer for inspection of the goods along with works test certificate was treated as the date of delivery of the goods. Finding regarding point of sale was recorded in the context of the facts and circumstances of the said case and cannot be applied to the facts of the present case. It should, however be made clear that if transport charges are not part/component of the sale price/consideration, and are separately charged under separate bill in terms of the agreement it is immaterial whether transportation is a pre-sale or post-sale event. Point of sale may assume importance where it is not very clear whether transportation cost was part of the sale price or not. If all the terms and conditions of the contract are taken into account it is clear that the parties intended to transfer the property in the goods at the time when despatch clearance was issued by the appropriate competent authority. Physical delivery was an obligation undertaken by the seller under the contract and it did not postpone transfer of ownership. Reservation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not be borne by the Board, if the delay is due to any failure on the part of the supplier. Annexure 1 to the general conditions was the price-Schedule which included two separate items, namely (i) Unit-Rate-Ex-Works, (ii) Unit Freight and Insurance Charge. There was another annexure being annexure 1A in which actual price quotation was to be submitted. The petitioner in fact submitted its price quotation in annexure 1A. Annexure 1A contained several additional items other than those specified in the price-schedule in annexure 1. Besides items like description of the item, quantity tendered, quantity offered, unit-rate ex-works and unit freight and insurance rate as contained in the price-schedule, quotation sheet in annexure 1A contained items like applicable excise duty, excise duty, applicable Central/W.B.S.T., Central/W.B. sales tax. Technical specification for supply of insulators, which was a part of the tender documents and annexed to the application, contained paragraphs/ clauses on price . Paragraph/clause 4 of the technical specification stipulated: 4.. Price 4.1 The prices to be quoted shall be VARIABLE as per IEEMA price-variation formula with base date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to 100 per cent or 90 per cent payment along with taxes and duties. Those clauses did not speak of payment of freight and insurance charges separately and suggested that 90 per cent or 100 per cent of the price including freight and insurance charges and entire amount of taxes and duties payable would be paid on the basis of receipted challans. Quotation on price was submitted by the suppliers in the prescribed pro forma (annexure IA to general terms and conditions). In the said pro forma rates were quoted under different heads, viz. (i) unit rate ex-works, (ii) applicable excise duty, (iii) excise duty, (iv) applicable WBST, (v) W.B. sales tax, (vi) unit F and I, and (vii) total. Freight and insurance charge was quoted separately at fixed rate per unit as a combined item. India Potteries, the present petitioner, has annexed a statement disclosing freight and insurance charges claimed by it and the actual transportation charges billed by the transporters. Said statement shows that transportation charges claimed by the petitioner were either more or less than actual transportation costs. Challans issued by India Potteries while despatching insulators to different stores o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime of submission of bill. All along both the parties to the contract showed freight charge as separate item of charge. It has been argued on behalf of the petitioners that no feature should be over-stressed or considered in isolation. Question is primarily a question of intention as reflected from various clauses of the agreement. It is pointed out that from the stage of invitation of tender freight and insurance charge was being shown separately from the ex-works unit price of the goods. If sale price was intended to be inclusive of freight and insurance, there was no necessity of asking the tenderers to quote such charge separately from the ex-works price. Price schedule (annexure I) to the general terms and conditions and the pro forma (annexure IA to the general terms and conditions) contained separate heading for freight and insurance charge. Total charge included even excise duty and sales tax, which admittedly were not part of the sale price. Thus merely because freight and insurance charge was shown in the price schedule it cannot be definitely inferred that such freight and insurance charge, was part of the sale price. Emphasis has been laid on the stores receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid down a general proposition that if the freight charge is part of the sale price/consideration for sale, freight cannot be excluded from sale price and from the net of sales tax merely because the seller shows it separately in the sale bill/invoice. Aforesaid general proposition appears to be sound and logical. After enunciation of the said general proposition the Supreme Court considered the facts and circumstances of the said case to record its finding. It appears to be correct that had not the provisions of Cement Control Order been there, in operation, the Supreme Court would not have held in that the sale price included freight in Hindustan Sugar Mills [1979] 43 STC 13; [1978] 4 SCC 271. The Supreme Court itself observed therein (at pages 32 and 33 of 43 STC): It would, thus, be seen that according to these provisions, the delivery of the goods to the purchaser would be complete as soon as they are put on rail at the work siding and then the risk then passes to the purchaser and payment of freight would be the responsibility of the purchaser. This would be the position apart from the provisions of the Control Order and, on this position there can be no doubt, for reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C) delivered on October 30, 1987 long after its decision in Hindustan Sugar Mills Ltd. [1979] 43 STC 13 (SC); [1978] 4 SCC 271 which was delivered on August 22, 1978. In Vinod Coal Syndicate v. Commissioner of Sales Tax, U.P. reported in [1989] 73 STC 317 (SC), the Supreme Court was considering a similar definition of turnover in the U.P. Sales Tax Act, 1948 to decide whether amount of freight charged separately would be taken into account to calculate the dealer's taxable turnover. Vinod Coal Syndicate was a commission agent in the business of coal. While assessing taxable turnover of Vinod Coal Syndicate the assessing authority included the sums paid as cost of freight within the taxable turnover in the assessment year 1975-76. Turnover was defined in the U.P. Act to mean, the aggregate amount for which goods are supplied or distributed by way of sale or are sold, by a dealer, either directly or through another, on his account or on account of others, whether for cash or deferred payment or other valuable consideration. . . . Explanation II Subject to such conditions and restrictions, if any, as may be prescribed in this behalf, (i) the amount for whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mentions f.o.r. cement price as the controlled price stipulated in the Cement Control Order, and this is also what is contemplated by condition 4 set out earlier. To this is added a Central excise duty. Thereafter, the assessee purports to give credit for railway freight and a net price, which is described as net price 'f.o.r.' works siding is worked out, to which are added Central sales tax, packing charges, sales tax on packing charges (if any) and a deposit to cover any levy of sales tax on freight. In our opinion, if, as stated by the assessee, all that it did was to sell the cement at net price f.o.r. with a liability on the purchasers to bear the railway freight, the invoice need not have contained all the details which it purports to contain including all the above calculations starting with the f.o.r. price at the controlled rate. In such an event all that the assessee need have done was to invoice the purchasers at the net price f.o.r. works siding and despatch the goods under 'freight to pay'. It is also interesting to see that the invoice specifically includes a deposit to 'cover any levy of sales tax on freight'. It is clear that the invoice ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the factory and pay the freight. The petitioner discharged their responsibility by giving physical delivery on freight-paid basis and demanded freight at agreed rate separately in the bill. We may emphasise that in the present case transportation was from the petitioner's workshop to the purchaser's place after completion of sale and not a pre-sale movement from the petitioner's one place to another. In Hindustan Sugar Mills Ltd. [1979] 43 STC 13; [1978] 4 SCC 271, the Supreme Court on facts held that transportation was a pre-sale transportation and transportation was f.o.r. under the provisions of the Cement Control Order. It also appears to us that the facts in Hindustan Sugar Mills case [1979] 43 STC 13 (SC); [1978] 4 SCC 271 were materially different from the facts of the present case. Hindustan Sugar Mills was manufacturer of cement. It entered into contracts with purchasers to sell cement at a particular price per metric tonne free on rail destination railway station plus packing charges and excise duty. Despite such contract manufacturer despatched cement to the purchasers on the basis of freight to pay . Purchasers paid the freight and took delivery of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeded on the view that the contract was f.o.r. destination without taking into account express provisions of clause 17 of the commercial terms and conditions. Clause 17 dealing with mode of transport clearly stipulated that physical delivery would be on freight-paid basis and the agreement had a separate clause being clause 18 on freight charge. If freight was included in the price there was no necessity or reason for having a separate clause on freight charge . It appears that the administrative member failed to take a comprehensive look and to analyse the decisions placed before him. He committed several errors in his approach, in his analysis of the salient features of the agreement between the petitioner and in his appreciation of the decisions placed before him. The administrative member of the Board placed strong reliance on the judgment of the Madras High Court in India Meters Limited v. State of Tamil Nadu [2004] 136 STC 285. The learned member failed to notice that in the Madras case there was no clause in the contract as in the present case whereby point of delivery was clearly mentioned. In fact, the Madras High Court did not follow the Supreme Court judgment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xclude cost of freight or delivery even if separately charged. Whereas in the West Bengal Act cost of freight or delivery if separately charged, was excluded from the inclusive part of the definition. Secondly, there was no clause like delivery clause in the present case (clause 9 of the general conditions and clause 11(a) of the commercial conditions). Thirdly, in Vallabh Glass Works Ltd. [1982] 50 STC 352 (Guj) there was no provision for previous examination and approval. In the present case in accordance with the terms and conditions of the contract the goods were tested, test report was accepted, goods were packed and sealed and despatch clearance was issued by the SEB giving its assent to appropriation of the goods to the contract. We have considered and analysed the effect of the material clauses in the present case and have recorded our finding on the point of completion of sale. Terms and conditions of the contract in Vallabh Glass Works Ltd. [1982] 50 STC 352 (Guj) were materially different from those in the present case. We are also unable to agree with any proposition, if at all propounded in Vallabh Glass Works Ltd. [1982] 50 STC 352 (Guj), that if the contract i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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