1995 (1) TMI 325 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the Tribunal was justified in excluding freight charges paid by the buyer from the sale price.

Issue-Wise Detailed Analysis:

1. Exclusion of Freight Charges from Sale Price:

The primary issue for determination was whether the freight charges paid by the buyer could be excluded from the sale price for the purpose of calculating sales tax. The assessee, a manufacturer of paper, strawboard, and exercise books, maintained a uniform price f.o.r. (free on rail) destination across the country. The procedure involved despatching goods by rail with "freight to pay," making invoices at the catalogue rate, deducting discounts, adding excise duty, charging sales tax on the balance, and then giving credit for the freight amount to be paid by the customers.

The Sales Tax Officer included the freight charges in the sale price, leading to an increased turnover and higher sales tax liability for the assessee. This decision was upheld by the Assistant Commissioner of Sales Tax. However, the Maharashtra Sales Tax Tribunal accepted the assessee's contention that the freight did not form part of the sale price and allowed the appeals of the assessee.

2. Legal Precedents and Tribunal's Findings:

The Tribunal's decision was based on the Supreme Court's ruling in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh [1969] 24 STC 487, where it was held that freight did not form part of the sale price. The Tribunal found that the facts of the present case were identical to the Hyderabad Asbestos case and thus applied the same legal principle.

3. Revenue's Contention and Supreme Court Decisions:

The Revenue argued that the Tribunal erred in its judgment and that the case should be governed by the Supreme Court's later decision in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13. In Hindustan Sugar Mills, the Supreme Court concluded that freight charges formed part of the sale price due to the statutory provisions of the Cement Control Order.

4. Analysis of Contract Terms:

Upon reviewing the facts and contract terms, the Court found that the present case was similar to Hyderabad Asbestos Cement Products Ltd. The contract stipulated delivery completion upon goods being put on rail, with the buyer responsible for freight. This indicated that the freight charges were not part of the sale price but rather a separate obligation of the buyer.

5. Differentiating F.O.R. Contracts:

The judgment clarified two types of f.o.r. contracts:
- F.O.R. Destination Railway Station: The seller bears the freight cost, and the sale price includes freight.
- Price F.O.R. Destination Railway Station: The buyer bears the freight cost, and the sale price excludes freight.

The present case fell into the second category, where the sale price was the catalogue price minus the freight, aligning with the Hyderabad Asbestos ruling.

6. Supreme Court's Reiteration:

The Supreme Court's decision in Hindustan Sugar Mills Ltd. was distinguished as it was influenced by the Cement Control Order, which was not applicable in the present case. The principles from Hyderabad Asbestos Cement Products Ltd. were reaffirmed as valid and binding.

7. Specific Contract Terms:

The terms in the assessee's contracts, including notes from price lists and forwarding letters, indicated that delivery was complete upon goods being put on rail, and the buyer bore the freight risk. These terms matched those in Hyderabad Asbestos, supporting the Tribunal's decision.

8. Revenue's Additional Argument:

The Revenue argued that the collection of sales tax on the full value, including freight, indicated an intention to include freight in the sale price. However, this argument was rejected, as the form of invoice did not alter the contract's nature, as per the Supreme Court's observation in Hyderabad Asbestos.

9. Liberty for Revenue Action:

The Court noted that the Revenue could take appropriate action, including forfeiture proceedings, if sales tax had been collected on freight amounts not forming part of the sale price.

Conclusion:
The Court answered the reference in the affirmative, upholding the Tribunal's decision in favor of the assessee. The freight charges paid by the buyer did not form part of the sale price, and the Revenue's contention was dismissed. The judgment reinforced the legal principles established in Hyderabad Asbestos Cement Products Ltd. and clarified the application of f.o.r. contracts in sales tax assessments.