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M/s Indian Oil Corporation Ltd. Versus The Assistant Commissioner, Commercial Taxes, Special Circle, Rajasthan, Jaipur And Others

2015 (4) TMI 492 - RAJASTHAN HIGH COURT

Valuation - Determination of sale turnover - Inclusion of value of freight - Held that:- As per terms and conditions in the contract, when the seller was required to deliver the goods at the destination after taking into consideration the transit risk and all other liability namely; delivery charges plus sales tax plus octroi duty plus local tax/levies etc, in transit and at destination on the corporation selling price to the general trade on the date of delivery for each supply and when there i .....

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deterioration to the consignment in transit if the same is to be carried in their own or contractor's truck's/tank lorries to the destination station and as per the terms and conditions of DGS & D, the rate contract, as noticed earlier and specifically mentioned herein above, it was the duty of the assessee to deliver the goods at the destination. Therefore, in my view, the Tax Board has rightly come to the conclusion that the freight is includable in the sale price - Decided against assessee. - .....

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10/2012, 12/10/2012 and 12/10/2012 respectively relating to Assessment Year 1999-2000, 2006-07, 2007-08, 2008-09 and 2009-10 respectively. Since the facts are identical in all the petitions, therefore, for the sake of convenience, the same are being decided by this common order. 2. Brief facts are that the petitioner is an Oil Company and is a Public Sector Undertaking of the Union of India. During the year under reference, the petitioner-assessee sold diesel to the Railways. The dispute revolve .....

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the conclusion that in so far as the freight by road is concerned, it forms part of the sales turnover for the purposes of levy of sales tax and freight is required to be included in the sales turnover and thus sales tax is required to be levied. 3. The Assessing Officer (for short, 'AO'), after analyzing the evidence on record and the agreements entered into by and between the petitioner-assessee and the Railways, came to the conclusion that freight, being part of the bill (invoice), is .....

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er Section 2(36) of the Rajasthan Sales Tax Act (for short, 'RST Act'), the petitioner-assessee was unable to satisfy that the freight charges were separately reimbursed, the freight was part of the bill amount and accordingly dismissed the appeal. 5. The matter was further carried in appeal by the petitioner-assessee before the Rajasthan Tax Board (for short, 'Tax Board'). The Tax Board also, after analyzing the material placed on record, the clauses of the agreements and the au .....

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mbursable by the Railways separately. Counsel further contended that since the petitioner-assessee does not have its own containers to carry diesel for delivery at the destination, therefore, it hired services of containers from container owners on cost basis which was paid to the transporters. Counsel drew attention of this Court to the terms of contract and in particular the terms of delivery in the agreement. It was contended that the delivery of goods was at selling point and that the petiti .....

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/MI/Pipeline Tap off point to the destination. It further transpired that the transport risk/insurance was entirely on the assessee and it had to bear other expenses which was reimbursable. He further contended that Clause 12(b) of the agreement specifically stated that other elements like freight etc. will be extra. He also drew attention of this Court to Clause 16.3 of the agreement which clearly specifies that "the reimbursement of freight will be on actual road freight or the freight ra .....

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Revenue (Taxes), Kerala Vs. K.P. Moideenkutty (Decd.): (1993) 90 STC 36 (SC); Hyderabad Asbestos Cement Products Ltd. Vs. State of Andhra Pradesh: (1969) 24 STC 487 (SC); Hindustan Sugar Mills Ltd. Vs. State of Raj. & ors.: (1979) 43 STC 13(SC); Assistant Commissioner Vs. Ajanta Soya Limited: (2007) 8 VAT Reporter 205; State of Karnataka and another Vs. Bangalore Soft Drinks Pvt. Ltd.: (2000) 117 STC 413 (SC); Commercial Taxes Officer, Jodhpur Vs. Indian Rayon & Industries Ltd.: [2009] .....

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of sales turnover and that freight was reimbursable separately. She contended that there is only one agreement, one bill and no evidence has been placed on record by the petitioner-assessee that freight was separately paid by the Railways in terms of the agreement, if any. She further contended that the judgments relied upon by counsel for the petitioner-assessee are distinguishable on facts and submits that the judgments rendered by the Hon'ble Apex Court in the case of Hindusthan Sugar Mi .....

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ter. 9. Admittedly, in so far as the freight by rail transport is concerned, there is no dispute but the dispute is with reference to the goods (diesel) being transmitted by road transport to the destination as would be directed by the buyer i.e. Railways. While the contention of the counsel for the petitioner-assessee is that freight is separately reimbursable and in actuality whatever amount has been charged has been paid to the transport operator who provides vehicles in which the goods are t .....

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Definitions 2(36) "sale price" means the amount paid or payable to a dealer as consideration for the sale of any goods less any sum allowed by way of any kind of discount or rebate according to the practice normally prevailing in the trade, but inclusive of any statutory levy or any sum charged for anything done by the dealer in respect of the goods or services rendered at the time of or before the delivery thereof, except the tax imposed under this Act; Explanation I.-In the case of a .....

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tract, the cost of freight and other expenses in respect of the transportation of goods are incurred by the dealer for or on behalf of the buyer, such cost of freight and other expenses shall not be included in the sale price, if charged separately in the invoice; 10. The explanation III, appended to Section 2(36) would provide that if according to the terms of a contract, the cost of freight and other expenses in respect of transportation of goods, are incurred by the dealer for or on behalf of .....

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New Delhi and other relevant clauses read as under:- "Note:-The prices are subject to change and prices ruling on the date of supply will be payable. The prices are ex-storage point prices at Refineries/Installations and are exclusive of excise duty. Transportation from Refineries to depots/Terminals and consignee destinations. Sales Tax/VAT, State specific cost, octroi duty, local levies, entry tax etc. shall be charged extra as applicable." "6.Terms of Delivery : FOR EX-MI-Refi .....

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/Mangalore/Haldia/ Cochin/Narimanam/Koyali/Mathura/BRPL/NRL/ Palam/Lucknow/Allahabad/Fursatganj/Kanpur/Jammu/ Bhuvaneshwar/Calcutta/Guwahati/Jamshedpur/ Patna/Ahmedabad/Santacruz/Bhopal/Indore/ Nagpur/Dabolim/Bangalore/Begumpet/Dindug al." "4.1 Prices: Prices of all items of the Rate Contract have been deregulated with effect from 01.04.2002 and are being fixed by Oil companies on import parity principle or any other basis considered appropriate, from time to time, depending on the mar .....

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ilway Freight and Notional Railway Freight to be borne by the suppliers and claim subsidy from the OCC. However, if products come in Free Trade and Freight Subsidy is withdrawn by MOP&NG/OCC, the Actual Railway Freight shall be borne by the consignee. c) Excise Duty As per rates and applicability provided for by Government from time to time. d) Transportation by Road: Supplies made in Tank, Trucks by road from Refineries/MI/Pipeline/Tops/Depot shall be charged as certified by company officer .....

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Price Lists (MPLs)." "12. Transit Risk/Insurance: The firm shall be responsible and liable for any shortage, damages of deterioration to the consignment in transit if the same is to be carried in their own or Contractor trucks/tank lorries to the destination station in case of Rail consignments, the firm shall be responsible and liable for, such shortage, damage or deterioration only if the consignment has been booked under "said to contain" RR as a full wagon load and the Ra .....

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oration accruing in transit and the matter will be taken up by the consignee expeditiously with the concerned Railway Administration. For ex MI/Depot supplies the responsibility of the firm for supplies will cease once the product leaves the oil company premises." "14. Supplies from Alternative Sources in Tank Wagons: The rate of Sales Tax will vary with the source of actual supply of product from time to time depending Supplies from the normal pricing source will be made on freight to .....

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ubsidy on additional Railway Freight, the same shall be borne by the Buyer. If supply point is changed at the instance of the buyer to avail CST or other benefits, the buyer will bear the actual Rail Freight." Price build up will be as under: a) Ex-Depot price plus delivery charges/ Octroi / Local levies/ Surcharges Transportation charges at actual Sales Tax and any other levy as applicable from time to time. b) Un country supplies: For delivery in bulk tank wagons/ buyer's tank lorries .....

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tional seals of their own, if considered necessary. ii) Supplies will be subject to accessibility by road and suitability of Bridges. iii) if supplies are made from longer route because of closure of normal/ shorter route, extra transportation charges shall be borne by the consignee on certification by IOC's authorised officers attestation. iv) Handing and decantation of product from the Tank trucks into buyers containers at the consignee's premises will be the buyer's responsibility .....

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ing the tank truck without taking delivery of the product for any reason whatsoever, delivery charges will be payable by the CCA at the applicable rates on the basis of your authorised officers certificate. viii) When supplies cannot be undertaken to consignee's premises for any reason, the buyer's shall draw their requirement from your supplying Depots under their own management. For such supplies, Ex-Depot rates will apply. ix) Distance between MI/Refinery/Pipeline Top/Depot and consig .....

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n in the list prices as applicable from time to time will be advised by M/s IOC, HPC, BPC and MRPL to Zonal Railways. In support of these prices and revision thereto, Master Price List (MPL) duly signed by your internal auditor will be submitted. In case of variation in the price of M/s IOC, HPC, BPC and MRPL the lowest of the four will be applicable. However, the ex-supply location price payable to M/s IOC, HPC, BPC & MRPL on the date of supply will be lowest of the ex-supply location price .....

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be exempted from the condition of pre-payment of freight and will be booked as freight to pay without levy of 'To pay' surcharge on freight as destination. The other surcharges wherever applicable shall also be leviable (autority Railway board's letter No.TCR/1078/2006/15 dt.4.12.2006). 16.2.In case of dispatches by rail, the date of RR (Railway-Receipt) will be taken as the date of delivery. 16.3. In case of delivery by Road: (a) Delivery charges of ₹ 44/kl are included in pri .....

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to the exercised only after Rail transport has failed subject to following: i. Transit Risk/Insurance will be to the suppliers account. ii. Octroi duty will be applicable a per Clause 15 iii. Payment shall be made on receipt of material as per specification and in satisfactory condition. 16.4 For dispatches by road, the date of receipt of material by consignee(s) will be taken as date of delivery." "WEIGHTS AND MEASURES: Weights/Measures as shown in the delivery/despatch documents wil .....

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age or deterioration only if the consignment has been booked under "said to contain RR" as a full wagon load and the Railway seals of the wagons are found intact at the destination station. In that case a notice is to be served on the supplier by Regd. Post indicating the date of the seals of the wagons being found intact and the details of shortage, damage or deterioration, as the case may be, as early as possible, but in any case before the expiry of 30 days from the date of taking d .....

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te of delivery for each supply and when there is a specific reference of delivery at consignees storage/consumer pumps in corporation/ transporters in bulk and for delivery at consignees' storage/ consumer pumps, it prescribes that price built up will be exdepot price plus delivery charges/octroi/local levies/ Surcharges, Transportation charges at actual Sales Tax and any other levy as applicable from time to time and it will be the responsibility of the assessee and the IOC/BPC/HPC shall be .....

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eight is includable in the sale price and accordingly, in my view, the Tax Board was justified in coming to the conclusion to which it has reached. On perusal of the terms and conditions of DGS & D rate contract, it goes to show that the assessee shall be liable and responsible to pay for any shortage, damage and deterioration during the consignment of the goods in the way upto the destination of the purchaser by the assessee himself or through the truck/tank/lorry of the contractor. In the .....

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aving been granted to the assessee to place adequate material on record about the freight charges separately borne by the purchasers (Railways), no such evidence was led. Therefore, this fact also goes against the assessee as it was neither proved before the AO nor upto the Tax Board about the factum that the purchaser (Railways) paid/borne separately the freight charges. Therefore, on this factual finding also, when the assessee was unable to lead any evidence, this view strengthens the claim o .....

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. We are of the view that the former, and not the latter, represents the correct legal position. If the obligation to pay the freight were on the purchaser and in fact the purchaser paid the freight, as happened in both the cases before us in respect of every transaction of sale of cement, the amount of freight would obviously be deducted from the F.O.R. destination railway station price in the invoice and only the balance would be realised by the assessee. There would be no question of the asse .....

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How would the assessee claim to be entitled to be reimbursed under the proviso to Cl. (9) if he has not incurred any expenditure on the freight'? The entire statutory scheme would become unworkable. The scheme of the Control order clearly proceeds on the basis that the freight is payable by the producer and he recovers it from the purchaser as part of the F.O.R. destination railway station price. The provision in the contract that the delivery to the purchaser shall be complete as soon as th .....

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s part of the 'sale price' within the meaning of the first part of the definition. 16. This renders it unnecessary to consider the second part of the definition, but the latter clause of the second part was strongly relied upon on behalf of the assessee to support the exclusion of the amount of freight from 'sale price' and hence we must proceed to consider it. The second part enacts an inclusive clause. It says that 'sale price' includes "any sum charged for anythin .....

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ved out of this inclusion. Not all sums charged for something done by the dealer in respect of the goods at the time of or therefore the delivery thereof are covered by the inclusive clause. The cost of freight or delivery or the cost of installation 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 claus .....

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he 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 'sale price' within the meaning of the first part of .....

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exclusion clause and in the context of the definition as a whole, it is obvious that the expression ".... cost of freight.... is separately charged" is used in contradiction to a case where the cost of freight is not separately charged but is included in the price. It is not intended to apply to a case where the cost of freight is part of the price but the dealer chooses to split up the price and claim the amount of freight as a separate item in the invoice. Where the cost of freight i .....

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o applicable on the facts of the instant case wherein it has been held that when transfer of the property or the goods is at the place of the buyer to which the seller is under obligation to transport the goods, the freight and insurance charges form part of the sale price. In the instant case as well, as per the terms and conditions, specified herein above, the ownership of the liabilities as noticed above remained with the supplier i.e. the assessee till they are delivered at the destination s .....

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, in the present case, the assessee, as observed herein above, even despite opportunities having been granted, was not able to provide the material to claim that the freight was separately charged and was paid separately by the principals (Railways). 17. In the case of Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Kerala Vs. K.P. Moideenkutty (Decd.), the Hon'ble Apex Court had again an occasion to consider a case on a specific finding which was reached by the High Court .....

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he basis whereof it can be seen that the freight was charged separately and was paid separately by the principals (Railways). 18. In the case of Hyderabad Asbestos Cement Products Ltd. Vs. State of Andhra Pradesh (supra), the Hon'ble Apex Court found that the company sent goods to outstation customers by railway under railway receipts with freight to pay and the company made out an invoice at the catalogue rate, and the customer paid the amount of the invoice less the freight for releasing t .....

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