M-S. INDIA METERS LTD. v. STATE OF TAMIL NADU

Citation: [2010] 11 S.C.R. 22

Court: Supreme Court of India

Bench: DALVEER BHANDARI, DEEPAK VERMA

Case summary

M-S. INDIA METERS LTD. v. STATE OF TAMIL NADU.pdf

Judgment text

[2010) 11 S. C. R. 22 MIS. INDIA METERS LTD. v. STATE OF TAMIL NADU (Civil Appeal Nos. 1032-1033 of 2003) SEPTEMBER 7, 2010 (DALVEER BHANDARI AND DEEPAK VERMA, JJ. ] Sales tax - Freight and insurance charges incurred by the dealer - Levy of Sales tax on - Held: Freight and insurance charges incurred by the dealer form part of the sale price - Therefore, ·the same would fall within scope of 'turnover' and sales tax is leviable on it - Tamil Nadu General Sales Tax Act, 1959 - ss. 2(n) and (r) - Tamil Nadu General Sales Tax Rules, 1959 - r. 6 (c) - Central Sales Tax Act, 1956. Words and Phrases - 'Sale' and 'Turnover' - Meaning of, in the context of ss. 2(n} and (r) respectively of Tamil Nadu General Sales Tax Act, 1959. The appellant-assessee did not include the freight charges in its taxable turnover. On inspection it was found that the assessee had collected freight charges and insurance charges separately under the debit notes, but the same had not been shown in the monthly returns.

The Assessing authority assessed 50% of that amount, as freight charges, and levied tax on that amount of the freig~t charged by the assessee forming part of the sale price. Assessee's appeal against the order succeeded. Further appeal by the Revenue was allowed by the Tamil Nadu Special Taxation Tribunal. The assessee filed a writ petition against the order of the Special Tribunal. The High Court upheld the order of the Special Tribunal. Therefore, the instant appeals were filed. Dismissing the appeals, the Court HELD: 1. The amount of freight and insurance charges incurred by the dealer forms part of the sale price. In the instant case, there was specific contract entered into by and between the parties and according to the relevant clause of the contract, the ownership of the goods would remain with the supplier till they are delivered at the destination station. Thus, the High Court was justified in affirming the judgment of the Special Tribunal.

[Paras 41, 42 and 43) [37-E-G] - 2. In the instant case, the obligation to pay the freight was clearly on the appellant as there wa~ no sale at all, unless the goods were delivered at the premises of the buyer and in order to so deliver, the assessee necessarily had to incur freight charges. [Para 14] [29-B] 3. It is true that Rule 6(c) of the Tamil Nadu General Sales Tax Rules, 1959 permits deduction of the cost on freight while determining the taxable turnover. However, that provision must be read in the context of definition of "turnover" as also the definition of "sale" in Sections 2(r) and 2(n) respectively of the Tamil Nadu General Sales Tax Act. The turnover of an assessee/dealer would include the aggregate amount for which goods are bought or sold. It is, therefore, the amount for which the goods are bought or sold, which form part of the turnover, and a thing can be said to be sold only when the transaction falls within the scope of the definition of "sale".

When the transfer of the property or the goods is to be at the place of the buyer to which the seller is under an obligation to transport the goods, these expenditures incurred by the seller on freight in order to carry the goods from his place of manufacture to the place at which he is required under the contract to deliver, would thus become part of the amount for which the goods are sold by the seller to the buyer and would fall within the scope of "turnover". [Paras 18 and 20) [30-C-D; G-H; 31-A] 24 SUPREMEtCOURP REPORTS· . . [2010]' 11- S:G. R. "Dyer Meakin Brewerles,Ltd. v; State. of Kera/a (1970) 3 SCC 253;Hindustan Sagar· Mills v: State . of, Rajasthan 1and 1 Ors. ·(1978)14 SCC 271;Gement. ~Marketing. Go... of India. Ltd. · v. ' Assistant• GommisEfioner• of1Sales1 of:Jndia 1,, ,Lfd.. v! Comrrfissioner. of; commercialffaxesr, Karnataka1. 1980. 1(~upp) scc::373; ~ TV/. ljRamco . cement rDistNbutioh co: (P)1Ltd. \ etc.. etc. · v. :: Stateiof. 'fami/Naduietc.

teto:i:(1993) 11SGC~192;tBihar State Electricity Board ahdlArif. vcrUsha Martin Industries and Anr. (1997) 5 SCC 289; Black Diamond Beverages and Anr. 1 v. ' lcom'metcilll 'Tax .. 'oftiger, cJntrat Sectloh,As'sessment Winf}i? , ''Caicuffa' and ·ori}j (199$t1'~scc 45B~Comfnis$iciher 8 1 oPcehtra't~lEJlcis'e, Da1H1 V. "'MarLfi/JuC! yog l. '. td. ' (2002) 3~scc 2 0 1 547; §tai~? JP/... ·P. v. "'A P~ Paf)er'Mills''UCI. (2065)'1 rscC'-719! relied on. [fl::''>] tt t 0 ·, :, h. q1s. ', 1n1~•. ,,i1 w •. scwR' sso; £:/'tY ·F>IiJ. ,Y (iJ rod. ·v. ''AssiStanr·corRmtssionePorcomirierc1a1 1 rctx~s'¥h'Ct Jin? (2oo6> ·2 scct321, r~ferreci ta! ". · --·ci 1r;n1 "· ··1·. ·J~ '· t•. -,e· ! · • E:R. 312·;-' Love v. 11·~ t' .... ·!. ,1·1rt Q,;~ i0 ·':lt~ c ':i. ,. 1.. t. :. y,--· i:-1 · (1944) All E. R. 372.. Referred to... ' ·Para 23 -·. '°1J,uJr"H::~4J. :',j '5t'! 3-~~ •. r~oc·. g b'1". ' _,1i:)aan. jj1t fJi' 1tfe. gi·c~1 :s 1 " (1944). -1 AILE. Rr·618f! : . Referredlt-0" 9rlJ \· P. ara,2411 .

-:-·f'\ :·1 Jr;; f! ~Jl.. it> · rt'J -•• ,- . d ;t. ;fltfl;Rff. ;C" ~:>stq t_:,· ·11r,-,l l'b- ~~J 1 ... t n(1993/ 1'"'·scc' fsz 1b ' •R:~ned 'o~.. T • ar · ""'Para ·js ' ....... ·'.. d· 2-~·s:·· b'ti·i~~~J b··--s · 1 ·-\ : ,· c 1 ,1: ie-;E • 1; hc. ;1~ -~·:-i~ t~ •· ! (1997) 15' SCCC289) (! ·1/1 Relied. on::. ·· 1·0'') "P. ara 3. 7•: 'J(tfi b'·fic:f;1 '? ,. Q 1... 11-:= . : .. · ~;1,':l\··1 A TC,i Wff srH . :,r·,ra; i a1 1,0,~? -1,0~A~of ~9. 93. : ,. ,. _. r,-•J. _9 ," ,~ orafed . under tlie . ----~· ~:. ;: i ~I' • ·. . i:io ... ,·-:.. H.. r. , '''·~··;bXb' ! / prov1s1ons of the Companies Act. lhe appellant. manufactures t)P'' r1 . .. - '. f 'J· ,. _1-1 ·-~)'" ". '\hd·~4--; l_H,. -·--~h-"'"I electric meters and supplies· it to the Electridty' Boa'ras. The appellant is also a dealer registered ,under. the provisions.. of the Tamil·Nadu General Sales,Ta_x Act,J1959 as. well asJh~LCe,r:itr. 91 . :. Sales•Tax ,A. ct,,1! :)5_6.. . . , "'.. '! · '~·Jt =;\.. ,,'.

le~ lt;~·"· compqny:to pay Jhe freight;•and V"': under the terms otothercontractthe:price receivEidfby·the 5r. , kcompanyJor the sale of. goods'is the. -invoice(amountfless ... n 1~! he freight": ,,,. i ,, n-::ivi·_ . , . : . ,F. :; ·, · ~-. •.. ,n· - ·. · · .. ' JBii1fJ. 2\·:t1'. _... _ " 11 , • -· (··1~Ju9 9f;j tr. ' sger to so deliver, the assessee necessarily had to incur freight 'charges. ,,·.. ',:J f! rlt le '; :Jiu;· :€ ... ·'(. J : uni) 'J:' <:' ! ' b. \1dGX1... :: '~111 ij1,;f •li'. L81.. 1L SiH, ,\i· f'" _,,,~-~- -,1 n'", ,;. ;. J ~' ·~ r,,_1 f1~1lJJUb-et. = .... J~r ':t5. 0J:h~1t~J! ,n. ,sfe~.. o. fot! W~ t~),h. ~~gQo,<! ~ ~~,provi9~,c1 in c! ~. Y. ~~ n1 Or~? l_d v. vlth,s! ~μ~~& gf1~h. ~J:igr~~m~ntwas to. 9e,~t;~n. e. pJac,e of delivery in the premises. of the buyer. Jhough 1the contract 'V··· ••• ··~:v1,·.. ,,; ·-""F •. -·J',..... ·,·. •l. ··~J ..... 8 J r:Q_e,nti9~c! Jb~. ;P. QC,e of HI~,,i:r. le.. ,ctrig rnet~. n,; as e~ifpctory_,prige, 1t)1e"'d. ~~y~,Y. V'{? J. cP.

9t)et1t,h§ ·~ec,t9ry, gatE5. ;;tbe .. 9p~5ifi<:~~i9f'. 1&f ·~'1et. :. t~~ pri~~ ,wq4l,d~9~,atJhe1facto. rY. ga~eu! her. yfpfei .. dpe§ r;iot ·D in the context of the term subject to which the sale was agreed to be effected, render it the point or the location at which the sale can"beisaid(to•havebeen,completed! 'Hadcthe:sale been . completed atthe fa'ctory·gat~. •the expenses incurred. thereafter rby1way. :of freight;charges would1then£be capable <Oft. being ·regardedas'expenditure which was:in the. nature of a post-sale :expenditure and, •ifipaid~by the1seller,. ,,regarded . as an amount rpaid byt. SUCh<Seller•Of'l:behalf•Of the buyer! '• , , : F "'Ol ·... :/ <;r•. ~·•11i,)•Ci. J)'. ' . ,.... -,3,o. ,. i! sr. k1. \·",, ,. •.. ,. 9to. 2 •o •1 16_.. ,Bo~h· t~e. ~foremen! i~:i,i;ie<! 1p51se,~. e~eha. sis~. ;~t)_e, ::{~st 1 ! he~ experis@s incurr~5Lby,Jatsejle~,_o,Q;]f~e1g~t,vyould !? e.. ,. :p_ag . of F. ::. tfJEt sal~ ;p_ri~e. las~uri~! l ! 'h. ~. ~t.

rar:i§f~r oJ the-1 gops~~,ta~~s 1 1 title to ,plf3ce that. being the;only. way. made ,ir:i which sale could hav,e · ·~· ·1'" .... ,. • ,_,;.... ,. 1 · ... ... ,. ,J. :. ,,,,~,~ .. ~·-..... •• X· .. · v . .. ,. _, taken place prior to the introduction of clause . 29A,of,. Article 366 of the Constitution. · ·· , ·. .. · · ' ~- ·· _·:.. J(\.. ' ·-,-: '( ':·~-~11·l~t 1 J:.?. ·~ ! Okj12. \'b;'·J;·~n. ;. ~r 1 ,,·~ ~-~ . G:· . : , • :i~7. , 1]1e)E? i? £n~d. c~\.! n~e! 1al~? Ar~yv, oyr:~t! 1=:rt~oD ~9 ~h~ c(ec1s1oq. of:_th1. s~Cg~_rtJ l[);~h. ~tCa_$,,,e,pf ffr... Q, 1/j'a(ryr(/), f::~c;J,ri,\(. ~§_Sjstant, Co'! Jmi§~i9tLer,R. f:) C9fT!!! Jf:ff C,ia,f~{<!. ~e~_,& . /i! Jpf! l. ~r ~.. c2poo),:? _ §C~ 321, T. :. h~,que. sti. 9n ,~~ri~idegi~ . tt;i. ~r~tq w9s th_e ·Lnc::l~dabjlity_ 9f 1 t! {rn_sp9_r~cSY~~igy«g! v~ri.... ~X ! '1e ,,s_ugar 171 manufacturer to the cane growers, who, under the terms of the contract were required to supply the sugarcane at the factory.

The subsidy so given was held by the Court to be part of the price as that amount had been given by the manufacturer, no doubt, to secure the supply of the goods from the grower/seller. The Court in that case did not consider Rule 6(c), framed under the Tamil Nadu General Sales Tax Act, as there was no occasion to refer to the same. 18. It is no doubt true that Rule 6(c) of the Rules permits deduction of the cost on freight while determining the taxable turnover. However, that provision must be read in the context of definition of "turnover" as also the definition of "sale" in Sections 2(r) and 2(n) respectively of the Act. "Turnover" is defined in the Act, inter alia, to mean "the aggregate amount for which goods are bought or sold or delivered or supplied or otherwise disposed of in any of the ways referred to in clause (n)". 19.

"Sale" is defined in Section 2(n), inter alia, as meaning "every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration". The definition goes on to include a number of other transactions also within that definition of "sale". The turnover of an assessee/dealer would include the aggregate amount for which goods are bought or sold. It is, therefore, the amount for which the goods are bought or sold, which form part of the turnover, and a thing can be said to be sold only when the transaction falls within the scope of the definition of "sale". 20.

When the transfer of the property or the goods is to be at the place of the buyer to which the seller is under an obligation to transport the goods, the expenditure incurred by the seller on freight in order to carry the goods from his place of manufacture to the place at which he is required under the contract to deliver, would thus become part of the amount for which the goods are sold by the seller to the buyer and would fall within the scope of "turnover". 21. The learned counsel for the State of Tamil Nadu submitted that freight and insurance charges are included in the sale price of the goods. Even if freight and insurance charges are shown separately in the Bill and added to the price of the goods, the character of payment would remain the same.

Since freight and insurance charges represent expenditure incurred by the dealer in making the goods available to the purchaser at the place of sale, they would constitute an addition to the cost of the goods to the dealer and would clearly be a component of the price to the purchaser. The amount of freight and insurance charges would be payable by the purchaser not under any statutory or other liability but as part of the . consideration for the sale of the goods and would therefore, form part of the sale price. 22. In order to crystallize the legal position, we would like to refer important English and Indian cases. ENGLISH CASES: 23. In Paprika Ltd. & Anothe1 v. Board of Trade (1944) All E. R. 372, the court observed as under: "Whenever a sale attracts purchase tax, that tax presumably affects the price which the seller who is liable to pay the t~x demands but it does not cease to be the price whicl) the buyer has to pay even the price is expressed ~s 'x' plus purchase tax. " ' 24.

In this case, the learned Judge also quoted with approval wha~ Goddard, L. J. , said in Love v. Norman Wright (Builders) Ltl/l. (1944) 1 All E. R. 618:- "Where an article is taxed, whether by purchase tax, customs duty, or excise duty, the tax becomes part of the priqe which ordinarily the buyer will have to pay. The price of an ounce of tobacco is what it is because of the rate of tax, but on a sale there is only one consideration though made up of cost plus profit plus tax. So if a seller offers goods for sale, it is for him to quote a price which includes the tax if he desires to pass it on to the buyer. If the buyer agrees to the price, it is not for him to consider how it is made up or whether the seller has included tax or not. " and summed up the position in the following words : "So far as the purchaser is concerned, he pays for the goods what the seller demands, namely, the price even though it may include tax.

That is the whole consideration for the sale and there is no reason why the whole amount paid to the seller by the purchaser should not be treated as the consideration for the sale and included in the turnover. " INDIAN CASES: 25. In Dyer Meakin Breweries Ltd. v. State of Kera/a (1970) 3 SCC 253, Chief Justice, Shah (as His Lordship then was), speaking for the court observed that expenditure incurred for freight and packing and delivery charges prior to the sale and for transporting the goods from the factories to the warehouse of the company is not admissible under Rule 9 (f) · of the Kerala General Sales Tax Rules, 1963. 26. According to the facts of this case, Dyer Meakin Breweries ltd. is registered as a dealer in "Indian made foreign liquor" under the Kerala General Sales Tax Act, 1963. The company has a place of business at Ernakulam, Kerala. The liquor sold by the company is manufactured or produced in distilleries or breweries at different places in the State of U. P.

and Haryana. Liquor is transported for sale by the company from its breweries and distilleries to its place of business at Ernakulam. It is the practice of the company to maintain a uniform "ex-factory price" in respect of each brand of liquor sold at different centers after adding to the ex-factory price the A appropriate amount attributable to freight and other charges. 27. In proceedings for assessment of sales tax for 1963- 64 the company claimed under Rule 9(f) of the Kerala General Sales Tax Rules, 1963, Rs. 59, 188. 99 as an admissible 8 deduction in respect of charges for "freight and handling charges" collected from the customers, in the computation of the taxable turnover. The Sales Tax Officer rejected the claim, and the order was confirmed by the Appellate Assistant Commissioner and by the Sales Tax Tribunal. A revision application filed before the High Court of Kerala was summarily C dismissed. The company has appealed to this Court with special leave. 28.

Rule 9 (f) of the Keral3 General Sales Tax Rules, 1963, provides: D "In determining the taxable turnover, the amount specified in the following clauses shall, subject to the conditions specified therein, be deducted from the total turnover of the dealer.... E x x x (f) all amounts falling under the following two heads, when specified and charged for by the dealer separately, without including them in the price of goods sold; F (i) freight, (ii) charges for packing and delivery. " 29. The company claims that the amount spent by it for G freight and for "handling charges" of goods from the factories to the warehouse at Ernakulam is liable to be excluded from the taxable turnover and the taxing authorities and the High Court were in error in refusing to allow the deduction. H A 30.

This court while interpreting Rule 9 (f) of the Kerala General Sales Tax Rules, 1963 obseNed that it is not intended to exclude from the taxable turnover any component of the price, expenditure, incurred by the dealer which he had to incur before sale and to make the goods available to the intending customer B at the place of sale. 31. This court had an occasion to deal with identical issues in the case of Hindustan Sugar Mills (supra). P. N. Bhagwati, J. (as His Lordship then was), clearly held that by reason of the C provisions of the Control Order which governed the transactions of sale of cement entered into by the assessee with the purchasers in both the appeals before us, the amount of freight formed part of the 'sale price'. 32. In this judgment, the court comprehensively explained D the entire principle of law by giving an example in para 8 of the judgment which reads as under:- "8. Take for example, excise duty payable by a dealer who is a manufacturer.

When he sells goods manufactured by him, he always passes on the excise duty to the purchaser. E Ordinarily it is not shown as a separate item in the bill, but it is included in the price charged by him. The 'sale price' in 5uch a case could be the entire price inclusive of excise duty because that would be the consideration payable by the purchaser for the sale of the goods. True, the excise F duty component of the price would not be an addition to · the coffers of the dealer, as it would go to reimburse him in respect of the excise duty already paid by him on the manufacture of the goods. But even so, it would be part of the 'sale price' because it forms a component of the G consideration payable by the purchaser to the dealer. It 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 purchases would H be liable to pay the amount of excise duty to the dealer. And, on this reasoning, it would make no difference A 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 8 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. " 33. This judgment has been followed in a large number of C subsequent judgments in other cases by this Court. 34. In Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax, Indore & Others (1980} 1 SCC 71 similar question arose for consideration.

In this case, while D following the case of Hindustan Sugar Mills (supra} this court came to the clear conclusion that the amount of freight formed part of the sale price within the meaning of the first part of the definition of the term contained in Section 2 (p} of the Rajasthan Sales Tax Act, 1954. E 35. In Cement Marketing Co. of India Ltd. v. Commissioner of Commercial Taxes, Kamataka 1980 (Supp} sec 373 this court observed as under: "This question is no longer res integra and it stands F concluded by a recent decision given by this Court in Hindustan Sugar Mills v. State of Rajasthan (1978} 4 SCC 271.

It has been held by this Court in that case that by reason of the provisions of the Cement Control Order which governed the transactions of sale of cement entered into G by the assessee with the purchasers, the amount of freight formed part of the "sale price" within the meaning of the first part of the definition of that term in Section 2(h} of the Central Sales Tax Act, 1956 and was includible in the turnover of the assessee. This decision completely covers H the present case and hence we must hold that the High Court was right in taking the view that the amount of freight formed part of the sale price and was rightly included in the taxable turnover of the appellant. " . 36. In TVL Ramco Cement Distribution Co. (P) Ltd. etc. etc. v. State of Tamil Nadu etc: etc.

(1993) 1 SCC 192 this court while following the ratio in the case of Hindustan Sugar Mills (supra) observed as under: "(i) that the freight charges should be included in arriving at the taxable turnover for purposes of Central Sales Tax and Tamil Nadu Sales Tax; and (ii) that packing charges and excise duty thereon should also be included in arriving at the taxable turnover for purposes of both Central Sales Tax and Tamil Nadu Sales Tax. " 37. In Bihar State Electricity Board & Another v. Usha Martin Industries & Another (1997) 5 SCC 289 this court relied on the judgment of this Court in the case of Hindustan Sugar Mills (supra) and reiterated legal position that sale price would be the entire price inclusive of excise duty because that would be the consideration payable by the purchaser for the sale of goods. 38. In the case of Black Diamond Beverages and Anr. v.

Commercial Tax Officer, Central Section, Assessment Wingh, Calcutta & Others (1998) 1 SCC 458 this court observed that freight and handling charges would be included in the sale price. 39. In Commissioner of Central Excise, Delhi v. Maruti Udyog Ltd. (2002) 3 sec 547 this court observed as under: "......... The sale price realised by the respondent has to be regarded as the entire price inclusive of excise duty because it is the respondent who has, by necessary implication, taken on the liability to pay all taxes on the goods sold and has not sought to realise any sum in addition to the price obtained by it from the purchaser. The purchaser was under no obligation to pay any amount in excess of what had already been paid as the price of the scrap. " 40. In State of A. P. v. A. P. Paper Mills Ltd. (2005) 1 SCC 719 the short question arose for consideration was whether the transportation charges and agent's commission paid by the respondent - M/s. AP. Paper Mills Ltd.

to the agent together with the cost of raw material constitute "turnover" under Section 2(s) and is liable to sales tax under Section 6-A of the Andhra Pradesh General Sales Tax Act, 1957. This court relied on Hindustan Sugar Mills (supra) and came to the conclusion that the transportation charges and agent's commission would be inclusive in "turnover'' under Section 2(s) and is liable to Sales Tax under Section 6(a) of the Andhra Pradesh General Sales , Tax Act, 1957. I 41. When we apply the ratio of the judgments of the English Courts and of our Courts, the conclusion becomes obvious that the amount of freight and insurance charges incurred by the dealer forms part of the sale price. 42. We may reiterate that in this case, there was 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. 43.

In view of the clear clause of the contract, no other view is possible. In our considered view, the High Court was totally justified in affirming the judgment of the Tribunal. No interference is called for. These appeals being devoid of any merit are dismissed with costs. K. K. T. Appeals dismissed.