By TIOL News Service

JAIPUR, APR 14, 2015: THE question of law before the bench is - Whether the freight is a part of the turnover and sales tax is leviable. YES is the answer.

Facts of the case

The assessee is an Oil Company and is a Public Sector Undertaking of the Union of India. During the year under reference, the assessee sold diesel to the Railways. The dispute revolves on a short point about the diesel being delivered by Road through containers by the assessee to the Railways at the delivery point and whether the freight should be included as part of the sales turnover or not. AO after analyzing the evidence on record and the agreements entered into by and between assessee and the Railways concluded that freight being part of the bill (invoice) is required to be added while levying sales tax. In appeal, Deputy Commissioner (Appeals) came to the conclusion that under Section 2(36) of the Rajasthan Sales Tax Act, 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. In further appeal, Rajasthan Tax Board sustained claim of Revenue in so far as the freight was concerned. However, in so far as penalty under Section 65 is concerned, it was deleted.

Having heard the parties, the Court 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 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 responsible & liable for any shortage, damages or 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, the Tax Board has rightly come to the conclusion that the freight is includable in the sale price. 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 same manner, according to the conditions of the rate contract that the sale price of the petroleum products includes the actual delivery charges, freight and the transit risk of the goods is upon the assessee and as such, the amount received by the assessee from the purchasers towards delivery charges and freight falls within the definition of Sec. 2(36) of the Act;

++ assessee neither proved before the AO nor upto the Tax Board about the factum that the purchaser (Railways) paid/borne separately the freight charges;

++ Apex Court in the case of Hindustan Sugar Mills Ltd., had held that 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 Control order is paramount: it has overriding effect and if it stipulates that the freight shall be payable by the producer, such stipulation must prevail, notwithstanding any term or condition of the contract to the contrary. Thus, it was held that the amount of freight forms part of the 'sale price' within the meaning of the first part of the definition;

++ in the case of India Meters Limited Vs. state of Tamil Nadu, it was 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, the ownership of the liabilities remained with the supplier i.e. the assessee till they are delivered at the destination station;

++ the assessee was unable to lead any evidence of the freight being charged separately and having been paid separately. Thus Tax Board has rightly come to the conclusion that the freight is part of the turnover and sales tax is leviable on the part of the freight.

(See 2015-TIOL-900-HC-RAJ-CT )