The Commissioner Of Sales Tax, ... vs M/S. Ravi Trading Co. Akola
2017 Latest Caselaw 7949 Bom

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                  IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                          NAGPUR BENCH, NAGPUR

                     SALES TAX REFERENCE NO. 02 OF 2004


            The Commissioner of Sales Tax,
            Maharashtra State, Bombay                                         ...... APPLICANT

                                       ...VERSUS...

            M/s.Ravi Trading Company,
            Akola                                         ............                  RESPONDENT

 -------------------------------------------------------------------------------------------
 Shri S.M.Ukey, Addl.Govt. Pleader for Applicant
 None for respondent.
 -------------------------------------------------------------------------------------------
           CORAM: R. K. DESHPANDE, AND
                       MANISH PITALE, JJ.

          RESERVED ON       :      22  nd  SEPTEMBER, 2017 .
                                             th
           PRONOUNCED ON :    10      OCTOBER, 2017 .

 JUDGMENT  (Per R.K.Deshpande, J).


            1]                The Maharashtra Sales Tax Tribunal at Mumbai

has by its order dated 04.09.1998 referred the following

questions for the decision of this Court under Section 61(1) of

the Bombay Sales Tax Act, 1959.

(i) Whether on the facts and in the circumstances of the case and on a true and correct interpretation of clause (29) of section 2 of the Bombay Sales Tax Act, 1959 and clause (h) of Section 2 of the Central Sales Tax Act, 1956, the Tribunal was justified in law in holding that the insurance charges and carrying charges do not form part of the sale price?

(ii) Whether on the facts and in the circumstances of the case and on a true and correct interpretation of clause (c) of sub-section (2) of section 36 read with Explanation (I) to the Bombay Sales

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Tax Act, 1959, the Tribunal was justified in law in deleting the penalty by placing reliance on the ratio of the decision of the Bombay High Court in case of Indoswe Engineers (P) Ltd. Vrs. State of Maharashtra (101 STC 177) ?

2] If the question at Sr.No.1 is answered in

affirmative, then it may not be necessary for us to decide the

question of law at Sr.No.2. But, if we decide the first

question in negative, then second question will have to be

decided on its own merits.

3] Before considering the question No.1, the

decision of the Apex Court in the case of Hindustan Sugar

Mills vrs. State of Rajasthan and others, reported in (1978)

4 SCC 271 will have to be considered being the landmark

judgment throwing light on the controversy involved and

considered by the Tribunal also. In the said decision, the

Apex Court considered the question as to whether in sales of

cement effected under the Cement Control Order, 1967, the

amount of "freight" forms part of the sale price so as to be

exigible to sales tax under the provisions of the Rajasthan

Sales Tax Act, 1954 and the Central Sales Tax Act, 1956.

The Apex Court considered the provisions of Section 3 of the

Rajasthan Sales Tax Act which provided that every dealer

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whose turnover in the previous year exceeds a certain limit

shall be liable to pay tax on his taxable turnover, subject to

the provisions of that Act. It considers the definition of

"Taxable turnover" under Section 2(s) to mean that part of

the "turnover", which remains after deducting the aggregate

amount of proceeds of certain categories of sales and

"turnover" according to Section 2(t), mean "the aggregate of

the amount of sale prices received or receivable by a dealer

in respect of the sale or supply of goods......".

4] The Court considers the definition of "sale price"

given in Section 2(p). The relevant portion of it is reproduced

below;

".... the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in case where such costs is separately charged."

The Apex Court considers that the aforesaid definition is in

two parts. The first part says that 'sale price' means the

amount payable to a dealer as consideration for the sale of

any goods. It holds that the only relevant question to ask is,

what is the amount payable by the purchaser to the dealer as

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consideration for the sale and not as to what is the net

consideration retainable by the dealer.

5] The Court in para 8, takes into consideration 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 Court holds

that the amount of 'freight and handling charges' included in

the price would obviously be the 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 the goods. The

reasoning behind it stated is that, since 'freight and handling

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 charged to the purchaser, which would form a part of

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

6] The Court thereafter considers another example

based upon the contract of sale entered into between the

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parties, where the dealer instead of transporting the goods

from his factory or his place of business and selling them

there, enter into a contract of sale freight on rail (F.O.R.)

destination railway station. Where such a contract is made,

the seller undertakes an obligation to put the goods on rail

and arrange to have them carried to the destination railway

station at his expense. The delivery of the goods to the

purchaser in such a case is complete at the destination

railway station and till then the risk continues to remain with

the dealer. The Court holds that agreed price being inclusive

of the freight, it would be a matter of indifference to the

purchaser as to the amount of freight, even if there is any

fluctuation. The Court holds that when the purchasers pay

the amount of freight in such a case, it would be as part of

the agreed price and not as freight vis-a-vis the dealer. The

amount of freight paid by the purchaser and shown in the bill

as deducted from the agreed price would, therefore, clearly

form part of "sale price" and fall within the first part of the

definition.

7] In para 10 of the said decision, the Court,

however, deals with a distinctive case where the contract of

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sale may not be F.O.R. destination railway station, but the

price alone may be so. The Court holds that 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 Court holds

that the amount representing freight would not be payable as

part of the consideration for the sale of the goods but by way

of reimbursement of the freight which was payable by the

purchaser, but, in fact, disbursed by the dealer and hence it

would not form part of the 'sale price'.

8] In paragraph 16, the Apex Court considers the

latter part of the definition of 'sale price' containing the

exclusion of the amount of freight from 'sale price'. It

considers that second part enacts an inclusive clause and it

says that 'sale price' includes "any sum charged for anything

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done by the dealer in respect of the goods at the time of or

before the delivery thereof other than the cost of freight or

delivery or the cost of installation in case where such cost is

separately charged". The Court considers that there is an

exception carved out of this inclusion and not all sums

charged for something done by the dealer in respect of the

goods at the time of or before the delivery thereof are

covered by the inclusive clause. It holds that the exclusion

clause does not operate as an exception to the first part of

the definition and it merely enacts an exclusion out of the

inclusive clause and takes out something which would

otherwise be within the inclusive clause. It holds that

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'. It further holds

that if the State is able to show that 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'.

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          9]               In the present case, the assessee is the dealer in

cotton bales and is registered under the Bombay Sales Tax

Act, 1959 (in short "the BST Act") as well as the Central

Sales Tax Act, 1956 (in short "the CST Act"), as dealer. In

the return filed by the assessee for the period from

25.10.1984 to 12.11.1985 and 13.11.1985 to 02.11.1986

under the provisions of BST and CST Acts, the deduction of

amount of insurance of Rs.51,373/- and freight/carrying

charges of Rs.11,00,523/- was claimed on the ground that

the same do not constitute 'sale price' as defined under

Section 2(29) of the BST Act and Section 2(h) of the CST

Act. Though the authorities below have held that the said

amount was taxable, the Maharashtra Sales Tax Tribunal

has held that the said charges cannot constitute part of a

'sale price' under the provisions of BST and CST Act.

10] The Tribunal has in the prsent case recorded the

finding that it is the case of spot delivery and the burden of

the buyer is to collect the goods and convey them to

whichever destination he chooses and if, in order to facilitate

this, the assessee renders the services to the buyer, the

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charges in respect of insurance and carrying are the post

sale charges which canot be legally included in the sale

price. The Tribunal, therefore, takes the view that the

charges of insurance and freight/carrying charges in the

present case levied by the assessee after delivery of the

goods do not form part of the sale price and should,

therefore, be exempted from the sale.

11] In the order of reference, the Tribunal considers

the decision of the Apex Court in the case of Hindustan

Sugar Mills Limited, cited supra, and holds that the

insurance charges paid by the assessee may form part of

sale price as they are not excluded from the definition of sale

price under the Central Act. After considering the decision of

the Apex Court in Central Wines vrs. Special Commercial

Tax Officer, reported in 65 STC 48 delivered by the Apex

Court, it holds that it is possible to take a view that the

insurance charges and the carrying charges paid by the

assessee in respect of the goods sold are included in the

sale price because the assessee retains physical possession

of the goods, even if, sale was on the spot delivery.

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          12]              The   question   to   be   considered   in   this   case   is

          whether   the   Tribunal   was   justified     in   the   facts   and

circumstances of this case in holding that the insurance

charges and carrying charges do not form part of the sale

price? Though we are concerned in this reference with the

assessment made under the provisions of BST and CST

Acts, it would be sufficient if we refer only to the provisions

of BST Act, since the material provisions of both the Acts are

identical.

13] Section 3 of the BST Act deals with the incidents

of tax and it provides that every dealer whose turnover either

of sales or of all purchases has exceeded or exceeds the

relevant limit specified in sub-section (4) shall until such

liability ceases under sub-section (3), be liable to pay tax

under this Act on his turnover of sales and on his turnover of

purchases made on or after the notified day. The "turnover

of sales" is defined under Section 2(36) of the BST Act

means the aggregate of the amounts of sale price received

or receivable by a dealer in respect of any sale of goods

made during a given period after deducting the amount of

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sale price, if any, refunded by the dealer to purchaser, in

respect of any goods purchased and returned by the

purchaser within the prescribed period.

14] Section 2(29) of the BST Act defines "sale price".

The relevant portion of the definition is reproduced below;

" 'Sale price' means the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for anything done by the dealer in respect of goods at the time of or before delivery thereof, other than [the cost of insurance for transit or of installation] when such cost is separately charged".

The aforesaid definition of "sale price" is capable of same

interpretation of the expression "sale price" considered by the

Apex Court in the judgment in Hindustan Sugar Mill's case,

cited supra. The first part says that 'sale price' means the

amount of valuable consideration paid or payable to a dealer

for any sale made and the only relevant question to be asked

in respect of it is, what is the amount payable by the

purchaser to the dealer as consideration for sale and not as

to what is the net consideration retainable by the dealer. The

latter part of the definition of 'sale price' in the present case

also contains a clause of exclusion of the amount of the cost

of insurance for transit or of installation when such cost is

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separately charged. It will, therefore, have to be held that the

exclusion clause does not operate as an exception to the

first part of the definition and it merely enact an exclusion out

of the inclusion clause and takes out some thing which would

otherwise be within the inclusive clause. It has to be held

that the exclusion clause can be availed of by the assessee

only if the State seeks to rely on the inclusive clause for the

purposes of bringing the particular amount within the

definition of "sale price".

15] In the order of reference, the Tribunal has held

that it is possible to take a view that the insurance and

carrying charges incurred by the buyer after sale of goods

constitute a sale price because the seller has retained the

possession even in case of spot delivery. This is also the

contention raised by Shri Ukey, the learned Additional

Government Pleader. It is not possible to endorse such a

view. It is not the case here that the insurance and carrying

charges of cotton bales are the components of the sale

consideration which passes from buyer to the seller. The

case is, therefore, not covered by the first part of the

definition of 'sale price' under Section 2(29) of the BST Act.

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In order to cover the case under the latter part of the said

definition, what is required to be shown is that the buyer has

incurred such charges in respect of the goods at the time of

or before the delivery thereof. The finding in this case by

theTribunal is that the charges in respect of insurance and

carrying are the post-sale charges, which cannot be included

in the sale price, and we agree with it.

16] Shri Ukey, the learned Additional Government

Pleader has urged that the insurance and carrying charges

would constitute a sale price of the goods in question. He

has relied upon the decision of the Apex Court in Hindustan

Sugar Mills case, cited supra. It is not possible to accept this

contention for the reason that, to attract the first part of the

definition of "sale price" under Section 2(29) of the BST Act,

the real test laid down in the decision cited supra is that such

charges are the components of the sale consideration. The

said decision further holds that such charges borne by the

seller should be shown to have been for making the goods

available to the buyer at the place of sale. Such is also not

the finding by the Tribunal in the present case.

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          17]              In the decision of M/s. India Meters Limited  vrs.

          State of Tamil Nadu,    delivered by the Apex Court in  Civil

Appeal No. 1032-33 of 2003, decided on 07.09.2010, relied

upon by Shri Ukey, the learned Additional Government

Pleader, it was the obligation to pay freight as the goods

were to be delivered to the premises of buyer which was

incurred by the seller and therefore, the Apex Court has held

that the amount of freight was included in the definition of

"sale price". In para 15 of the said decision, the Apex Court

clearly holds as under :

"15. The transfer of title to the goods as provided in clause 10 read with clause 6 of the agreement was to be at the place of delivery in the premises of the buyer. Though the contract mentioned the price of the electric meters as ex-factory price, the delivery was not at the factory gate. The specification of what the price would be at the factory gate, therefore, does not 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 be said to have been completed. Had the sale been completed at the factory gate, the expenses incurred thereafter by way of freight charges would then be capable of being regarded as expenditure which was in the nature of a post-sale expenditure and, if paid by the seller, regarded as an amount paid by such seller on behalf of the buyer".

In view of above, it is clear that if the sale was completed in

the present case at the point of spot delivery, the expenses

incurred thereafter by way of freight or carrying charges are

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capable of being regarded as expenditure which was in the

nature of post-sale expenditure and even if paid by the seller,

it is regarded as an amount paid by such seller on behalf of

the buyer, which cannot constitute the component of

sale price.

18] Section 19 of the Sale of Goods Act, 1930,

dealing with the property passes when intended to pass,

being relevant is reproduced below :

"19. Property passes when intended to pass.--

(1) Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.

(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.

(3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer."

The passing of the property in goods depends upon the

intention of the parties, as is evident from the terms of the

contract, the conduct of the parties, and the circumstances of

the case. Under sub-section (3) of Section 19, unless a

different intention appears, the rules contained in Sections 20

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to 24 are the rules for ascertaining the intention of the parties

as to the time at which the property in the goods is to pass to

the buyer. It is thus, the transfer of right to use the goods is

deemed to be sale of goods, attracting the incidence of tax.

19] In the present case, the Tribunal has recorded in

para 12 of its judgment dated 07.06.1996 delivered in

Second Appeal Nos.1337, 1338 and 1339 of 1991 that the

perusal of the documents will show the following facts :

(a) Delivery is a spot delivery;

(b) Insurance charges are as per the desire of the buyer;

(c) Carrying charges are in the shape of the compensation for stacking, destacking carriage of goods;

(d) In certain cases, no insurance is taken by the assessee; and

(e) There are no carrying charges if the goods are collected within the specified period.

In para 13, the Tribunal holds that the goods are specific and

in deliverable stage, without requiring the assessee to do

anything to them for making them deliverable. It further holds

that since it is a spot delivery, the burden of the buyer is to

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collect the goods and convey them to whichever destination

he chooses. However, in order to facilitate this, the assessee

may render the services to the buyer. The Tribunal further

holds that these factors will clearly show that the delivery of

the goods is complete no sooner the bales of cotton are

earmarked as specified goods and identified and stocked at a

particular place. In clear terms, the Tribunal holds that the

charges in respect of insurance and carrying are, therefore,

post-sale charges and cannot, therefore, be legally included

in the sale price of the goods.

20] In the present case, passing of the property in

goods to the buyer is at the place and time of spot delivery.

After the sale is complete, even if the assessee-sellor retains

the possession of the goods sold and incurs the expenditure

of insurance and carrying the goods at the destination of the

buyer, he performs these functions in his capacity as a

'bailee', as contemplated by Section 148 of the Indian

Contract Act, 1872, who shall be entitled to reimbursement of

such expenses from the 'bailor', as specified under

Section 158 therein. Such charges of insurance and carrying

incurred by the assessee-sellor cannot, therefore, constitute

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a 'sale price' within the meaning of Section 2(29) of the BST

Act.

21] In view of above, we hold that in the facts and

circumstances of this case, the Tribunal was justified in

holding that the insurance charges and carrying charges do

not form part of the sale price for the reason that the sale

was completed at the point of spot delivery and the insurance

and carrying charges were incurred thereafter. We,

therefore, answer Question No.1 in the affirmative.

22] In view of our answer to Question No.1 in the

affirmative, Question No.2 does not at all arise for

consideration. The reference stands disposed of accordingly.

                                  JUDGE                        JUDGE
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