1992 (10) TMI 228 - SC - VAT and Sales Tax

Inclusion of Freight & Packing Charges in Taxable Turnover Upheld by Supreme Court

The Supreme Court held that freight charges, packing charges, and excise duty on packing materials should be included in the taxable turnover for both ... Whether, the freight charges incurred by a dealer in the despatch of cement to the place of the customer could be deducted from the total turnover of the dealer under the Central Sales Tax Act, 1956, Tamil Nadu General Sales Tax Act, 1959, and the Tamil Nadu Additional Sales Tax Act, 1970? Whether, the packing charges being the cost of the packing materials used by the dealer in packing cement for being delivered to his customers could be properly excluded from his total turnover for the assessment of sales tax? Whether, the excise duty paid on packing materials used by a dealer for packing cement to be sold to his customers can be excluded in his total turnover? Held that:- Assessee's appeal dismissed. The freight charges should be included in arriving at the taxable turnover for the purposes of CST and TNST and that packing charges and excise duty thereon should also be included in arriving at the taxable turnover for purposes of both CST and TNST Issues Involved:1. Deduction of freight charges from total turnover under CST, TNST, and TN Additional Sales Tax Act.2. Exclusion of packing charges from total turnover for sales tax assessment.3. Exclusion of excise duty on packing materials from total turnover.Detailed Analysis:1. Deduction of Freight Charges:The primary issue was whether freight charges incurred by the dealer in dispatching cement to the customer's place could be deducted from the total turnover under the Central Sales Tax Act (CST), Tamil Nadu General Sales Tax Act (TNST), and Tamil Nadu Additional Sales Tax Act. The High Court ruled that freight charges should be included in the sale price for CST computation but excluded for TNST and TN Additional Sales Tax. The Supreme Court referred to the decision in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13, which clarified that freight charges are part of the sale price under CST. The Court emphasized that the Cement Control Order, 1967, mandated that cement be sold at a controlled price, inclusive of freight, irrespective of individual contracts between manufacturers and purchasers. Thus, the Supreme Court upheld the inclusion of freight charges in the taxable turnover for CST.Regarding TNST, the High Court had allowed the exclusion of freight charges based on Rule 6(c) of the Tamil Nadu General Sales Tax Rules, which permits deduction if freight is charged separately without including it in the sale price. However, the Supreme Court noted that the phrase 'without including them in the price of the goods sold' implies that freight charges can only be excluded if they are not part of the sale price. Since the freight was included in the sale price under the Cement Control Order, the Supreme Court concluded that freight charges should be included in the taxable turnover for TNST as well.2. Exclusion of Packing Charges:The second issue was whether packing charges, being the cost of packing materials used by the dealer in packing cement for delivery, could be excluded from the total turnover for sales tax assessment. The High Court had ruled that packing charges should be included in the sale price for CST but excluded for TNST and TN Additional Sales Tax. The Supreme Court referred to its decision in Hindustan Sugar Mills Ltd. and Commissioner of Sales Tax v. Rai Bharat Das & Bros. [1988] 71 STC 277, which held that packing charges form part of the 'sale price' as they are an integral element of the sale transaction. Consequently, the Supreme Court ruled that packing charges should be included in the taxable turnover for both CST and TNST.3. Exclusion of Excise Duty on Packing Materials:The third issue was whether the excise duty paid on packing materials used for packing cement could be excluded from the total turnover. The High Court had ruled that excise duty on packing materials should be included in the sale price for CST but excluded for TNST and TN Additional Sales Tax. The Supreme Court, following the reasoning in Hindustan Sugar Mills Ltd. and Rai Bharat Das & Bros., held that excise duty on packing materials is part of the 'sale price' and should be included in the taxable turnover for both CST and TNST.Conclusion:The Supreme Court concluded that:1. Freight charges should be included in arriving at the taxable turnover for CST and TNST.2. Packing charges and excise duty thereon should also be included in arriving at the taxable turnover for both CST and TNST.The appeals by the State of Tamil Nadu were allowed, and the appeals filed by the assessee were dismissed. There was no order regarding costs.