REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1032-33 OF 2003

M/s India Meters Limited .. Appellant  

Versus

State of Tamil Nadu .. Respondent

J U D G M E N T

Dalveer Bhandari, J.

1. These  appeals  are  directed  against  the  judgment  and  

order  dated  20.11.2001  passed  by  the  High  Court  of  

Judicature at Madras in Writ Petition No. 21298 of 2001 and  

Tax Case No. 980 of 1993.

2. The  appellant  is  a  company  incorporated  under  the  

provisions of the Companies Act. The appellant manufactures  

electric meters and supplies it to the Electricity Boards.   The  

appellant is also a dealer registered under the provisions of the  

Tamil Nadu General Sales Tax Act, 1959 as well as the Central  

Sales Tax Act, 1956.  

3. Brief  facts  which  are  necessary  to  dispose  of  these  

appeals are recapitulated as under:

The  Deputy  Commercial  Tax  Officer,  Group-VIII,  the  

Assessing  Officer,  Enforcement  South  passed  two  separate  

orders  under  the  Tamil  Nadu  General  Sales  Tax  Act  

(hereinafter referred to as TNGST Act) and Central Sales Tax  

Act (hereinafter referred to as CST Act) on 30.6.1989 holding  

that the freight and insurance charges were liable to be taxed  

and the same are to be included in the turnover and thus a  

sum of Rs.7,97,864/- was sought to be included towards the  

taxable turnover for the assessment year 1986-87 under the  

TNGST  Act  taxable  at  10%  and  a  sum  of  Rs.8,48,265/-  

relating to the same period under the CST Act.

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4. The appellant preferred appeals under TNGST Act as well  

as CST Act before the Appellate Assistant Commissioner (CT),  

Kancheepuram,  Tamil  Nadu.  The  Appellate  Assistant  

Commissioner  remanded  the  matters  to  the  Appellate  

Assistant  Commissioner  for  passing  fresh  orders  of  

assessment.  

5. The  appellant  had  filed  two  appeals  before  the  Tamil  

Nadu Sales Tax Appellate Tribunal (Additional Bench), Madras  

and the appeals were registered as T.A. Nos. 766 of 1991 and  

767  of  1991.   Both  the  appeals  were  allowed  by  the  said  

Tribunal.  

6. The respondent  aggrieved by the  judgment  of  the  said  

Appellate Tribunal filed two Revision Petitions before the High  

Court, which were registered as Tax Cases Nos. 979 of 1993  

and 980 of 1993.  Consequent upon the constitution of the  

Tamil Nadu Taxation Special Tribunal, under the TNGST Act,  

the Revision Petitions were referred to the said Tribunal.  

7. The Tamil Nadu Taxation Special Tribunal, Chennai, by  

order dated 19th September, 2000 held that the freight charges  

formed part of sale price and the matter was remanded to the  

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Assessing  Authority  to  work out  the  actual  freight  charges.  

Consequently,  the  order  of  the  Appellate  Assistant  

Commissioner (CT), Kancheepuram was restored and with the  

result  the  Revision  Petitions  filed  by  the  respondent  were  

allowed.  

8. The appellant filed a Writ Petition in the High Court of  

Madras against the order of the Tamil Nadu Taxation Special  

Tribunal.  It was urged in the High Court that the clause in  

the contract dealing with payment, provided that “payment for  

100  per  cent  value  of  each  consignment  together  with  full  

excise duty and sales tax will  be made in Central Payment,  

Madras,  immediately  on  receipt  of  certified  copies  of  

acknowledgement  of  delivery  challans  from  the  Chief  Store  

Keepers of the systems concerned, subject to purchase order  

terms.”

9. According  to  the  clause  provided  in  the  contract  the  

transfer of title to the goods was to take place only on delivery  

of  goods  at  the  customer’s  place  and  that  the  customer’s  

obligation to pay would arise only after the delivery had been  

so affected.  The contract also provided in the clause dealing  

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with the price that it was payable per unit ex-factory delivery.  

It provided for the payment of excise duty and statutory levies,  

in addition to such ex-factory price, as also the fact that the  

ex-factory price mentioned was exclusive of sales tax.

10. The clause dealing with Sales Tax in clause 3 (b) further  

provided that “appropriate Sales Tax, if any, found leviable in  

accordance with the provisions of the relevant Sales Tax Act in  

force will be paid over and above the price of goods accepted in  

this  order”.   The  clause  also  provided  that  Sales  Tax  and  

excise duty will be payable only on ex-factory price.

11. The  appellant,  initially,  did  not  include  the  freight  

charges in its taxable turnover.  The original assessment was  

made without taking the freight charges into account for the  

year 1986-87.  There was an inspection on 27.2.1987 in which  

the  inspecting  officer  had  found  that  the  assessee  had  

collected  freight  charges  and  insurance  charges  separately  

under the debit notes for a total sum of Rs.16,96,530/- but  

the same had not been shown in the monthly returns.  The  

assessing authority, therefore, determined 50% of that amount  

of Rs.16,96,530/- as freight charges, after making allowance  

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for the insurance amount and levied tax on that amount of the  

freight, charged by the assessee forming part of the sale price.  

The assessee’s appeal against that order having succeeded, a  

further appeal was preferred by the Revenue, which came to  

be allowed by the Tamil Nadu Special Taxation Tribunal.  The  

assessee is now before us questioning the correctness of that  

order of the Tribunal.  

12. The appellant  claims that  since the  contract  separates  

the  ex-factory  price  and the  insurance  and freight  charges,  

and,  under  Rule  6(c)  of  the  Tamil  Nadu General  Sales  Tax  

Rules, the freight when specified and charges for by the dealer  

separately,  without  including  the  same  in  the  price  of  the  

dealer, the freight charged here could not have been treated as  

part of the sale price and subjected to tax.  

13. Counsel  for  the appellant  relied on a judgment of  this  

Court in the case of  Hyderabad Asbestos Cement Products  

Ltd. v.  State of Andhra Pradesh (1969) 24 STC 487 : (1969)  

1 SCWR 560.  In that decision, rendered by a Bench of three  

learned Judges of  this Court,  it  was held that the assessee  

therein had only received as price  the amount of the catalogue  

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price less the freight charges, which the buyer had paid and,  

therefore,  what  was  taxable  was  only  the  price  actually  

received.  That decision was rendered in the background of the  

facts found which showed that the assessee had despatched  

the goods to the stockist with the stipulation “date of delivery”  

shall  mean  the  date  of  railway  receipt.   The  Court  having  

found that the agreement on the part of the buyer/stockist to  

pay  the  freight  charges  and  such  freight  charges  been  

deducted from the catalogue price, the freight charges did not  

form part of the price of the goods sold.  This judgment was  

explained by a later two Judge Bench of this Court in the case  

of  Hindustan Sugar Mills  v.  State  of  Rajasthan & Ors.  

(1978)  4  SCC  271.   This  Court  in  the  later  part  of  the  

judgment  extracted  the  following  statement  in  the  case  of  

Hyderabad Asbestos Cement Products Ltd. (supra).

“…….In  our  judgment,  under  the  terms  of  the  contract, there is no obligation on the company to  pay the freight, and under the terms of the contract  the price  received by the company for  the sale of  goods is the invoice amount less the freight”.

14. In the instant case, the obligation to pay the freight was  

clearly on the appellant as there was no sale at all, unless the  

goods were delivered at the premises of the buyer and in order  

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to  so  deliver,  the  assessee  necessarily  had  to  incur  freight  

charges.   

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.  

16. Both the aforementioned cases emphasise the fact that  

expenses incurred by a seller on freight would be part of the  

sale price, as until the transfer of title to the goods takes place  

that being the only way made in which sale could have taken  

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place prior to the introduction of clause 29A of Article 366 of  

the Constitution.

17. The  learned  counsel  also  drew  our  attention  to  the  

decision of this Court in the case of  E.I.D. Parry (I) Ltd.  v.  

Assistant Commissioner of Commercial Taxes & Another  

(2000) 2 SCC 321.  The question considered therein was the  

includability  of  transport  subsidy  given  by  the  sugar  

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  

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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  

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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.

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ENGLISH CASES:

23. In  Paprika Ltd. & Another 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 tax demands but it does not cease  to be the price which the buyer has to pay even the  price is expressed as 'x' plus purchase tax.”

24. In this case, the learned Judge also quoted with approval  

what  Goddard,  L.J.,  said  in  Love v.  Norman  Wright  

(Builders) Ltd. (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 price 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.”

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INDIAN CASES:

25. In  Dyer  Meakin  Breweries  Ltd.  v.  State  of  Kerala  

(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  

appropriate amount attributable to freight and other charges.

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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  

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  dismissed.  The  company  has  appealed  to  this  

Court with special leave.

28. Rule 9 (f) of the Kerala General Sales Tax Rules, 1963,  

provides:  

“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....

         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;

(i) freight,  

(ii) charges for packing and delivery.”

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29. The  company  claims  that  the  amount  spent  by  it  for  

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.  

30. This  court  while  interpreting  Rule  9  (f)  of  the  Kerala  

General Sales Tax Rules, 1963 observed 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 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  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’.

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32. In  this  judgment,  the  court  comprehensively  explained  

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.  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  such  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 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 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  be  liable  to  pay  the  amount  of  excise  duty  to  the  dealer.  And, on this  reasoning,  it  would make no  difference  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  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.”

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33. This judgment has been followed in a large number of  

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  

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.

35. In  Cement  Marketing  Co.  of  India  Ltd.  v.  

Commissioner  of  Commercial  Taxes,  Karnataka  1980  

(Supp) SCC 373 this court observed as under:

“This question is no longer res integra and it stands  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 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  the  present  case  and  hence we must hold that the High Court was right  

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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  

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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 SCC 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.  A.P.  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  

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2(s) and is liable to Sales Tax under Section 6(a) of the Andhra  

Pradesh General Sales Tax Act, 1957.

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.

…….……………………..J.       (Dalveer Bhandari)

…….……………………..J.

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    (Deepak Verma) New Delhi; September 7, 2010.

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