The Bombay High Court clarified that when the contracts clearly stipulated that the purchasers would reimburse the freight charges to the dealer, then said charges could not have formed a part of the sales price. Accordingly, the Court held that no sales tax could be imposed on such freight charges by treating it as a part of the sales price.
Reference was made to the decision in the case of Commissioner of Sales Tax, Maharashtra State, Bombay vs. Ravi Trading Company [2018 48 GSTR 370], where it was held 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, and in fact, disbursed by the dealer and hence it would not form part of the “sale price”.
The Division Bench comprising Justice M.S. Sonak and Justice Advait M. Sethna referred to the definition of ‘sales price’ under Section 2(29) of the Bombay Sales Tax Act, 1959, to observe that the contractual provisions clearly stipulate that the sale was to be completed ex-factory. Though the respondent may have agreed to transport the sold goods to the purchaser at the purchaser’s premises, the freight for such transportation was paid by the respondent in its capacity as an agent/bailee of the purchasers.
Speaking for the Bench, Justice Sonak noted from the contract entered into between the respondent and the purchaser that the delivery of the goods was to be made ex-factory, and the transportation of goods from the factory to the places indicated by the purchaser was to be undertaken by the respondent on behalf of the purchaser, and the freight charges incurred by the respondent for such transportation had to be reimbursed by the purchasers to the respondent.
The Bench also refuted the contentions of the Department that the contracts between the respondent and their purchaser were sham, and were drafted only to artificially exclude the freight component from the sales price and evade sales tax. Accordingly, the Bench answered in favour of the respondent-taxpayer.
Briefly, in this case, certain demands were raised on the respondent, who is engaged in manufacturing biscuits, chocolates, and confectionery goods. The respondent challenged the demand, claiming that the inclusion of charges for freight in the sales price was incorrect. When the matter reached the Sales Tax Tribunal, it was held that the freight cost incurred by the respondent on behalf of the wholesale dealers, which was to be subsequently reimbursed to the respondent, did not form a part of the sale price and hence, was not exigible to sales tax.
Cases Relied On:
Commissioner of Sales Tax, Maharashtra State, Bombay vs. Ravi Trading Company – 2018 48 GSTR 370
Hindustan Sugar Mills vs. State of Rajasthan and others – 1978 4 SCC 271
Appearances:
Advocates Jyoti Chavan and Himanshu Takke, for the Applicants/ Revenue
Advocates Ishaan V. Patkar, Vinit V. Raje, Durgesh G. Desai, and Yeshwant J. Patil, for the Respondents/ Taxpayer
