JUDGMENT
K. Shivashankar Bhat, J.
1. The dealer has filed this revision petition. He is registered both under the Karnataka Sales Tax Act, 1957 (“the State Act”, for short) and the Central Sales Tax Act, 1956 (“the Central Act”, for short). The petitioner is involved in quarrying “Shahabad stones” and selling the same thereafter. The question raised by the petitioner arises under the Central Act. The assessee claimed exemption on a turnover of Rs. 45,610 towards loading charges on the ground that the said expenses were incurred before the delivery of stones to the common carrier. The assessing authority rejected the claim for exemption holding that it was a pre-sale expense and therefore, formed part of the sale price. This order was affirmed by the first appellate authority as well as by the Appellate Tribunal. The Appellate Tribunal relied on the decision of the Supreme Court in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13, and held that “the freight and handling charges in respect of the cost of transportation of goods before delivery of the goods will form part of sale price”. In the instant case, the delivery of the goods was found to be on f.o.r. basis. Therefore, the expenses incurred before the goods were given to the common carrier would become part of the sale price. The Appellate Tribunal, further observed that :
“………… unless there is an indication that the consignee requires that the transportation should be done by the consignor, it has been agreed that there is no agreement between the parties, nor implied agreement could also be derived from the sale bills issued to the effect that the loading charges are not intended to be sale price. As the delivery of the goods takes place immediately after the goods are loaded to the common carrier, the expenses in connection with the goods sold before such delivery will become part of the sale price.”
These quoted observations were actually made by the first appellate authority.
2. The learned counsel for the petitioner referred to the definition of “turnover” under the Central Act, read with the definition of “sale price” in the said Act.
3. Section 2(h) of the Central Act, defines “sale price” as follows :
“‘sale price’ means 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 cases where such cost is separately charged;”
The turnover means, the aggregate of the sale price as defined under clause (j) of the same section. It was contended that a reading of clause (h) given above, clearly excludes the cost of freight or delivery, from the concept of sale price and that in the instant case, there is no doubt that the delivery of the goods on the common carrier, was incidental to the contract of sale and that the parties agreed that the petitioner shall deliver the goods to the common carrier. Therefore, the main question to be considered is whether the ratio of the decision of the Supreme Court, in Hindustan Sugar Mills Ltd. case [1979] 43 STC 13 in any way runs counter to the contention advanced by the petitioner in the instant case.
4. In the aforesaid decision, the Supreme Court was concerned with the sale of cement by the manufacturer. The sale price was statutorily fixed under the provisions of the Cement Control Order, 1967. There was a provision for reimbursement of the amount of expenditure actually incurred by the manufacturer on freight. However, the amount of freight had to be paid to the manufacturer initially as part of the sale price and since this freight became part of the sale price statutorily fixed, the Supreme Court held that the freight was to be treated as part of the taxable turnover. Section 2(h) of the Central Act, has two parts. The freight received by the manufacturer, in the said case, fell within the first part. In this regard, the Supreme Court, at page 27, observed thus :
“This 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. Here, the concept of real price or actual price retainable by the dealer is irrelevant. The test is, what is the consideration passing from the purchaser to the dealer for the sale of the goods. It is immaterial to enquire as to how the amount of consideration is made up, whether it includes excise duty or sales tax or freight. The only relevant question to ask is as to what is the amount payable by the purchaser to the dealer as consideration for the sale and not as to what is the net consideration retainable by the dealer.”
Again at page 29 of the same decision, the Supreme Court observed :
“We may then take 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 amount of ‘freight and handling charges’ included in the price would obviously be 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 same would be the legal position even if the ‘freight and handling charges’ are shown separately in the bill and added to the price of the goods, for the character of the payment would remain the same. 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. The amount of ‘freight and handling 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 it would, therefore, form part of ‘sale price’ within the meaning of the first part of the definition.”
The next phase of the discussion deals with the problem when the contract of sale is f.o.r. destination railway station. The Supreme Court observed at page 29 :
“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 freight is payable by the dealer since he has to arrange for the goods to be carried by rail to the destination railway station at his expense and there is no obligation on the purchaser to pay the freight. The purchaser is concerned only to pay the agreed price for the delivery of the goods at the destination railway station. The agreed price being inclusive of the freight, it would be a matter of indifference to the purchaser as to what is the amount of freight. Even if there is any fluctuation in the amount of freight, since the making of the contract, the purchaser would have no concern, because he is liable to pay only the agreed price which includes the freight, whatever it be. The dealer may, in such a case, pay the freight and charge the agreed price to the purchaser, or he may obtain a railway receipt on the basis of ‘freight to pay’ and request the purchaser to pay the freight at the time of taking delivery of the goods from the railway at the destination railway station and give the purchaser credit for the amount of the freight against the agreed price. The latter would merely be a convenient mode of paying the agreed price. Since it is the obligation of the dealer to deliver the goods free on rail destination railway station, the dealer is liable to pay the freight as between him and the purchaser and the purchaser can very well refuse to accept the railway receipt which is not ‘freight pre-paid’ but ‘freight to pay’. But he may, ordinarily as a reasonable businessman he would, accept such railway receipt and pay the amount of freight on behalf of the dealer. 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.”
Thereafter, another situation is considered, in which the contract of sale may not be f.o.r. destination railway station, but the price alone may be so. In this situation, 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 and 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 and that such a stipulation would make the railway agent of the purchaser for taking delivery of the goods. Here, the price of the goods receivable by the dealer would be the f.o.r. destination railway station price less the amount of freight payable by the purchaser and 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”.
5. The Supreme Court has thus envisaged these three distinct situations : (1) Under the contract of sale, the dealer delivers the goods at a particular place to the purchaser and the consideration for the sale would be the actual price of the goods and expenses incurred by the dealer till the point of delivery; this usually happens when the sale is effected and completed at the factory of the dealer or at the place of his business; (2) The contract of sale is f.o.r. destination railway station, in which the dealer undertakes an obligation to put the goods on rail and arrange to have them carried to the destination railway station at his expense. (3) The third situation is slightly different from the second one. In the third category, the contract broadly and superficially resemble a contract of sale f.o.r. railway station, but in some aspects pertaining to the responsibility for transportation and freight charges, in reality, they will be of the purchaser. This important distinction has great relevance to find out whether a particular case falls under the second or the third category. It is only the third category that attracts the second part of there definition of “sale price” under section 2(h) of the Central Act.
6. The contention of the petitioner in the instant case is based on the last part of section 2(h) containing the exclusory words “other than the cost of freight or delivery …. where such cost is separately charged”. These words are relied upon to contend that whenever cost of freight or delivery is separately charged by the dealer, it shall not form part of the sale price. This aspect is also fully covered by the aforesaid decision of the Supreme Court in Hindustan Sugar Mills Ltd. case [1979] 43 STC 13. The relevant discussion is found at page 34 of the Report . The Supreme Court held that these exclusory words do not govern the first part of section 2(h), but affects only the second half. While the first part of section 2(h) defines the term “sale price” as meaning “the amount payable to a dealer as consideration for the sale of any goods less any sum allowed as cash discount …….” To this content of the consideration for the sale has to be added per the second part of the definition “any sum charged for anything done by the dealer in respect of the goods at the time or before the delivery thereof”. However, from the second part, the cost of freight or delivery or the cost of installation is to be excluded, in case where such cost is separately charged.
7. This definition has two main parts, the first part covering the consideration for the sale and the second part covering other charges of anything done by the dealer in respect of the goods at the time of or before the delivery thereof. The exclusory words, exclude the cost of freight or delivery only, in case, the second part of the definition is attracted. After referring to the second part of the definition, the Supreme Court observed at page 35 :
“………. 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. The cost of freight or delivery or the cost of installation certainly represents an amount charged for transportation or installation of the goods at the time of or before the delivery thereof and would, therefore, fall within the inclusive clause on its plain terms but it is taken out by the exclusion clause, ‘other than the cost of freight or delivery or the cost of installation in case where such cost is separately charged’, This exclusion clause does not operate as an exception to the first part of the definition. It merely enacts an exclusion out of the inclusive clause and takes out something which would otherwise be within the inclusive clause. 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’. But if the State is able to show that the 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’.”
Therefore, if the freight charged by the dealer is part of the sale consideration, there is no scope to attract the exclusory words found in section 2(h) of the Central Act. However, if the contract is a contract f.o.r. destination railway station, the terms and nature of the contract of sale may under certain circumstances bring the contract within the exclusory clause of section 2(h). At page 30, the Supreme Court held :
“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 case would by payable by the purchaser, though the price agreed upon is f.o.r. destination railway station. The price of the goods receivable by the dealer would, in that event, be the f.o.r. destination railway station price less the amount of freight payable by the purchaser. That would be the consideration payable by the purchaser to the dealer for the sale of the goods and the amount of freight being payable by the purchaser would not be included in the ‘sale price’ within the meaning of the first part of the definition.”
Therefore, at the outset, the transaction of the sale has to be considered with reference to the first part of the definition of ‘sale price’ in section 2(h) of the Central Act. In case the cost of freight or delivery is invariably part of the sale consideration, then no further question would arise, However, in a case where the cost of freight or delivery is included by the the dealer not in his capacity as the seller, but, as a matter of convenience and on behalf of the purchaser, and it is independent of the cost element of the goods in question for the seller, then the second part of the definition would be attracted; in which case, applicability of the exclusory words has to be examined.
8. In the instant case, the Appellate Tribunal had not the benefit of the assistance of the petitioner’s counsel; it is said by the petitioner, that its counsel could not be present at Gulbarga when the appeal was taken up for hearing by the Appellate Tribunal. The question raised by the parties involves investigation of facts in the light of the decision of the Supreme Court in Hindustan Sugar Mills Ltd. case [1979] 43 STC 13.
9. The learned counsel for the petitioner sought to distinguish the said decision, by pointing out that in that case, the sale price of cement was statutorily fixed, which included the cost of freight. It is true, that on facts, the ultimate conclusion of the Supreme Court rested on the particular facts of the case read in the light of the Cement Control Order. But, we cannot ignore the detailed discussion and the reasons found in the decision of the Supreme Court. They are part of the law declared by the Supreme Court.
10. The decision of this Court in Premier breweries Ltd. v. State of Karnataka [1984] 56 STC 14, Involve the application of rule 6(4) of the Karnataka Sale Tax Rules, 1957.
11. For the reasons stated above, we are of the view, that the order of assessment in so far as it includes the cost of freight/delivery in the turnover of the petitioner, requires to be set aside, with a direction to the appropriate authority to determine the question afresh. Since investigation of facts is involved, in the interest of justice, were deem it fit to remand the matter to the assessing authority to consider the question afresh in the light of the observations made herein.
12. Consequently, the order of assessment as affirmed by the appellate authority and by the Appellate Tribunal, is set aside to the extent of the inclusion of the cost of freight in the taxable turnover of the petitioner and the assessing authority is directed to redetermine the question in the light of this order. The assessee shall be present through its representative before the assessing authority at Yadgir on 30th September, 1991, to take note of further proceedings.
13. The revision petition is allowed accordingly.
14. Petition allowed.