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Orissa High Court: A Division Bench of S. Muralidhar CJ and B.P. Routray, J. allowed the petition and held that the Tribunal was incorrect in holding that the freight shown in the sale bill separately is part of the sale price. It is held that the Petitioner is entitled to claim a deduction of the freight charges from the taxable sales turnover.

The facts of the case are such that the petitioner is engaged in manufacturing and trading of cast iron goods and is a registered dealer under the Orissa Sales Tax Act, 1947 (OST Act) and the Central Sales Tax Act, 1956. The Department of Telecommunications i.e. DoT floated a tender requiring the bidder to quote a basic unit price and excise duty, sales tax, insurance, freight and other taxes payable item wise which would remain fixed during the entire period of contract. The bid by the petitioner was accepted. The DoT inspected and earmarked the goods at the factory of the petitioners. The petitioner raised invoices separately showing freight, excise duty as per Section (iii) Part-3 of the tender conditions.

On 24th April 1999, an inspection report was submitted and assessment proceedings initiated under Rule 12 (5) of the CST (Orissa) Rules. The explanation given was rejected by the STO and an additional demand was raised. Assailing this, an appeal was filed which came to be dismissed by the Assistant Commissioner of Commercial Taxes. This order was put under challenge before Orissa Sales Tax Tribunal which was dismissed yet again. This order is under challenge in the present petition.

Counsel for the petitioners submitted that the definition of sale price under Section 2 (h) of the CST Act made it clear that the sale price excluded the cost of freight of delivery where such cost was separately charged. He further referred to the clauses in the contract which made it clear that the sale was completed inside the Petitioner’s factory, once it was inspected by the DoT and the goods to be sold were earmarked for purchase. He pointed out that the Petitioner had transported the goods to the site of the DoT at the latter’s behest, after the sale was complete. Accordingly, the freight was charged separately and could not be included in the sale price.

Counsel for the respondents submitted that the sale was complete when the delivery took place at the site of the DoT. He further observed that it was a contract of sale where the cost of freight was a part of the sale prices and the purchaser i.e. the DoT had not undertaken any obligation to pay freight incurred by the selling dealer. Therefore, the selling dealer i.e. the Petitioner would not be entitled to any deduction towards freight despite showing it separately in the sale invoice.

The court observed that from Clauses 9.1 to 9.5 of the bid document, it is plain that the bidder was required to separately indicate the components of excise duty, sales tax, insurance and freight. The rate was to be quoted on FOR Destination in the States of Maharashtra and Goa. It was further observed that as per Clause 21.2 that the ‘unit price’ was the determining factor. It was further observed that Clause 6.1 Section VI of the General (Commercial) conditions of contract read with Clause 4 (a) of the PO indicates the intention of the parties was when they entered into the contract of sale and purchase as to the exact place of delivery of the goods in question. The definition of sale in Section 2(h) of the CST Act had to be understood in the context of the clauses of the contract. Here, once the sale was complete at the site of the inspection of the goods, which is the factory of the Petitioner, then the freight charge for further transportation of the goods to the purchaser’s site would obviously not form part of the sale price. Therefore, it was being separately shown in the invoice.

The court relied on the judgment State of Karnataka v. Bangalore Soft Drinks Pvt. Ltd. (2000) 117 STC 413 (SC) and held “the freight charges are not includable in the sale price, which is amenable and therefore, has to be excluded while calculating the taxable turn over for the purposes of the OST Act”[Utkal Moulders v. State of Orissa, 2021 SCC OnLine Ori 199, decided on 30-03-2021]


Arunima Bose, Editorial Assistant has reported this brief.