Unless substantiated that freight charges was reimbursed, the freight is part of turnover & Sales tax is leviable on freight charges

CA Bimal Jain

Indian Oil Corporation Ltd. (the Petitioner) is a Public Sector Undertaking of the Union of India. During the Assessment Year 1999-2000, 2006-07, 2007-08, 2008-09 and 2009-10 (Impugned period), the Petitioner has sold diesel to the Railways. The diesel was delivered by Road through containers by the Petitioner to the Railways at the delivery point. The Revenue alleged that such freight charges by road, should be included as part of the sales turnover and therefore confirm the Sales tax demand.

Being aggrieved the Petitioner preferred an appeal before the Deputy Commissioner (Appeals) who upheld the order of the Assessing officer with the observation that under Section 2(36) of the Rajasthan Sales Tax Act, the Petitioner was unable to satisfy that the freight charges were separately reimbursed, the freight was part of the bill amount.

Being aggrieved, the Petitioner preferred an appeal before the Hon’ble Rajasthan Tax Board (“the Board”).

The Board held that lack of evidence exist to proof that freight charged separately was reimbursed, hence freight charges forms part of sales turnover and is exigible to Sales tax, interalia observed that:

• In terms of the Agreement entered into between the Petitioner and the Railways (“the Agreement”), the sale price of the Diesel consideration will be ex-depot price plus delivery charges / octroi / local levies / Surcharges, Transportation charges at actual Sales Tax and any other levy as applicable from time to time. Further, the Petitioner shall be responsible & liable for any shortage, damages or deterioration to the consignment in transit if the same is to be carried in their own or contractor’s truck’s/tank lorries to the destination station. Therefore, sale price of the petroleum products includes the actual delivery charges, freight and the transit risk of the goods is upon the Petitioner. Hence, the amount received by the Petitioner from the purchasers towards delivery charges and freight falls within the definition of Sec. 2(36) of the Act.
• The Petitioner was unable to submit evidence to proof that the freight charges are being borne separately by the Railways.
• Reliance is placed in case of Hindustan Sugar Mills Ltd. Vs. State of Raj. & ors. [(1979) 43 STC 13(SC)], wherein it was observed that freight charges will not form part of sales turnover only if the cost of freight is separately charged. Further, where the cost of freight is part of the price but the dealer chooses to split up the price and claim the amount of freight as a separate item in the invoice, then the same will form part of Sale price.
• Reliance was also placed in case of India Meters Limited Vs. State of Tamil Nadu [2010-TIOL-69-SC-CT], wherein the it was held that when transfer of the property or the goods is at the place of the buyer to which the seller is under obligation to transport the goods, the freight and insurance charges form part of the sale price.

Being aggrieved, the Appellant preferred appeal before the Hon’ble Rajasthan High Court who upheld the order of the Board and decided against the Appellant.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)

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