Commissioner of Sales Tax Vs Parle Products Ltd (Bombay High Court)
Bombay High Court in Commissioner of Sales Tax vs. Parle Products Ltd. addressed the issue of whether freight charges incurred by a manufacturer for transporting goods from the factory to the purchaser’s premises can be included in the “sale price” for the purposes of sales tax under Section 2(29) of the Bombay Sales Tax Act, 1959. The case arose from Sales Tax Reference No. 79 of 2009, treated as the lead reference, where the Maharashtra Sales Tax Tribunal referred questions regarding the inclusion of freight charges in the sale price to the High Court under Section 61(1) of the Act.
The respondent assessee, Parle Products Ltd., manufactured biscuits, chocolates, and confectionery goods. The company entered into contracts with wholesalers for ex-factory delivery, under which Parle would arrange transportation to the wholesaler’s premises. Freight charges were initially borne by the assessee but were subsequently reimbursed by the wholesalers. During the assessment periods 1992–1995, the revenue argued that these freight charges should be included in the sale price and, consequently, be subject to sales tax.
The legal question centered on whether such freight charges could be treated as part of the sale price under Section 2(29), which defines sale price as the consideration paid or payable to a dealer for any sale, including sums charged for anything done by the dealer at or before delivery, excluding certain insurance or installation costs if separately charged. Explanations added to the section in 1990, 1992, and 1998 were considered clarificatory and did not materially affect the assessment years in question.
The High Court noted the contractual provisions: all contracts stipulated ex-factory delivery, and freight incurred by the assessee was to be reimbursed by the purchaser. The court concluded that, in such circumstances, the freight was incurred as an agent on behalf of the purchaser, and therefore, could not be treated as part of the sale price. Consequently, sales tax could not be levied on the freight component.
The revenue relied on Hindustan Sugar Mills vs. State of Rajasthan (1978 4 SCC 271), arguing that freight charges represent an expenditure necessary to make goods available to the purchaser and should form part of the sale price. However, the court distinguished this case based on the facts, emphasizing that the contract in the present case specifically provided for ex-factory delivery, making the assessee an agent for the purchaser regarding transportation.
The court also referred to the coordinate bench decision in Commissioner of Sales Tax, Maharashtra vs. Ravi Trading Company (2018 48 GSTR 370), which rejected identical contentions of the revenue. Paragraph 7 of Hindustan Sugar Mills clarified that where delivery is ex-railway station or ex-factory, freight payable by the purchaser and reimbursed to the dealer does not form part of the sale price. The Division Bench concluded that freight amounts disbursed by the dealer on behalf of the purchaser are merely reimbursements, not consideration for sale.
The revenue further contended that the contracts were sham, designed to artificially exclude freight from the sale price to evade sales tax. The High Court rejected this, citing the Karnataka High Court ruling in State of Karnataka vs. Bangalore Soft Drinks Pvt. Ltd. (2000 117 SCC 413), upheld by the Supreme Court. The Karnataka High Court held that it is permissible for a contract to stipulate ex-factory sale with freight initially borne by the dealer and reimbursed by the purchaser. Such contracts are not automatically invalid or shams.
Given the contractual terms, prior tribunal rulings, and judicial precedents, the Bombay High Court concluded that:
