Sterlite Industries (India) Limited Vs State of Tamil Nadu (Madras High Court)
Madras High Court held that freight charges are directly related to the delivery of goods and therefore form an inseparable part of the sale consideration. Thus, freight charges form part of the sale price and are taxable under the Sales Tax Act.
Facts- The petitioner manufactures sulfuric acid. During the inspection, the officials found that the petitioner had charged freight separately in certain bills. The petitioner explained that they collected freight charges from the customers and paid the same to the transporters once every fortnight. The cost of freight paid on behalf of the customers was recovered by raising debit notes at a fixed rate per metric ton of acid sold. AO treated the turnover relating to the freight charges as part of the sale price and assessed them to tax.
The Appellate Assistant Commissioner, allowed the appeal, stating that the freight charges incurred by the petitioner were post-sale and were not to be included in the sale price. Tribunal set aside the order passed by the Assistant Commissioner. Being aggrieved, the petitioner has filed this Tax Case Revision.
Conclusion- Held that although the price is ex-factory, the sale cannot be considered complete until the goods reach the buyer’s site, given the extended responsibility retained by the petitioner. The freight charges are directly related to the delivery of goods and therefore form an inseparable part of the sale consideration. The Tribunal correctly concluded that, even if separately invoiced, such charges are to be included in the turnover for taxation purposes. For goods transported to the buyer, the delivery obligations and associated responsibilities make it necessary that freight charges, though billed separately, are treated as part of the sale consideration. Clause 4 provides for the freight charges, while Clause 5 confirms that the manufacturer bears transit insurance, reinforcing that the petitioner’s obligations extend the sale transaction to the buyer’s site.
