POLYCHEM LIMITED Vs. B R TARAPORWALA

JUDGEMENT

(1.) The 1st petitioner is a public limited company (referred to hereafter as "the Company") carrying on business of manufacturing polystyrene Moulding Powder and other chemical products at its factory at Goregaon, Bombay. The 2nd petitioner is one of the shareholders of the Company.

(2.) The wholesale cash price at which the Company's products are sold at the time of their removal from the Company's factory are in accordance with the list prepared by the Company and approved by the Excise Authorities. After the products are manufactured by the Company it sells the same to various customers throughout India at places like Bombay, Madras, Calcutta, Kanpur and Delhi. With a view to effect equalisation of freight in respect of their customers throughout India, from 3rd April, 1974 the Company introduced a uniform freight scheme as a result whereof irrespective of the distance between the Company's factory and the destination where the goods were consigned, a uniform freight rate of 0.25 paise per kg. was charged to the Company's customers as transport and insurance charges. Under this scheme the Company also gave an option to its customers throughout India either to lift the goods from the Company's factory at Bombay free of freight and insurance charges or leave it to the Company to effect delivery to its customers on payment of the uniform freight charges at 0.25 paise per kg. which would be borne by the customers. Accordingly, on 3rd April, 1974 when this policy to charge transportation charges at a uniform rate was introduced, a new price list showing the value of the petitioners' product, exclusive of freight and insurance charges during transit was brought into effect. This uniform rate of 0.25 paise per kg. recovered by the Company from its customers expressly constitutes freight plus insurance amount which the Company recovers separately from its customers and in addition to the price of consigned material. The company's printed price lists introduced with effect from 3rd April, 1974 and their invoices distinctly and separately show the delivery charges comprising of freight and insurance which are recovered from the customers as separate and distinct from the price of the goods sold to the customers. The rates pertaining to freight and insurance are costs initially incurred by the Company but they are ultimately recovered by the Company from its customers after the goods leave the company's factory. The petitioners, therefore, contend that these expenses were incurred after the manufacture of the goods, viz., that they are post- manufacturing expenses.

(3.) The Company sold their products to their various customers is pursuance of this scheme which was brought into effect from 3rd April, 1974. The prices mentioned in the invoices against the various items sold by the Company represent the value of the goods which was non- inclusive of freight and insurance and which was charged separately on the basis of the Company's freight equalisation scheme. After 3rd April, 1974 in its price declaration returns submitted from time to time by the Company to the excise authorities, the Company showed the delivery charges as recoverable from Company's customers as an item separate from the price of the goods consigned by the Company. According to the petitioners between 3rd April, 1974 and 4th September, 1974 (which is the period with which this petition is concerned) on the aggregate sales of 37,16,155.15 kgs. effected by the Company to its customers it has recovered Rs. 9,29,038.79 as delivery charges comprising of freight and insurance at the rate of 0.25 paise per kg. as against Rs. 9,91,007.00 actually spent towards freight and insurance charges during this period.