BHARAT VARNISH MFG CO Vs. STATE OF MAHARASHTRA

JUDGEMENT

(1.) The assessees, M/s. Bharat Varnish Mfg. Co. are a firm manufacturing paints, varnishes, etc. For the period from 1st January, 1971, to 31st December, 1971, the turnover of the assessees in respect of inter-State sales was determined by the Sales tax Officer at Rs. 25,94,912. This amount included freight charges in respect of goods sent to their purchasers by the assessees amounting to Rs. 85,253. The assessees deducted these freight charges from their turnover on the ground that they did not form a part of the sale price. The Sales Tax Officer, however, held that the amount of freight charges could not be so deducted and it formed a part of the sale price. The assessees were taxed accordingly. From the order of the Sales Tax Officer the assessees preferred a first appeal before the Assistant Commissioner of Sales Tax. The Assistant Commissioner, however, confirmed the order of the Sales Tax Officer. Thereafter the assessees preferred a second appeal being Second Appeal No. 708 of 1976 before the Tribunal. The Tribunal also upheld the decision of the Assistant Commissioner and dismissed the appeal. At the instance of the assessees the following question has been referred by the Tribunal to us for determination : "Whether, in the facts and circumstances of the case, the Tribunal was justified in law in adding to the sale price the freight charges paid by the buyer ?"

(2.) Before the Tribunal, the assessees had filed an affidavit dated 14th November, 1977, in which they had stated that during the years 1970 to 1974 it was the usual practice of the assessees to take orders from their customers through sales agents. The assessees, however, had not been able to preserve copies of these sales orders. They had, however, copies of the sales orders placed with them from the year 1974 onwards. The assessees further stated in the affidavit that the form and the terms of the sales orders printed overleaf as well as on the front page of the order form were in all respects similar to the orders which had been placed from the years 1970 to 1972; and they relied upon a copy of the order placed with them and dated 26th December, 1974, as showing the terms and conditions of the contracts placed with them for the assessment period in question. On the basis of this affidavit the Tribunal had allowed the assessees to rely upon the sale order dated 26th December, 1974, placed with them for the dated 26th December, 1974, placed with them for the supply of a certain quantity of picture varnish as illustrative of the sales orders paced with them during the assessment year 1st January, 1971, to 31st December, 1971. Accordingly the arguments relating to the terms and conditions of the sale contracts of the assessees have been advanced before us on the basis of this order form.

(3.) In the order form it is mentioned that the price which is charged by the assessees for the goods sold by them is f.o.r. place of destination. In the sample order form this price is mentioned as Rs. 7.90 per litre f.o.r. Jullundur net - Jullundur being the place where the goods were received by the purchasers. In other words, the sale price quoted on sale order is inclusive of freight upto Jullundur, and the buyer is not required to pay any freight in addition to the price of the goods. Condition No. 5 which is printed at the back of the order form is as follows : "Our responsibility ceases when the goods are out of our godown", while condition No. 6 is to the effect that : "Railway freight, V.P. charges, bank commission, etc., are at the buyer's cost." The goods thus sold by the assessees were despatched to the buyers by rail on freight to pay basis. The documents pertaining to the goods so despatched were sent through the bank and the buyer paid the freight before taking delivery of the goods. In the invoices which were sent by the assessee-sellers to the buyers, they set out the total price charged and deducted from this price the amount of freight. After deducting freight, inter-State sales tax was charged on the net amount. In the invoice date 5th November, 1971, which is relied upon by the assessees as a representative sample, the following is stated against the item of freight which is deducted by the assessees from the sale price : "Less freight which you will have to pay at your end on our behalf." The position that emerges from these documents is that the price charged by the assessees was inclusive of freight. The buyers, however, were required to pay freight on behalf of the assessee-sellers before taking delivery of the goods. The freight so paid by the buyers was deducted from the price payable by them in the invoice and they were required to pay the balance amount to the assessees.