The Orissa High Court held that the deduction can be claimed on Freight charges as it is not includable in the sale price.
The Petitioner, M/s. Utkal Moulders is a manufacturer of cast iron goods and is also engaged in the trading of iron and steel goods. The Petitioner is a registered dealer under the Orissa Sales Tax Act, 1947 (OST Act) and the Central Sales Tax Act, 1956.
An inspection report was submitted by the STO, Investigation Unit, Rourkela alleging that the Petitioner had evaded tax during 1999-2000 on freight charges of Rs.1,49,576/- on the total freight collection of Rs.37,39,393/-. On this basis, the assessment proceedings were initiated under Rule 12 (5) of the CST (Orissa) Rules. The Petitioner offered an explanation that the goods had been delivered ex factory to the common carriers. The claim of deduction on account of outward freight, separately charged in the sales bills, was allowable as a deduction in view of the definition of sale price contained under Section 2 (h) of the CST Act.
However, the STO rejected the Petitioner’s explanation and raised an additional demand of Rs.1,36,956/- by the impugned assessment order.
Aggrieved by the said order, the Petitioner filed an appeal which came to be dismissed by the Assistant Commissioner of Commercial Taxes, Sundargarh Range, Rourkela. It was held in the said order that the contract in question clearly mentioned that the prices were inclusive of excise duty, sales tax, freight, packing and also “FOR destination”.
Thus, it was held that it was a contract of sale where the cost of freight was a part of the sale prices and the purchaser i.e. the DoT had not undertaken any obligation to pay freight incurred by the selling dealer. Therefore, the selling dealer i.e. the Petitioner would not be entitled to any deduction towards freight despite showing it separately in the sale invoice.
The division bench headed by the Chief Justice D.S. Muralidhar observed that the Tribunal committed a serious error in understanding the freight charge to be the same freight charge irrespective of the distance between the factory of the Petitioner and the destination of the Purchaser. The crucial factor, which was missed, was that the rate was a uniform rate of Rs.45 “per piece” as this was for a supply of 50000 units.
Therefore, the court held that the Petitioner is entitled to claim a deduction of the freight charges from the taxable sales turnover.
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