Win for Parle Products: Bombay HC Rules Freight Charges Reimbursed by Wholesalers Do Not Form Part of Sale Price, No Sales Tax Payable [Read Order]

In a recent ruling, the Bombay High Court held that freight charges reimbursed by wholesalers do not form part of the sale price, and no sales tax is payable on such amounts.

The Commissioner of Sales Tax had questioned whether the freight amounts collected by Parle Products Ltd. for transporting goods from the factory to the wholesalers’ premises could be treated as part of the sale price under Section 2(29) of the Bombay Sales Tax Act, 1959.

The assessee manufactured biscuits, chocolates, and confectionery goods. For the years 1990 to 1995, assessment orders included freight in the taxable turnover. Parle challenged these orders, arguing that sales were completed ex-factory and that freight was only a reimbursed expense, not part of the sale consideration.

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The department’s counsel argued that under the definition of “sale price,” any sum charged in respect of goods before delivery must be included, and thus freight should attract sales tax. Reliance was placed on the Supreme Court’s ruling in Hindustan Sugar Mills vs. State of Rajasthan.

The assessee’s counsel argued that the contracts made sales complete at the factory gate, and freight was paid by Parle only as an agent of the purchaser, later reimbursed. They pointed out earlier rulings such as Ravi Trading Company and State of Karnataka vs. Bangalore Soft Drinks Pvt. Ltd., which supported this position.

The Division Bench of Justices M.S. Sonak and Advait M. Sethna observed that the contracts clearly provided for ex-factory delivery, and that freight was a separate reimbursement, not part of the price. The court explained that under such circumstances freight could not be included in the sale price.

The court also observed that a similar argument by the revenue had already been rejected in earlier cases, and there was no reason to treat the contracts as sham.

The court held that freight reimbursed by the purchasers was not part of the sale price and that sales tax could not be levied on such amounts. The references were answered in favour of Parle Products Ltd. and against the revenue.

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