LOK 2026 (10) Ker. 53

High Court of Kerala

Tax Revisional Jurisdiction

Devan Ramachandran & Basant Balaji, JJ.

October 5, 2026

O.T.Rev. Nos. 80 and 82 of 2022

The Ramco Cements Ltd. v. State of Kerala

2026 KER 76734

Petitioner: S. Anil Kumar (Trivandrum), Sabu C.J., M. Rajagopal, Rahul A. and Aparna Anil, Advocates.

State: T.K. Shaij Raj, Senior Government Pleader.

The petitioner in these Revisions is a manufacturer of cement; and assert that they effected depot sale of the same to dealers – both wholesale and retail – on the strength of valid Tax Invoices.

2. As per the petitioner, the Tax Invoices drawn in favour of the dealers were with the specific endorsement “freight to pay”, which is to mean that the obligation to pay the freight charges was on the latter. They explain that, as part of their normal business procedure, a gross value is fixed – which includes freight also; but that, since their dealers took upon themselves, based on agreements, that they will honour the same, an amount equal to it was reduced from such value, and so shown in the invoice itself. They allege that, however, the assessing officer still added the amounts of freight – though not part of the invoice at all, but shown as a discount therein – to their total turnover for the assessment years in question; thus constraining them to file an appeal before the statutory First Appellate Authority, which when dismissed, forced them to approach the learned Kerala Value Added Tax Appellate Tribunal (‘the Tribunal’ for short), through a further appeal, which, however, has also concluded against them in the impugned orders.

3. The petitioner asserts that they have, therefore, been left without any other option, but to come to this Court.

4. Since both these petitions have been filed by the petitioner, and since it involves analogous, if not identical, legal issues, we have heard them together and proceed to dispose them of through this judgment.

5. Sri. S. Anilkumar – the learned counsel for the petitioner, conceded that, except in the circumstances provided in Rule 10(e) of the Kerala Value Added Tax Rules, 2005 (‘the Rules’ for short), amount of freight, if collected, ought to be shown as part of the sale price and turnover conceded on such lines. He explained that, however, as far as this case is concerned, even though his client, as a manufacturer, fixes a gross price for the article – which takes in the freight charges also – when the dealers in question agreed, under separate agreements, to honour the same on their own, such sum was reduced from the Tax Invoice issued in their favour, with endorsement “freight to pay” made on it. He contended that this arrangement concedes to no other interpretation, except that the burden to pay the freight had been taken over by the dealer, without any such being left with his client; resultant to which alone, the latter agreed to reduce the actual charges of the same from the Tax Invoice issued in favour of the former.

6. Sri. S. Anilkumar, thereafter, argued that conclusion of the learned Tribunal that, since the articles in question were supported by a Delivery Note in spite of Tax Invoice having been issued, it can only mean that the title on it continued with his client until such time as it was delivered to the consignee/dealer is in grave error because, Cement – being regulated goods – can be transported, even after a depot sale, on the strength of the statutory requirement under the first proviso to Section 46(3) of Kerala Value Added Tax Act, 2003 (‘the Act’ for short). He argued that, therefore, merely because the goods were so supported by a Delivery Note, a presumption that its title continued with his client, until it was delivered to the consignee/dealer is improper and untenable. He prayed that, hence, the impugned orders be set aside.

7. Sri. Shaij Raj – the learned Senior Government Pleader, refuted the afore contentions, relying upon several precedents, including India Meters Limited v. State of Tamil Nadu [(2010) 9 SCC 423], to argue that, except within the ambit of Rule 10(1)(e) of the “Rules”, freight which is collected as part of the sale price, will have to be added to the total turnover. He maintained that the assessing authority, as also the First Appellate Authority, and the learned Tribunal have appreciated all the relevant and germane facts correctly, to notice that what has been done by the petitioner in this case is to indirectly pay the freight, and then reduce it from their turnover. He impressed upon us, pointing out to the Tax Invoices on record, that, after mentioning the gross sale price, the amount of freight is shown to be lessened; with a further endorsement on it to the effect of “freight to pay”. He alleged that what is being attempted, is to make it appear that the freight has been paid by the dealer, when in fact, it has been reduced from the sale price by the petitioner, thus justifying the imputation that the burden of such freight was indirectly taken over by themselves. He contended that in such circumstances, the addition made by the Assessing Officer is without error, as also the holdings and findings of the First Appellate Authority and the learned Tribunal.

8. The facts and contentions being recorded, we notice from the order of the learned Tribunal that it has dealt with the specific issues involved, in paragraph Nos. 28 and 33 of its order, which reads as under:-

“28. The invoices discloses it as “freight to pay” sale as specified in top right corner of the invoice. But this freight element is not specified in the invoice but is deducted from the gross value. The appellant himself has admitted that no freight charges were collected separately and the freight is deducted from the gross value depending on the distance of place of business of the purchaser. Here the facts as to delivery using company delivery note and title of goods resting on appellant (pointed by the assessing authority in his order) becomes relevant. The facts clearly point that the freight is also included in the gross value. If the freight was not intended to be part of sale price, then the same would have been charged separately with an invoice or would have been specified separately. So the intention of the parties was that sale price is inclusive of freight element. Here we find that this freight charge is also part of the sales price in view of the above facts and as ruled by the judgments above discussed.

33. The respondent’s contention as to non applicability of Rule 10(e) is that the freight is not collected and hence it cannot be included in the turnover is incorrect as Rule 10(1) (e) has two conditions. First being freight should be charged and collected reportedly and second being it should not be included in the price of the goods. As far as respondent is concerned, the freight as discussed and decided by us in paragraph 28 of this order, is found to be part of sale price and this contention is rejected. The issue is decided in favour of the state upholding the finding of the appellate authority.”

9. Unmistakably, the learned Tribunal, taking note of the Delivery Notes accompanying the consignments in spite of Tax Invoices having been issued, has assumed that the title of the same continued with the petitioner until such time it reached the business premises of the dealer. It then adverted to the provisions of Rule 10(1)(e) of the “Rules” to conclude that, since the Articles were supported by Delivery Notes and because the freight charge was included in the gross value mentioned in the Tax Invoices, the conditions stipulated in Section 10(1)(e) of the “Rules” are not satisfied.

10. There are certain very specific factual factors that are involved in this case; edificed on which, will be the manner in which the law applies.

11. It is expressly conceded that, in normal circumstances, the ‘gross value’ mentioned in the Tax Invoices takes in freight charges also. The petitioner, however, asserts that it has agreements with its dealers, taking upon themselves the obligation to pay the freight charge; and consequently that, in the Tax Invoices, the same has been shown as a discount, under the head “less – freight”. They also say that it has been made specifically clear in the Tax Invoices that the terms of delivery is: “Freight-to Pay”; and that the category of sale is: “Depot Sale”.

12. It is not necessary for us to enter into any discussion on whether a freight paid or collected, except as prescribed under Rule 10(1)(e) of the “Rules”, would be part of the sale consideration, because this is conceded by the petitioner.

13. The specific contention of the petitioner, however, is that they had not collected freight charges at all, and had reduced such sum from the “gross value”, which is a standard price fixed by them taking into account such charges also; and that it is fully honoured by the dealers. For this, the petitioner says there are agreements between themselves and the dealers.

14. If, the above are true, then surely, the dealers would have accounted for the freight charge in their books of account, either as expenses or under other appropriate head. This has not been concededly verified; but the Assessing Officer proceeded on the assumption that, when the articles continued to be in title with the petitioner, until they reached the destination of the dealer; and when such were supported by Delivery Notes, the shifting of the burden of the freight charge, by having a commensurate reduction in the gross value in the Tax Invoices, would have the effect of the petitioner themselves paying it, albeit in an indirect fashion. The learned First Appellate Authority and the learned Tribunal have adopted the same reasoning.

15. However, before this Court can assess the findings in the impugned orders, the foundational factual factors ought to be established and clearly discernible.

16. As Sri. Anilkumar explains it, the petitioner asserts that they fix a standard “gross price”, akin to a maximum retail price, applicable to all purchasers/dealers, taking into its fold all incidentals, including the freight charge. They say that, however in the case of the dealers in whose names the Tax Invoices in these cases have been drawn, there are specific agreements between them, under which they took over the burden to pay the freight; and hence that the value of same has been reduced from the “gross price”.

17. At this juncture, we advert to the declarations in Hyderabad Asbestos Cement Products Ltd. v. State of A.P. [(1969) 24 STC 487 (SC)], where it was held that freight charges do not form part of sale price; which view was followed in Straw Products Ltd. v. Commissioner of Sales Tax, M.P. [(1987) 65 STC 20 (MP)].

18. In Hindustan Sugar Mills Ltd. v. State of Rajasthan [(1979) 43 STC 13], the Supreme Court held freight charges to be part of the sale price as provided under the Cement Control Order of 1967, where, as per clause 8, freight was not treated as an independent expense incurred after the sale. It formed part of the “controlled price” payable for cement. This principle was applied in TVL. Ramco Cement Distribution Co. (P) Ltd. [(1993) 88 STC 151].

19. The whole purpose of the Cement Control Order was that cement should be available for sale at all places in the country at a controlled price. However, the inclusion of freight in taxable turnover arose from a “Statutory Pricing Regime”, rather than a universal rule, that freight must always form part of the sale price of cement.

20. Thereafter, the price of cement was allowed to be governed by market forces, vide the Cement Control (Amendment) Order, 1989 notified through S.O. 168(E), dated 1 March, 1989, through which, the Central Government withdrew price and distribution control over cement.

21. In this case, when the transaction occurred post the Decontrol Order in 1989, the former control provisions may not be able to be automatically applied.

22. Hence, for transactions occurring after that date, the tax treatment of freight must be determined under the relevant legislations and contractual arrangements applicable to those transactions, rather than by automatically extending the historical controlled-price rule.

23. However, these facts have not been evaluated by the Assessing Authority; nor has the contention of the petitioner ― that the Delivery Notes which accompanied the goods were statutorily required on account of the first proviso to Section 46(3) of the “Act” ― considered. But, an assumption has been made, for the reason of Delivery Notes accompany the goods, that its title still remained with the petitioner; and this line has been adopted by the learned Tribunal also.

24. To paraphrase, the most essential factual investigations, essential and imperative for the purpose of resolving the aspects in dispute, have not been done by the Assessing Authority. The First Appellate Authority and the learned Tribunal have also proceeded on virtual surmises, to approve the Assessment Order.

25. We are, therefore, left without doubt that the matter will require to be reconsidered by the Assessing Officer, particularly in the backdrop of the explanation offered by the petitioner and the statutory provisions in Section 46(3) of the “Act.”

26. In summation, the questions of law raised by the petitioner are left open; consequently setting aside the impugned orders and directing the Assessing Authority to reconsider the assessment, adverting to all contentions and precedents cited by both sides and after affording them necessary opportunities. This shall be done not later than six months from the date of receipt of a copy of this judgment. Needless to say, since we have not answered any of the contentions of the rival parties, the Assessing Officer is at liberty to deal with them as per law.

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