1. The petitioners who were limestone suppliers to the India Cements Ltd., were assessed under the Madras General Sales Tax Act, 1959, for five assessment years 1962-63 to 1966-67 in respect of their supplies of limestone. In the course of the assessment, the assessees claimed deduction of freight and transport charges from the total turnover returned by them. Though the freight and transport charges have been separately charged for in the sale invoices, without including them in the sale price of the goods, the assessing authority chose to reject the claim. The appeals against such rejection also failed. There were further appeals before the Tribunal. The Tribunal also has upheld the rejection of the claim for deduction on the ground that though the freight and transport charges have been separately charged for in the sale invoices, the assessees are not entitled to the benefit of deduction, as they have charged in the earlier years an all inclusive price for the limestone sold, and that freight and transport charges have been separately claimed in the assessment years only for reducing the tax liability. The question is whether the disallowance of the claim for deduction of freight and transport charges could be sustained.
2. It is true that as per Clause 6(c) of the original agreement dated 25th February, 1958, an all inclusive price of Rs. 6.87 per tonne of 90 per cent purity limestone had been fixed as payable by the India Cements Ltd. to the assessees. But the said clause has later been amended fixing separately the price per tonne of limestone and the freight and transport charges per tonne. In pursuance of the amended Clause 6(c) of the agreement, the invoices have been prepared showing the sale price of the limestone and the freight and transport charges separately. To take one instance, under the original agreement dated 25th February, 1958, an all inclusive price of 6.87 per tonne has been fixed as the price of the limestone to be delivered at the buyer's factory at Thalaiyuthu. But, under the amended Clause 6(c), which is applicable to the assessment years in question, the amounts payable by the India Cements towards the price proper and towards freight and charges for effecting delivery at the buyer's factory, have been shown separately. The all inclusive price of Rs. 6.87 per tonne shown in the original agreement has been amended by showing Rs. 4.62 as the price proper and Rs. 2.25 as the freight and delivery charges incurred by the assessees for bringing the goods to the buyer's factory. In view of this specific agreement between the assessees and the India Cements Limited for payment separately the price proper for the limestone supplied and the freight and transport charges, the preparation of the invoices by the assessees showing the two items separately has to be taken note of, and the applicability of Rule 6(f)(i) of the Madras General Sales Tax Rules has to be considered in the face of the revised agreement and the relevant invoices. It cannot be disputed that the said rule stands attracted to the sale of goods in respect of which the assessees have charged freight and delivery charges separately, apart from the price of the goods. We do not see any reason as to why the assessees should be denied the benefit of this deduction merely because similar invoices were not prepared in the earlier years. The fact that the assessees bargained for an all inclusive price and did not bargain for freight and delivery charges separately under the original agreement will not preclude them from revising the agreement and claiming separately for the price of the goods sold and for the freight and delivery charges incurred by them. The only reason given by the Tribunal for rejecting the claim of the assessees is that they have chosen to charge an all inclusive price for the limestone supplied in the earlier years and that they have purposely split up the same price paid for the limestone into two components, (i) the price proper and (ii) the freight and delivery charges, with a view to avoid their tax liability on that portion of the turnover which represents the freight and delivery charges does not appear to be sound or tenable.
3. The learned Assistant Government Pleader for the revenue, however, contends that the terms of the contract between the assessees and the India Cements Ltd. indicate that the sale has to be completed by delivery of the limestone at the buyer's factory at Thalaiyuthu, that the obligation of transporting the goods to the place of delivery is that of the assessees, that the sum incurred by the assessees as freight and delivery charges had to be on their account and that therefore the total amount received by them from the India Cements Ltd., should be taken as the price of the limestone at the delivery spot. But we found that the parties have specifically provided under the agreement as revised, that the price of limestone fixed under it is to be the price of the limestone at the point of extraction. Therefore, it has to be taken that the buyer has fixed the sale price of the goods at the point of extraction and agreed to pay separately the freight and transport charges from the place of extraction to the buyer's factory. It is not the case of the revenue that the assessees have any place of business at Thalaiyuthu where they stock the limestone for the purpose of sale to the India Cements Ltd., and others at a price to be fixed without reference to the transport of the goods. The parties are aware that the goods are to be brought from the place of extraction to the factory and that the cost of transport of the limestone has to be borne by the buyer.
4. In Narayana Shenoy v. State of Mysore  23 S.T.C. 411, a similar point was raised by the revenue, but the same was rejected. In that case, the assessee supplied firewood to certain tile factories from a forest, which was a few miles away from the place where the factories were situate. Under the agreement the factories had agreed to pay the assessee the transportation charges. In the bills prepared by the assessee the transport charges were specified and shown separately and not included in the sale price. The assessee claimed that the transport charges were allowable deductions under Rule 6(4)(f)(i) of the Mysore Sales Tax Rules, 1957. The revenue contended that the sale had taken place at the factory site of the purchasers and, therefore, the transport charges which the assessee had incurred in bringing the goods to the factory site for effecting delivery could not be allowed. The court held that whatever be the place of contract, so long as the invoices prepared by the assessee, in accordance with the contract of sale shows transport charges as an independent item charged and not form part of the sale price specified, the deduction claimed was allowable under Rule 6(4)(f)(i). With respect, we are inclined to agree with the reasoning in the above judgment. The applicability of the rule for deduction does not depend on the place of sale, and the only material point to be considered is whether in the invoices made out by the assessees, the freight and delivery charges have been shown separately, without including them in the sale price and whether that was the bargain between the parties. The invoices in these cases are in accordance with the terms of the agreement between the parties. There cannot be any dispute that in this case the agreement between the assessees and the buyer actually fixed the sale price, apart from the freight and delivery charges. The terms of the agreement clearly show that the bargain between the parties was to pay and receive the price proper and that the buyer was under an obligation to pay the freight and transport charges from the place of extraction to the factory site.
5. The learned Assistant Government Pleader then seeks support from the decision of the Supreme Court in Dyer Meakin Breweries Ltd. v. State of Kerala  26 S.T.C. 248 in support of his contention that the mere fact that the freight and delivery charges have been shown separately, apart from the sale price, will not entitle the assessee to claim the benefit of deduction under Rule 6(f)(i) unless it is specifically shown that the sale was completed at the place of extraction and that the subsequent obligation to transport was on the buyer. In the above decision, the Supreme Court considered a case, where the seller brought liquor from various places and sold it at his place of business in Ernakulam. While selling liquor to the customers, the assessee made out separate bills for ex factory price and for freight and handling charges. The assessee claimed that the amount charged for freight and handling charges incurred by him in transporting goods from various places to his warehouse at Ernakulam had to be deducted under Rule 9(f) of the Kerala General Sales Tax Rules, 1963. The Supreme Court rejected that claim on the ground that the expenditure incurred by the assessee towards freight and handling charges was prior to the sale and that such pre-sale charges would naturally go to enhance the cost price of the goods sold at Ernakulam. Therefore, it was held that even though the freight and handling charges had been separately charged for in the bills, they could not be claimed as deductible items from the total turnover. The reason given by the Supreme Court was this:
Rule 9(f) seeks to exclude only those charges which are incurred by the dealer either expressly or by necessary implication for and on behalf of the purchaser after the sale when the dealer undertakes to transport the goods and to deliver the same or where the expenditure is incurred as an incident of sale. It is not intended to exclude from the taxable turnover any component of the price, expenditure incurred by the dealer which he had to incur before sale and to make the goods available to the intending customer at the place of sale.
6. We are not in a position to say that this decision will be applicable to the facts of this case. As already stated, it is not shown that the assessees have any place of business where the limestone was stored by them and later sold. The assessees extracted limestone and transported the same to the buyer's place of business in pursuance of the agreement of sale entered into by them which specifically provides for the price of the limestone at the place of extraction and also for the freight and delivery charges payable by the buyer. We are, therefore, of the view that the assessees' claim for deduction in relation to the freight and delivery charges has to be upheld.
7. One additional point is raised in relation to the assessment years 1962-63 and 1963-64. In respect of these two years, it appears that there was an enhancement of the royalty payable to the Government in respect of the places where the limestone had been extracted. The agreement provides that the price charged for the limestone is with reference to the rate of royalty payable on the date and that if there is any subsequent enhancement of royalty payable to the Government, such enhanced royalty amounts have to be borne by the buyer. In these two assessment years, the assessees have claimed and received enhanced royalty from the buyer. The assessees have claimed deduction of such amounts of royalty paid by the buyer. We do not see how the assessees are entitled to claim the said royalty as a deduction from the total turnover. The royalty paid adds to the cost price of the limestone and, therefore, even though royalty has been separately charged for and paid, it should be treated as part of the sale price of the limestone. Hence no deduction can be claimed in relation to that amount.
8. In the result, the tax cases are allowed in part in so far as they relate to the freight and delivery charges. There will be no order as to costs.