1969 (7) TMI 93 - SC - VAT and Sales Tax

Whether the amount expended for freight and for handling charges of goods from the factories to the warehouse at Ernakulam is liable to be excluded from the taxable turnover? Held that - Appeal dismissed. The Tribunal was right in holding that the exemption under clause (f) of rule 9 applies when the freight and charges for packing and delivery are found to be incidental to the sale and when they are specified and charged for by the dealer separately and expenditure incurred for freight and packing and delivery charges prior to the sale and for transporting the goods from the factories to the warehouse of the company is not admissible under rule 9(f).

Summary

Issues:
- Interpretation of Rule 9(f) of the Kerala General Sales Tax Rules, 1963 regarding deduction of charges for "freight and handling charges" from taxable turnover.
- Whether charges incurred by the dealer for transporting goods from factories to the warehouse are admissible for deduction under Rule 9(f).

Analysis:
The Supreme Court of India examined the appeal of an appellant-company registered as a dealer in "Indian made foreign liquor" under the Kerala General Sales Tax Act, 1963. The company transported liquor from its distilleries in U.P. and Haryana to its place of business in Ernakulam, Kerala, maintaining a uniform ex-factory price for each brand. The company claimed a deduction of charges for "freight and handling charges" under Rule 9(f) of the Kerala General Sales Tax Rules, 1963 in the assessment for the year 1963-64. The Sales Tax Officer, Appellate Assistant Commissioner, and Sales Tax Tribunal rejected the claim, upheld by the High Court of Kerala, leading to the appeal before the Supreme Court.

The key contention revolved around the interpretation of Rule 9(f), which allows deduction of charges for freight and packing when specified and charged separately by the dealer. The company argued that the charges incurred for transporting goods from factories to the warehouse should be excluded from the taxable turnover. However, the Court observed that the expenditure on freight and handling charges was incurred before the sale of goods and was part of the price for which the goods were sold. The Court emphasized that Rule 9(f) aims to exclude charges incurred post-sale or incidentally to the sale, not expenses necessary for making goods available at the place of sale.

The Court referenced decisions of the Madras and Andhra Pradesh High Courts to support its interpretation, emphasizing that the charges for transportation incurred before the sale cannot be considered for deduction under Rule 9(f). While acknowledging the precedents, the Court clarified that not all reasons given in the previous cases were subscribed to. Ultimately, the appeal was dismissed, affirming the lower authorities' decision, and costs were awarded against the appellant.

In conclusion, the Supreme Court's judgment clarified the scope of deduction under Rule 9(f) of the Kerala General Sales Tax Rules, 1963, emphasizing that charges for transportation incurred before the sale cannot be excluded from the taxable turnover. The decision provides guidance on the interpretation of rules governing deductions in sales tax assessments, ensuring consistency and adherence to legal principles in tax matters.