2008 (8) TMI 828 - HC - VAT and Sales Tax

Whether the Trade Tax Tribunal was legally justified to hold that the inward freight paid for the purchase of coal is not part of the turnover? Whether the Trade Tax Tribunal was legally justified to allow the adjustment and refund of amount deposited at check-post for composition of offence on contravention of the provisions of section 28A of the U.P. Trade Tax Act, 1948 as compounding amount? Whether the Trade Tax Tribunal was legally justified to determine the selling rate of coal lower than the declared rate by the dealer? Held that - The Tribunal was not right in holding that freight will not form part of turnover, as it is case of sale by principal to principal. So far as question Nos. 1 and 3 are concerned, the order of the Tribunal is indefensible and the same is hereby set aside. The inward freight, on the facts of the present case, shall form part of the turnover. The matter is remanded back to the Tribunal to consider the nature of deposit made by the dealer at the check-post while importing coal in the State of U.P. in the light of the observations made above in connection with question No. 2 only.

Summary

Issues Involved:
1. Whether the Trade Tax Tribunal was legally justified to hold that the inward freight paid for the purchase of coal is not part of the turnover.
2. Whether the Trade Tax Tribunal was legally justified to allow the adjustment and refund of the amount deposited at the check-post for composition of offense on contravention of the provisions of section 28A of the U.P. Trade Tax Act, 1948 as compounding amount.
3. Whether the Trade Tax Tribunal was legally justified to determine the selling rate of coal lower than the declared rate by the dealer.

Issue-wise Detailed Analysis:

1. Inward Freight as Part of Turnover:
The assessing authority included inward freight paid for the purchase of coal in the turnover. The dealer claimed to act as a commission agent for purchasers, but the assessing officer found no evidence of agency, treating the transactions as sales from principal to principal. The Tribunal excluded the freight from turnover, considering it separately charged in bills and paid by purchasers. However, the court disagreed, citing precedents such as Commissioner of Trade Tax v. Sunil Kumar Coal Agent, Gorakhpur [2003] UPTC 1036, which clarified that in the absence of agency evidence, such transactions are between principals. The court emphasized that camouflaging freight charges to evade trade tax is not permissible, and the title of coal transfers to brick-kiln owners only upon delivery. Thus, inward freight forms part of the turnover.

2. Adjustment and Refund of Amount Deposited at Check-post:
The Tribunal allowed the adjustment of amounts deposited at the check-post towards the dealer's liability, treating it as a security deposit. The assessing officer, however, viewed these deposits as penalties or composition fees, not subject to adjustment. The court noted the Tribunal's failure to determine the nature of these deposits, emphasizing the need to distinguish between security deposits and composition fees. The matter was remanded to the Tribunal for re-examination in light of relevant circulars and legal provisions.

3. Determination of Selling Rate of Coal:
The Tribunal's determination of a lower selling rate than the declared rate by the dealer was linked to the overall assessment of transactions. Given the court's stance on the inclusion of inward freight in turnover, this issue was indirectly addressed. The court's decision to remand the matter for fresh consideration implicitly affects the selling rate determination.

Conclusion:
The court set aside the Tribunal's order regarding inward freight and remanded the matter for reconsideration of the nature of deposits made at the check-post. The inward freight shall form part of the turnover, and the Tribunal must re-examine the deposit issue afresh. The revision was allowed in part, with no order as to costs.