2008 (8) TMI 871 - HC - VAT and Sales Tax

Whether, on the facts and in the circumstances of the case, the Trade Tax Tribunal was legally justified to hold that inward freight is not part of turnover, only on the ground that it was charged separately? Held that - Following items are excluded from the sale price - Cash discount allowed to buyers according to the practice normally prevailing in the trade, Cost of freight or delivery, if it is separately charged in the sale bill, When the cost of installation is separately shown in the sale bill. Even for the applicability of the case of Vinod Syndicate 1987 (10) TMI 354 - SUPREME COURT OF INDIA9 necessarily a finding that freight was separately charged in the bills is required for its exclusion from turnover . Neither the Tribunal nor the first appellate authority have examined this aspect of the case, therefore, it is desirable that the matter should go back to the Tribunal to re-examine the matter again and to record a finding with regard to the question of charging of freight separately, also. Revision allowed. Matter is restored back to the Tribunal to rehear and redecide the appeal afresh in the light of the observations made above in accordance with law

Summary

Issues Involved:
1. Whether inward freight is part of turnover.
2. Whether the dealer acted as an agent for the brick-kiln owners or as a principal.

Issue-wise Detailed Analysis:

1. Whether inward freight is part of turnover:

The primary question in these revisions is whether inward freight should be included in the turnover. The assessing authority added the cost of inward freight to the price of coal, considering it part of the turnover. This decision was overturned by the first appellate authority, which relied on the Supreme Court judgment in Vinod Coal Syndicate v. Commissioner of Sales Tax [1989] 73 STC 317; [1988] UPTC 218, concluding that inward freight, when charged separately, does not form part of the turnover. The Tribunal upheld this view.

However, the learned standing counsel argued that the Vinod Coal Syndicate judgment is not applicable to the present case and that, according to section 2(i) of the U.P. Trade Tax Act, inward freight should be included in the turnover. Conversely, the dealer's counsel cited judgments in Commissioner, Trade Tax v. Indian Aluminium Cable Co. Ltd., Ghaziabad [1999] 115 STC 444; [1995] UPTC 705 and Vinod Coal Syndicate to support the Tribunal's order.

The court noted that neither the first appellate authority nor the Tribunal addressed the assessing authority's finding that there was no evidence of an agency relationship between the dealer and the brick-kiln owners. The court referenced several cases, including Commissioner of Trade Tax v. Sunil Kumar Coal Agent, Gorakhpur [2003] UPTC 1036, which emphasized that without evidence of agency, the supply of coal does not create an agent-principal relationship. The court reiterated that if the dealer acted as a principal, the freight should be included in the turnover.

2. Whether the dealer acted as an agent for the brick-kiln owners or as a principal:

The court examined whether the purchases were made by the dealer on its own account or as an agent for the brick-kiln owners. The assessing authority found no material evidence to show that the dealer made purchases as an agent. The court emphasized that the Tribunal and the first appellate authority failed to address this crucial finding.

The court cited the definition of "sale price" in section 2(h) of the Central Sales Tax Act, which excludes the cost of freight if separately charged. However, it noted that this exclusion applies only if the freight cost is genuinely separate and not merely a split in the invoice to evade tax. The court referred to the Supreme Court's interpretation in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13, which clarified that the cost of freight forms part of the sale price if it is included in the price and not genuinely separate.

The court concluded that the matter should be remanded to the Tribunal for re-examination. The Tribunal must determine whether the freight was genuinely charged separately and whether the dealer acted as an agent or a principal. The court clarified that its observations were only for argument consideration and should not influence the Tribunal's findings.

Conclusion:

All four revisions were allowed, and the matter was remanded to the Tribunal to rehear and redecide the appeal afresh, considering the observations made in the judgment. No order as to costs was made.