2010 (9) TMI 977 - HC - VAT and Sales Tax

Tax liability on a dealer with regard to freight charges and trade tax Held that - The assessing authority has committed a manifest error in presuming certain events hypothetically, which is not based on any document on record. The record clearly suggests, namely, the bills, that the price of goods was charged separately and that the trade tax and the freight charges were charged separately. This was the best evidence which could not be ignored by the assessing authority. There is no agreement between the parties except the offer made by the purchaser and the certificate issued by the purchaser which also clearly indicates that as per the arrangement made between the parties, freight and trade tax was required to be charged separately. Consequently, the assessing authority committed a manifest error in rejecting the certificate and including the trade tax as well as the freight charges in the turnover. Thus the assessee was entitled for exemption of freight and trade tax in its turnover. Appeal allowed.

Summary

Issues:
Tax liability on dealer regarding freight charges and trade tax exemption.

Analysis:
The case involved a trade tax revision for assessment years 1998-99 and 1999-2000. The revisionist, engaged in manufacturing corrugated boxes, had charged freight and trade tax separately in bills, claiming exemption from tax based on the Trade Tax Act's definition of "turnover." Despite prior exemption, the assessing authority disallowed it for the years in question, including freight and tax in turnover. The key issue was whether the charges were separately realized, impacting tax liability.

The court examined Section 2(i), Explanation II(i) of the Trade Tax Act, emphasizing that if freight and trade tax were separately charged and realized, they should not be part of turnover. The assessing authority erred by presuming hypothetical events without concrete evidence. The revisionist consistently maintained separate charges, supported by bills, which the authority acknowledged. The rejection was based on a presumed agreement between parties, not substantiated by records.

Citing precedents like Hyderabad Asbestos Cement Products and Tata Timken Limited cases, the court reaffirmed that separate charges like freight should not be included in turnover. It highlighted the importance of documentary evidence, rejecting hypothetical presumptions. The court concluded that the revisionist was entitled to exemption based on evidence and directed the assessing authority to issue a new assessment order granting exemption for freight and trade tax, quashing previous orders.

In light of the evidence presented, the court found in favor of the revisionist, emphasizing the assessing authority's error in including freight and trade tax in turnover. The judgment quashed previous orders and directed the authority to issue a new assessment order granting exemption for the charges. The decision was based on the clear provisions of the Trade Tax Act and established legal precedents supporting separate charges not being part of turnover, ensuring fair tax liability assessment for the dealer.