2010 (7) TMI 943 - HC - VAT and Sales Tax

Whether the freight charges collected by the assessee under the invoice as total added value (including transportation charges) is liable to tax under section 3(1) of the Act? Held that - The position is clear that the dealer collects freight charges as part of total order value. Though it is specifically mentioned what is the cost component to the said transportation charges, collecting the value before effecting sale of the goods, when sale of goods becomes complete only after the delivery of the goods, therefore, it becomes part of taxable turnover. If after transfer of title to the goods by delivery of the goods, for which he has already collected the price of the goods and after delivery if he receives the transportation charges, then the said amount does not form part of the taxable turnover as it is not a part of the sale consideration or paid prior to sale of the goods. That appears to be a clear manifestation of the intention by the Legislature as contained in various definitions referred to above and the clarifications issued by the Government. In that view of the matter, the order passed by the revisional authority is strictly in accordance with law, whereas the appellate authority was carried away by the legal position prior to the enactment of the Act and thus he got confused himself without looking into the express provisions contained in the Act. The revisional authority was therefore justified in interfering with the order as the order was prejudicial to the remedy. Appeal dismsissed.

Summary

Issues:
1. Interpretation of the Karnataka Value Added Tax Act, 2003 regarding exemption on transportation charges.
2. Validity of deduction of transportation charges from taxable turnover.
3. Legality of revisional authority's decision on transportation charges.

Analysis:
1. The appellant, a partnership firm dealing in cement concrete blocks, claimed exemption on transportation charges reimbursed by customers. The first respondent proposed disallowing the exemption, leading to a series of appeals. The appellate authority initially held that transportation charges do not constitute taxable turnover. However, the Additional Commissioner revised the order, stating that transportation charges are taxable under the Act. The appellant argued that they only acted as intermediaries for transportation charges, not adding any amount to the goods' value. The Revenue contended that freight charges are not part of taxable turnover as per the Act's scheme.

2. The key legal provisions considered were Section 3(1) (charging section), Section 4 (tax rate), and Rule 3(2) (deductions for taxable turnover). The Act defines terms like "taxable turnover," "total turnover," and "sale." The Government clarified that pre-sale transportation charges are taxable, while post-sale charges are not unless proven with evidence. The revisional authority's decision aligned with the Act, while the appellate authority's decision reflected confusion pre-Act enactment. The Act does not allow deduction of freight charges from turnover, making them part of taxable turnover.

3. The judgment favored the Revenue, dismissing the appeal. The court upheld that transportation charges collected before goods delivery form part of taxable turnover. The legislative intent, as per definitions and Government clarifications, supports this stance. The revisional authority's intervention was deemed justified to rectify the appellate authority's misinterpretation. The court found no merit in the appeal, ruling in favor of the Revenue and directing each party to bear their own costs.