2011 (11) TMI 579 - HC - VAT and Sales Tax

Calculation of taxable turnover - Inclusion of liquidated damages - Whether in the facts and circumstances of the case, the Tribunal has erred in having excluded the payment received towards liquidated damages would not form part of the taxable turnover - Held that - liquidated damages levied have to be borne by the contractor and the payment is reduced to the extent of liquidated damages and, therefore, such amount received after the contractual deductions can alone be treated as turnover - buyer was entitled to recover liquidated damages for delay in delivery of the goods. In other words, the dealer was liable to pay the liquidated damages at the agreed rate if it failed to supply the goods within the agreed time. The liquidated damages were in the nature of an expenditure which the dealer had to incur for its default. This was not a discount as contemplated under Section 2(h) of the Central Sales Tax Act. The damages in the very nature of things are meant to compensate the party for the loss it suffers on account of the default of the supplier. It has no connection with the sale price agreed upon between the parties - Following decision of Punjab Communications Ltd. v State of Punjab and others 2002 (5) TMI 824 - PUNJAB AND HARYANA HIGH COURT - Decided against Revenue.

Summary

Issues:
1. Whether liquidated damages received by the assessee should form part of the taxable turnover.

Analysis:
The case involved a revision by the Revenue against the Sales Tax Appellate Tribunal's order regarding the inclusion of liquidated damages in the taxable turnover. The Assessing Officer initially held the deduction claimed by the assessee as inadmissible, stating it was a temporary deduction to be paid to dealers after project completion. However, the Appellate Assistant Commissioner reversed this decision, noting that as the assessee had not received the amount, it should not be included in the turnover. This decision was upheld by the Tribunal, which found that the contractor should bear the liquidated damages, and only the amount received after deductions could be considered turnover.

The Tribunal's order highlighted that the contractor is responsible for bearing liquidated damages, and payments are reduced by this amount. Therefore, only the amount received after such contractual deductions should be considered as turnover. This interpretation was consistent with a similar view taken by the Punjab and Haryana High Court in a previous case, emphasizing that liquidated damages are meant to compensate for losses due to default and are not connected to the sale price agreed upon between parties.

In conclusion, the High Court agreed with the Tribunal's findings, dismissing the Revenue's revision. The judgment emphasized that liquidated damages are distinct from discounts under the Central Sales Tax Act and are intended to compensate for defaults, not influence sale prices. As a result, the liquidated damages received should not be included in the taxable turnover.