2004 (8) TMI 707 - HC - VAT and Sales Tax

Imports coal - Whether inward freight charges are part of the taxable turnover under the U.P. Trade Tax Act - HELD THAT - Admittedly dealer was required to pay freight to acquire the goods therefore such freight is included in the aggregate amount and form part of the turnover. Exclusion provide by Sub-section (i) of Explanation-II is in respect of freight i. e. paid by the buyers for transportation of the goods after their purchase from sellers supplied to the buyers. Freight subject matter of dispute is not a freight contemplated by exclusionary provisions contained in the explanation. Freight paid by the seller for the goods purchased by him for sale is his legal burden and is a part of costs for acquiring the goods. It is the dealer who had settled the amount of Truck hire from coalery to his place of business and therefore it was his legal obligation to pay the amount of Truck hire and it is of no consequence that subsequently recovers from the buyers. In the present case dealer failed to prove that it acted as a Purchasing Commission Agent inasmuch as no evidence has been adduced for a contract of agency as stated above holding of B-license under the Coal Control Orders and charging of costs of coal freight charges and expenses and commission separately in the invoices are of no consequence. Prices charged separately in the invoices are only device with an intent to reduce the sale price. In the case of Commissioner of Trade Tax v. Sunil Kumar Coal Agent 2003 (5) TMI 520 - ALLAHABAD HIGH COURT in the similar circumstances this Court held that inward freight is the part of turnover and dealer failed to prove that he acted as Purchasing Coal Agent in the absence of any contract of agency. In the result revision is allowed. Order of Tribunal is set aside and it is held that the freight incurred prior to sale in bringing the coal from Coalery to the dealer destination would be part of the turnover.

Summary

Issues involved: The judgment involves the interpretation of whether inward freight charges are part of the taxable turnover under the U.P. Trade Tax Act.

Summary:
1. The revision under Section 11 of the U.P. Trade Tax Act challenged the Tribunal's order regarding the inclusion of inward freight charges in the taxable turnover for the assessment years 1990-91.
2. The dealer, engaged in the coal business, claimed that the freight charges incurred for bringing coal to its destination should not be included in the turnover. The Tribunal accepted the dealer's claim based on the dealer's B-license status and separate charges in the invoices.
3. The Standing Counsel argued that the freight charges should be included in the turnover as the dealer acted as a principal seller to various customers. Legal precedents were cited to support this argument.
4. The High Court analyzed the transaction details and legal obligations of the dealer, concluding that the freight charges were part of the turnover as the dealer purchased coal and sold it to customers without acting as a purchasing agent.
5. The definition of turnover was examined to determine the inclusion of freight charges in the aggregate amount for which goods are supplied. The Court emphasized that the substance of the transaction is crucial in determining turnover components.
6. The Court highlighted that the dealer's B-license did not automatically imply agency status, and the absence of evidence supporting a purchasing agency relationship led to the inclusion of freight charges in the turnover.
7. Legal principles from previous cases were referenced to differentiate between a sale contract and an agency contract, emphasizing the transfer of title and ownership in determining the nature of the transaction.
8. The Court referred to a Supreme Court decision regarding the exclusion of freight charges incurred before the sale from the taxable turnover, emphasizing that such charges must be incidental to the sale to be excluded.
9. Relying on previous judgments, the Court held that the dealer failed to prove its status as a Purchasing Commission Agent, leading to the inclusion of freight charges in the turnover.
10. Consequently, the revision was allowed, setting aside the Tribunal's order and affirming that freight charges incurred before the sale form part of the turnover.