2011 (8) TMI 1037 - HC - VAT and Sales Tax

Exemption on the charges collected by it for pumping ready mix concrete at the customers site - Whether the pumping charges collected by the assessee from the customers, form part of a pre-sale expenses and thus, chargeable to tax under the Act - Held that - It is clear that section 4 of the Act which deals with the liability to tax and rates thereof prescribes that every dealer who is or is required to be registered as specified in sections 22 and 24, shall be liable to pay tax, on his taxable turnover. Therefore, for imposing tax it is necessary to find out what is the turnover. As is clear from the definition, turnover means aggregate amount for which goods are sold or distributed or delivered or otherwise disposed of in any of the ways referred to in clause (29) by a dealer and subject to such conditions and restrictions as may be prescribed the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of or before the delivery thereof. Therefore, all expenses incurred by the assessee at the time of delivery or before the delivery thereof is included in the turnover. As held by the Supreme Court in the aforesaid judgment, the real test to be applied is whether the goods have passed to the buyer. In the case of cost of freight if delivery forms part of the sale consideration, then, those expenses would form part of the turnover. It is only in case where cost of freight or delivery is included by the dealer not in his capacity as the seller but as a matter of convenience and on behalf of the purchaser and it is independent of the cost element of the goods in question for the seller, then it will not form part of the sale price. Therefore, it depends on the facts of each case. The assessee is a manufacturer of ready mix concrete. The said ready mix concrete is manufactured with its ingredients like jelly, cement, sand, etc., and in order to avoid hardening of the RMC after certain period of time due to exposure to moisture, chemicals are added to keep the RMC in a liquefied stature till its delivery to the customers depending upon the distance the vehicle carrying RMC is to reach the customer s place. If the RMC is hardened it becomes un-usable. As is clear from the material on record, the assessee transports the RMC from the manufacturing place to the customer s site. Therefore, in the case of RMC, transportation charges invariably forms part of the sale consideration. After it reaches the site of the customer, the RMC is to be delivered to the customer. The choice of taking the delivery is given to the customer. He has the option of getting the entire RMC dumped at the site from the lorry or he has also been provided an option to get the RMC to a particular place such as roof top or any floor. Therefore, the RMC is delivered by pumping the RMC from the lorry to the specified place by the customer. All expenses incurred till the delivery constitutes sale price. There is no dual role played by the assessee. He is not pumping the RMC for and on behalf of the customer. He has to pump the RMC to the specified place as shown by the customer in order to deliver the RMC. Therefore, even if the pumping charges are collected separately as is clear from the invoice produced before us, or as per terms of the contract, still the said pumping charges invariably form part of the sale transaction which facilitates the delivery of the goods and it would form part of pre-sale expenses. In the aforesaid judgment of the apex court, there were two contracts one is manufacturing fanta and coco-cola and the assessee was delivering those products at his site. The customer had an option to transport those goods from the site of the manufacture to his site either by using his own transportation or by using the transportation facility provided by the assessee. The transportation provided by the assessee is including taking delivery of the goods from the manufacturing place to the customer s site, which contract is conspicuously missing in this case. The assessee at no point of time will take delivery of RMC from the customer and then pumps it to the specified place at the site. Therefore, the ratio of the judgment has no application to the facts of this case. Having regard to the totality of the circumstances, the terms of the contract, the intention of the parties, it is clear that the sale of the product, viz., RMC and transporting it from the manufacturing place up to the customer s site and pumping it to the place where the customer specifies, the pumping charges become part of the sale transaction. In that view of the matter, we do not see any merit in this appeal - Decided against assessee.

Summary

Issues Involved:
1. Whether the pumping charges collected by the assessee from the customers form part of pre-sale expenses and thus chargeable to tax under the Karnataka Value Added Act, 2003.

Detailed Analysis:

Issue 1: Inclusion of Pumping Charges in Pre-Sale Expenses

Background:
The assessee, a public limited company engaged in the manufacture and sale of ready mix concrete (RMC), challenged the order of the Karnataka Appellate Tribunal. The Tribunal had upheld the orders of the assessing authority and appellate authority, which included pumping charges as pre-sale expenses in the sale price of RMC.

Assessee's Argument:
The assessee contended that the pumping charges collected for delivering RMC to the customer's site should not be included in the sale price as they are post-sale expenses. They argued that customers have the option to utilize the pumping services or not, and the charges are separately indicated in the invoice.

Government's Argument:
The respondent argued that all charges incurred until the delivery of RMC at the customer's site form part of the sale price. Delivery is considered complete only after the RMC is pumped to the specified location, making the pumping charges pre-sale expenses.

Legal Precedents:
1. State of Karnataka v. Bangalore Soft Drinks Pvt. Ltd. - The Supreme Court held that transportation charges could be excluded from the sale price if they are collected separately and the seller plays a dual role as a transporter.
2. Kurkunta and Seram Stones (P) Ltd. v. State of Karnataka - This court explained that if delivery costs are part of the sale consideration, they form part of the turnover.

Court's Analysis:
The court examined the definition of "turnover" under Section 2(36) of the Karnataka Value Added Act, 2003, which includes any sums charged for anything done by the dealer in respect of the goods sold at the time of or before delivery. The court noted that in the case of RMC, transportation and pumping charges are integral to the delivery process due to the nature of the product, which must remain in a liquefied state until delivered.

Conclusion:
The court concluded that the sale transaction of RMC is complete only when it is delivered to the specified point of use. All expenses incurred until this stage, including pumping charges, are considered pre-sale expenses and form part of the taxable turnover. The court found no merit in the assessee's appeal and confirmed the Tribunal's order.

Order:
The petitions were dismissed, and the impugned order passed by the Tribunal was confirmed.