2016 (11) TMI 841 - HC - VAT and Sales Tax

Valuation - turnover as defined under the U.P. Trade Tax 1948 - whether the freight charges which are stated to have been levied and recovered by the revisionist from the purchaser of goods was liable to be included in its taxable turnover? - Held that - the Tribunal found that in terms of clause 10 of the contract, the supply was to be effected at the railway siding. In terms of clause 11, the responsibility and ownership of the stone ballast remained that of the supplying contractor. In terms of clause of 12 of the contract, the measurement of stone ballast was to be carried out and effected at the railway siding. A further condition stood imposed to the effect that in a case of the stone ballast being found within 60 days from the date of deposit as not being as per the quality prescribed the same would be liable to be removed by the supplying contractor. As the Tribunal records on the basis of the terms of the contract, the contract of sale was not complete till the ballast was transported to and measured at the railway siding. It records that the responsibility and ownership of the ballast while in transit remained with the assessee. There was thus no transfer of property in goods at the time of they being put into transit. The freight charges were therefore charges which clearly came to be incurred by the revisionist in order to complete the bargain and a charge which was incurred at the time of or before the delivery thereof of the goods. The cost of freight which was incurred was not a special condition imposed by the purchaser thereof. The obligation to transport the goods was an essential element, an integral component of the transaction of sale - revision disposed off - decided in favor of Revenue.

Summary

Issues:
1. Whether freight charges levied and recovered by the revisionist from the purchaser of goods are liable to be included in its taxable turnover under the U.P. Trade Tax 1948.

Analysis:
The primary issue in this case revolves around the interpretation of the term 'turnover' as defined under the U.P. Trade Tax 1948, specifically focusing on whether freight charges should be included in the taxable turnover of the assessee. The definition of 'turnover' under Section 2(i) of the Act encompasses the aggregate amount for which goods are supplied or distributed by way of sale or are sold. Explanation II further elaborates on the items to be included or excluded in the taxable turnover, emphasizing that the cost of freight or delivery is excluded "when such cost or amount is separately charged."

The arguments presented by the counsels highlight contrasting viewpoints. The revisionist's counsel contends that since the freight charge was separately levied, it should not be included in the taxable turnover. On the other hand, the standing counsel argues that all costs incurred by the dealer before the sale's completion should be included in the turnover, irrespective of separate charges. The Supreme Court's judgment in India Meters Limited Vs. State of Tamil Nadu (2010) 9 SCC 423 is referenced by both parties to support their respective stances.

The court's analysis delves into the interpretation of the term 'turnover' and the relevance of including expenses incurred by the dealer before the completion of the sale. Referring to the judgment in India Meters Ltd, the court emphasizes that expenses like freight charges become part of the turnover if they are essential for completing the sale transaction, regardless of being separately charged. The court underscores that the terms of the contract and the obligations of the parties are crucial in determining whether freight charges should be included in the taxable turnover.

In the specific context of the case, the court examines the terms of the contract, highlighting that the sale was not considered complete until the goods were transported and measured at the railway siding. The ownership and responsibility of the goods remained with the assessee during transit, indicating that the transfer of property had not occurred. Consequently, the court concludes that the freight charges were necessary to fulfill the sale agreement and were incurred "at the time of or before the delivery" of the goods. The obligation to transport the goods was deemed an integral part of the sale transaction, leading to the inclusion of freight charges in the taxable turnover.

In conclusion, the court rules in favor of the revenue, determining that the freight charges were rightly included in the taxable turnover of the assessee based on the contractual terms and essential obligations of the sale transaction. The judgment provides a comprehensive analysis of the legal provisions and precedents to resolve the issue at hand.