2016 (12) TMI 1023 - HC - VAT and Sales Tax

Valuation - whether the freight charges for transporting dolomite by the petitioners to the respondent/Bhilai Steel Plant would be a part of sale price and hence exigible to commercial tax or not? - Section 2(u) of the Act, 1994 - Held that - clause-13 of the agreement provides break-up of the landed cost per tonne of dolomite which includes freight by road on pre-paid door delivery basis. Thus, the freight charges were already included in the sale price by express agreement entered between the parties - reliance placed on the case of Hindustan Sugar Mills 1978 (8) TMI 186 - SUPREME COURT OF INDIA to hold that first part of the definition would apply in the present case also and the exclusion clause is irrelevant and cannot be called in aid by the petitioners. The assessment order has only referred to separate billing of freight charges by the petitioners but it has not dealt with the issue as to whether the freight charges are part of sale price or not so as to conclude that it cannot be included in the taxable turn over. There being no finding to this effect by Assessing Officer, it is a case where there is omission or escape to deal with the issue by the Assessing Officer and Section 28 has rightly been invoked for initiating escapement proceeding. By clause 14 of the agreement, the parties have bound themselves that the price of contract shall remain firm during the currency of contract and as such, no escalation is payable on any amount whatsoever including freight, however, any change in the statutory levies viz. Royalty, Sales Tax and Labour Welfare Cess during the pendency of the contract shall be borne by the buyer as per the actuals against the documentary evidence/Government notification. Admittedly, there is no change in the statutory levies like Royalty, Sales Tax and Labour Welfare Cess. It is a case where freight charges were part of sale price but it escaped assessment, therefore, liability which fallen on the assessee on the date of assessment for the relevant year has been saddled on him and they have not been made liable to any additional statutory levy. Petition dismissed - decided against petitioner.

Summary

Issues Involved:
1. Whether freight charges for transporting dolomite to the respondent/Bhilai Steel Plant (BSP) are part of the sale price and thus subject to commercial tax.
2. Validity of escapement proceedings under Section 28 of the Chhattisgarh Vanijyik Kar Adhiniyam, 1994.
3. Assessment of the original order and the implications of its finality.
4. Responsibility for bearing the tax burden if freight charges are included in the sale price.

Issue-wise Detailed Analysis:

1. Freight Charges as Part of Sale Price:
The core issue is whether the freight charges for transporting dolomite to BSP form part of the sale price and are thus taxable. The petitioners argued that they had separate agreements for freight charges, which should not be included in the taxable turnover. However, the court referred to the agreement clauses, particularly Clause 13, which explicitly included freight charges in the landed cost per tonne. The court also cited Supreme Court precedents, notably Hindustan Sugar Mills and Black Diamond Beverages, which established that freight charges are part of the sale price if the seller is obligated to deliver goods to the buyer's location. The court concluded that the freight charges were indeed part of the sale price as per the agreement and Supreme Court rulings.

2. Validity of Escapement Proceedings:
The petitioners contended that the escapement proceedings under Section 28 of the Act, 1994, were invalid as they were initiated based on audit objections rather than the Assessing Officer's satisfaction. They also argued that the original assessment order had attained finality, precluding the initiation of escapement proceedings. The court rejected these arguments, noting that the original assessment did not address whether freight charges were part of the sale price. Thus, the omission justified the invocation of Section 28 for escapement proceedings.

3. Assessment Finality and Review:
The petitioners claimed that since the original assessment order had attained finality, the escapement proceedings amounted to an impermissible review. The court dismissed this argument, reiterating that the original assessment had not conclusively determined the inclusion of freight charges in the sale price. Therefore, the escapement proceedings were not a review but a necessary correction of an omission.

4. Responsibility for Bearing Tax Burden:
The petitioners argued that if freight charges were included in the sale price, BSP should bear the tax burden. The court found no legal or contractual basis for this claim. Clause 14 of the agreement stipulated that the contract price would remain firm, and any changes in statutory levies would be borne by the buyer only if there were changes in levies like royalty, sales tax, and labor welfare cess. Since the issue was the inclusion of freight charges in the sale price, not a change in statutory levies, the petitioners were liable for the tax.

Conclusion:
The court concluded that freight charges are part of the sale price and must be included in the taxable turnover under the CG VAT Act. All writ petitions were dismissed, affirming the inclusion of freight charges in the sale price and validating the escapement proceedings.

Headlines:
Freight charges are part of the sale price; therefore, they are to be included in the taxable turnover under the CG VAT Act.