2023 (1) TMI 1134 - HC - VAT and Sales Tax

Levy of Sales tax liability - Transportation charges/freight charges - freight charges forms part of the sale price as per Section 2(xlviii) of the JVAT Act or not - the claim of the revenue is that separate invoices for transportation cost would not be a ground to deduct from the total GTO and that there is no illegality in the order of the tax authorities - HELD THAT - It appears that in the present facts of the case the Petitioner performs a dual role, one as the seller of the goods and other as carrier of the goods, having collected freight charges separately from the buyer. Clause (3) of the purchase order (Annexure-4 series) specifically indicates that the freight will be payable at actual; meaning thereby, the price of the goods is not inclusive of the transportation cost/freight. The freight charges were recovered by the petitioner in the capacity as carrier of the goods and did not form part of the sales turnover of the petitioner. Even as per purchase order if the goods are delivered to SMD Jamshedpur, the same needs to be delivered free of delivery charges. Thus, the real intention can also be gathered by the Act of the seller and buyer. After going through the orders passed by the tax authorities it appears that the tax authorities as well as the learned tribunal misdirected themselves in reading only Explanation-II to Section 2(xlviii) of the JVAT Act and ignored Explanation-III which categorically indicates that the sale price shall not include the cost for transport of goods from the seller to the buyer provided such cost is separately charged to the buyer. Thus the orders of tax authorities as well as the learned tribunal suffer from illegality and incorrect application of the provision of the JVAT Act to the facts of the present case. The matter is remitted back to the Deputy Commissioner of Commercial Taxes, Singhbhum Circle, Jamshedpur to pass a fresh order on the claim of the petitioner to the extent it relates to freight charges realized by the petitioner from its purchasers and shown and charged separately in the invoices after considering the materials and after hearing the petitioner - Application allowed.

Summary

Issues Involved:
1. Whether the tribunal was justified in holding that the freight charges form part of the "sale price" as per Section 2(xlviii) of the JVAT Act when the same is being separately charged to the buyer.

Detailed Analysis:

Issue 1: Inclusion of Freight Charges in Sale Price

The petitioner sought relief for the quashing of several orders that confirmed the inclusion of transportation charges/freight charges as part of the sale price for the financial year 2010-11. The petitioner argued that these charges were separately billed and should not be included in the gross turnover for the purpose of levying sales tax.

The petitioner, a company engaged in the sale of ores and minerals, contended that the transportation charges were separately charged to the buyer, as evidenced by separate invoices. The petitioner referenced Clause (3) of the purchase orders from M/s Tata Steel Ltd., which stated that freight would be payable on actuals or as stipulated, against documentary evidence. The petitioner further argued that under Explanation III to Section 2(xlviii) of the JVAT Act, transportation costs separately charged to the buyer should not form part of the sale price.

The respondent, represented by Mr. Yogesh Modi, countered that the petitioner's aggregate turnover included the transportation receipts and that the nature of the contract implied that the sale price included the cost of delivery. The respondent relied on Explanation II to Section 2(xlviii), which includes any amount charged by the dealer for anything done in respect of the goods at the time of or before delivery to the buyer.

The court analyzed the definition of "sale price" under Section 2(xlviii) of the JVAT Act, which includes the amount payable as consideration for the sale or supply of goods. Explanation II states that any amount charged by the dealer for anything done in respect of the goods at the time of or before delivery forms part of the sale price. However, Explanation III clarifies that the cost of transportation, if separately charged, does not form part of the sale price.

The court noted that the petitioner performed dual roles as a seller and a carrier, charging separately for transportation. This practice was consistent with the terms of the purchase orders and had been accepted by the respondent department in prior and subsequent assessments. The court referenced the Madras High Court's interpretation in Sri Srinivasa Timber Depot vs. Deputy Commercial Tax Officer, which emphasized that sums charged for anything done in respect of goods at the time of or before delivery must involve the transfer of property in the goods.

The court concluded that the tax authorities and the tribunal erred by focusing solely on Explanation II and ignoring Explanation III. The orders of the tax authorities and the tribunal were found to be illegal and based on an incorrect application of the JVAT Act.

Conclusion:

The court quashed the orders confirming the sales tax liability on transportation charges and remitted the matter back to the Deputy Commissioner of Commercial Taxes, Singhbhum Circle, Jamshedpur, for a fresh order. The Deputy Commissioner was directed to consider the materials and hear the petitioner, completing the exercise within twelve weeks. The writ application was allowed.