2015 (1) TMI 682 - HC - VAT and Sales Tax

Interest received on delayed payment to be added in taxable turnover or not - Whether the interest received by the petitioner from its customers for belated payment should be added in the taxable turnover for levy of tax Held that - Certain goods were sold and delivered by the petitioner based on the invoices raised - on these sales, payments were received by the petitioner belatedly from the buyer - therefore, interest was charged - the buyer agreed to pay interest for the belated payment in the very same invoice and there was no independent agreement in L & T McNeil Limited Versus State of Tamil Nadu 1990 (6) TMI 195 - MADRAS HIGH COURT it has been held that interest has to be linked to the payment of delivery and they would form part of sale consideration - the buyers have agreed to pay interest for the belated payment in the very same invoice and not under an independent agreement - there is no independent agreement on interest, as rightly pointed out by the Tribunal - when the invoice of the petitioner contemplates interest on delayed payment, the Tribunal was justified in including the same in the taxable turnover thus, no substantial question of law arises for consideration Decided against petitioner.

Summary

Issues:
1. Whether interest collected for belated payment can be subjected to sales tax as pre-sale charges?
2. Can interest collected for belated payment be considered part of the sale price for levy of sales tax?
3. Is the Tribunal justified in applying a specific decision despite the timing of the sale transaction?

Analysis:

Issue 1:
The primary issue is whether interest received for belated payment should be added to the taxable turnover for tax levy. The Original Authority treated the interest amount as turnover and levied tax on it. The Appellate Assistant Commissioner and the Tribunal upheld this decision based on the agreement between the parties for interest on belated payment, as mentioned in the invoice. The Tribunal emphasized that the interest was part of the single contract of sale, leading to the conclusion that it should be included in the taxable turnover.

Issue 2:
Referring to a previous case, the Court discussed the inclusion of all payments made in consideration of sale in the taxable turnover. The Court highlighted that interest and commitment charges are linked to payment and delivery, forming part of the sale consideration. The Court rejected the argument that interest and commitment charges should not be included in the turnover, emphasizing that they are integral to the sale transaction. The Court's analysis supports the inclusion of interest in the taxable turnover.

Issue 3:
The petitioner attempted to distinguish a previous case where interest was included in the taxable turnover due to a delayed sale. However, the Court found that the presence of interest on belated payment in the invoice indicated a connection between the sale and the interest. As per Section 2(r) of the Act defining turnover, the Court concluded that interest on delayed payment, as part of the invoice terms, should be considered in the taxable turnover. The Court dismissed the revision, ruling in favor of the department based on the inclusion of interest in the turnover.

In conclusion, the Court upheld the decision to include interest for belated payment in the taxable turnover for tax levy, emphasizing the contractual agreement between the parties as reflected in the invoice terms. The judgment affirms the Tribunal's stance on the inclusion of interest in the turnover, aligning with the legal provisions and previous case law.