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TMI Blog1992 (6) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... excluded under rule 6(4)(f) of the Karnataka Sales Tax Rules, 1957 ("the Rules", for short) to arrive at the taxable turnover in respect of silica sand sold by the dealer to the various purchasers. It is stated in the assessment order that the dealer extracted silica sand and sold it to various purchasers and at the time of the sale he collected freight charges separately by raising debit bills. These freight charges were not shown in the same bills. The assessment order further stated that the sale price fixed with the buyers was at the point of extraction of the silica sand and the buyers agreed to pay transport charges separately from the place of extraction to the factory of the buyers. For the present purpose it is unnecessary for us to traverse the facts in detail. The Deputy Commissioner of Commercial Taxes took up the matter suo motu and revised this order and held that these freight charges were not deductible under rule 6(4)(f). According to the Deputy Commissioner, a mere stipulation of the condition to transport silica sand on behalf of the buyers will not change the real character of the same; the condition of weighment at the place of buyers, testing for quality of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usufructuary mortgagee, tenant or otherwise, other than the proceeds of the sale by a company relating to pepper, cardamom or rubber grown within the State by such company, shall be excluded from his turnover. Explanation.-Subject to such conditions and restrictions, if any, as may be prescribed, in this behalf- (i) (Omitted by Act 7 of 1966) (14-1966). (ii) the amount for which goods are sold 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. (iii) (Omitted by Act 23 of 1983) (18-11-1983). (iv) where for accommodating a particular customer, a dealer obtains goods from another dealer and immediately disposes of the same to the said customer, the sale in respect of such goods shall be included in the turnover of the latter dealer but not in that of the former." Section 2(1)(u-2) defines "total turnover" which in substance means the aggregate turnover in all goods of a dealer. Section 2(1)(u-1) defines "taxable turnover" which in effect means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover as may be prescribed. Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in our judgment, the Tribunal was right in holding that the exemption under clause (f) of rule 9 applies when the freight and charges for packing and delivery are found to be incidental to the sale and when they are specified and charged for by the dealer separately and expenditure incurred for freight and packing and delivery charges prior to the sale and for transporting the goods from the factories to the warehouse of the company is not admissible under rule 9(f). Rule 9(f) seeks to exclude only those charges which are incurred by the dealer either expressly or by necessary implication for and on behalf of the purchaser after the sale when the dealer undertakes to transport the goods and to deliver the same or where the expenditure is incurred as an incident of sale. It is not intended to exclude from the taxable turnover any component of the price, expenditure incurred by the dealer which he had to incur before sale and to make the goods available to the intending customer at the place of sale." It was thus held that the freight and handling charges incurred by the company to have the goods transported to its place of business, though separately specified and charged, were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arvind Motors case [1985] 59 STC 337 (Kar) is no longer good law after the decision of the Supreme Court in Vinod Coal Syndicate's case [1989] 73 STC 317. Here, the Supreme Court was concerned with the provisions of the U.P. Sales Tax Act. The facts of the case found in the reported decision are, that the appellant before the Supreme Court was a commission agent in the coal business. In its turnover, certain sums paid by the principals to the appellant for supplies of coal made directly by the suppliers were included. The appellant claimed deduction of these sums as freight charges. The Supreme Court observed at page 319: "It appears from the impugned judgment of the High Court that the only ground on which the High Court has held that the amount paid on account of freight by the principals should be included in the taxable turnover of the appellant is that the benefits of the relevant provision in explanation II to clause (i) of section 2 of the U.P. Sales Tax Act was not invoked by the appellant, and, therefore, it was not open to the appellant to take advantage of that clause in the explanation. Clause (i) of section 2 of the U.P. Sales Tax Act, defines the expression 'turnov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred either expressly or by necessary implication for and on behalf of the purchaser after sale when the assessee undertakes to transport the goods and deliver the same; (iv) cost of freight, if it becomes part of the sale price then it is not excluded from the taxable turnover; however if it is incurred after the sale then this rule is attracted and the cost gets excluded; and (v) the cost of freight incurred for the inward journey of the goods to the dealer is not deductible; only freight outwards is deductible. We are of the view that the basic test is the test applied by the Supreme Court in Dyer Meakin's case [1970] 26 STC 248 and in D.C. Johar Sons case [1971] 27 STC 120. If cost incurred by the dealer is incidental to his acquisition of the goods, it would be part of his expenditure and would necessarily form a component of the price when he sells the goods. However, if the cost of freight is charged by the dealer because the transportation of the goods is for and on behalf of the purchaser who purchased the goods from him, it will be a case of post-sale expenditure to which the benefit of rule 6(4)(f) will be available. Similarly, if the dealer incurs the expenditure towa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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