Heard Sri Piyush Agrawal, learned counsel for the revisionist and the learned standing counsel.
The short question which arises for determination in this revision is as to 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.
The answer to this question itself would turn upon the expression 'turnover' as defined under the U.P. Trade Tax 1948 which reads as under: -
"2. (i) 'Turnover' means the aggregate amount for which goods are supplied or distributed by way of sale or are sold, by a dealer, either directly or through another, on his account or on account of others, whether for cash or deferred payment or other valuable consideration:
(i) the amount for which goods are sold or purchased shall include the price of the packing material in which they are packed, and any sums charged for anything done by the dealer in respect of the goods sold, at the time of or before the delivery thereof, other than, cost of freight or delivery or cost of installation or the amount realized as trade tax on sale or purchase of goods, when such cost or amount is separately charged;
(ii) any cash or other discount on the price allowed in respect of any sale and any amount refunded in respect of articles returned by customers shall not be included in the turnover; and
(iii) where for accommodating a particular customer, a dealer obtains goods from another dealer and immediately disposes of the same without profit to the customer, the sales in respect of such goods shall be included in the turnover of the latter dealer alone;
The rival submissions have primarily centered on clause (i) to Explanation II appended to the definition and which seeks to amplify and explain what items would stand included while determining the taxable turnover of an assessee.
According to Sri Piyush Agarwal, learned counsel for the revisionist, the charge of freight in this case was levied separately and is therefore not liable to be included in the taxable turnover of the assessee. He lays stress uponthe express language employed by clause (i) to the effect that the cost of freight "when separately charged" is to be excluded from the taxable turnover.
On the other hand, Sri B.K. Pandey, learned standing counsel has submitted that all costs which are incurred by the dealer prior to the sale achieving completion would be liable to be included in the taxable turnover of the assessee. He submits that the expression "when separately charged" would not be determinative and that the terms of the sale would have to be looked into in order to answer the issue whether freight charges are liable to be included in the taxable turnover of the assessee.
Both the learned counsels to buttress their rival submissions have placed reliance upon the judgment rendered by the Supreme Court in India Meters Limited Vs. State of Tamil Nadu1. Their submissions have centered around what the Supreme Court observed in paragraphs 16, 17, 18 & 19 of the report and which for the sake of appreciation of the controversy is extracted hereinbelow: -
16. It is no doubt true that Rule 6(c) of the Rules permits deduction of the cost on freight while determining the taxable turnover. However, that provision must be read in the context of definition of "turnover" as also the definition of "sale" in Sections 2(r) and 2(n) respectively of the Act.
"Turnover" is defined in the Act, inter alia, to mean "the aggregate amount for which goods are bought or sold or delivered or supplied or otherwise disposed of in any of the ways referred to in clause (n)".
17. "Sale" is defined in Section 2(n), inter alia, as meaning "every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration". The definition goes on to include a number of other transactions also within that definition of "sale". The turnover of an assessee/dealer would include the aggregate amount for which goods are bought or sold. It is, therefore, the amount for which the goods are bought or sold, which form part of the turnover, and a thing can be said to be sold only when the transaction falls within the scope of the definition of "sale".
18. When the transfer of the property or the goods is to be at the place of the buyer to which the seller is under an obligation to transport the goods, the expenditure incurred by the seller on freight in order to carry the goods from his place of manufacture to the place at which he is required under the contract to deliver, would thus become part of the amount for which the goods are sold by the seller to the buyer and would fall within the scope of "turnover".
19. The learned counsel for the State of Tamil Nadu submitted that freight and insurance charges are included in the sale price of the goods. Even if freight and insurance charges are shown separately in the Bill and added to the price of the goods, the character of payment would remain the same. Since freight and insurance charges represent expenditure incurred by the dealer in making the goods available to the purchaser at the place of sale, they would constitute an addition to the cost of the goods to the dealer and would clearly be a component of the price to the purchaser. The amount of freight and insurance charges would be payable by the purchaser not under any statutory or other liability but as part of the consideration for the sale of the goods and would therefore, form part of the sale price."
Section 2 (i) of the 1948 Act defines 'turnover' to mean the aggregate amount for which goods are supplied or distributed by way of sale or are sold. Explanation II while delineating the various items which are liable to be included or excluded while computing taxable turnover in clause (i) provides that 'turnover' would mean the amount for which goods are sold or purchased including the price of packing material and any sums charged for anything done by the dealer in respect of the goods sold at the time of or before the delivery thereof. While the first determinative factor is the price, packing material and 'any sums charged' in respect of the goods, the second factor which the explanation bids us to bear in mind is evident from the use of the expression 'at the time of or before the delivery thereof'. The latter part then refers to the cost of freight or delivery or cost of installation or the amount realized as trade tax on sale or purchase of goods, "when such cost or amount is separately charged".
The issue, in the opinion of this Court, whether freight charges would be liable to be included in the taxable turnover would therefore have to be answered with reference to all expenses which a dealer does incur for effecting and completing the sale. This is evident from the use of the phrase 'at the time of or before the delivery thereof'. This would indicate that all expenses that the dealer incurs in order to complete the transaction of sale and before the transfer of property in the goods takes place are liable to be included in the taxable turnover. As one reads the judgment in India Meters Ltd (supra) it is clear that construing the provisions of the Tamil Nadu Act it was held that the expenses incurred by the seller on freight from his place of manufacture to the place at which he is required under the contract to deliver would be liable to be treated as falling within the scope of the expression ''turnover'. The mere fact, the Supreme Court held, that the charges are shown separately would not detract from the above position if it is found that there was an obligation on the dealer to make the goods available at the place of sale.
The latter part of sub clause (i) which employs the words "when such cost or amount is separately charged" is dealing with and is liable to be restricted to those class of transactions where the obligation to transport the goods to the place of the purchaser is not an essential facet of the transaction of sale. It must necessarily be interpreted to apply to those cases where the transportation of the goods to the place of the purchaser is not an essential element for the transfer of property in the goods. In fact it relates to a stage, which is subsequent to the completion of sale. It must be interpreted to apply to charges, which in the nature of the contract is envisaged by both parties to be an expense or charge that is liable to be borne separately and apart from the actual price of the goods.
Ultimately for the purposes of answering the issue what must be taken into consideration is the terms and conditions of the sale and the essential obligations attached to the bargain. The fact that freight or other like charges are shown separately in an invoice or bill cannot be decisive of the issue whether these charges are liable to be included in the taxable turnover or not. For the purposes of determining the issue much would turn upon the terms of the contract as well as the intention of the contracting parties. As noted above, the issue would have to be answered bearing in mind the essential attributes and obligations of the bargain and the expenses which the seller is liable to incur in order to achieve and complete the transfer of property in goods. If the above basic principles are kept in mind and are applied to the facts of the case, it becomes apparent that freight was rightly included in the taxable turnover of the assessee.
In the facts of the present case 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.
For the aforesaid reasons, this court answers the question raised against the assessee and in favour of the revenue. The revision stands disposed of accordingly.
Order Date: - 29 July 2016 (Yashwant Varma, J.) nethra