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

Court rules freight charges part of sale price subject to commercial tax under Chhattisgarh VAT Act.

Kasturchand Bafna, S/o late GH Bafna, Proprietor – M/s Aanand Enterprise, Mines And Quarry Owners Welfare Association, M/s Prakash Trading Company, M/s Rathi & Company, M/s Prabhat Shankar Agrawal, Chopra Construction Company, Kusum Mineral Properties, M/s Kishan Lal Chopra, M/s Surendra Kumar Chopra, Modi Industries, M/s Prakash Trading Company Versus State Of Chhattisgarh, Deputy Commissioner, Department Of Commercial Tax, Commercial Tax Officer, Bhilai Steel Plant Through: Its General Manager, Bhilai

Kasturchand Bafna, S/o late GH Bafna, Proprietor – M/s Aanand Enterprise, Mines And Quarry Owners Welfare Association, M/s Prakash Trading Company, M/s ... 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.