2019 (12) TMI 800 - HC - VAT and Sales Tax

Freight charges part of taxable turnover under TNGST Act

G. Sankaran, Ganesh Trading Company Versus The Deputy Commercial Tax Officer, The Appellate Assistant Commissioner of Commercial Taxes, The Joint Commissioner (CT) (SMR) II Office of the Special Commissioner And Commissioner of Commercial Taxes, The Tamil Nadu Taxation Special Tribunal

G. Sankaran, Ganesh Trading Company Versus The Deputy Commercial Tax Officer, The Appellate Assistant Commissioner of Commercial Taxes, The Joint ... Issues Involved:1. Whether freight charges paid by the Assessee for delivery of goods are part of the taxable turnover under the Tamil Nadu General Sales Tax Act, 1959.2. Applicability of Rule 6(c) of the TNGST Rules for deduction of freight charges from taxable turnover.3. Interpretation of 'F.O.R. Destination' contracts in relation to taxable turnover.Issue-Wise Detailed Analysis:1. Freight Charges as Part of Taxable Turnover:The primary issue in these writ petitions revolves around whether the freight charges paid by the Assessee for delivering Gypsum to the buyer's place of business should be included in the taxable turnover under Section 2(p) of the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act). The Tamil Nadu Taxation Special Tribunal had dismissed the Tax Appeals filed by the Assessee, holding that these freight charges are part of the taxable turnover. The Tribunal noted that the transfer of property in the goods occurred at the buyer's place of business, making the freight charges a pre-sale expense and thus includable in the taxable turnover.2. Rule 6(c) of the TNGST Rules:The Assessee argued that Rule 6(c) of the TNGST Rules allows for a deduction of freight charges from the taxable turnover. The Assessee contended that since there was a separate bargain for the price of Gypsum and the freight charges, these charges should not be part of the taxable turnover. However, the counsel for the Revenue countered this by stating that Rule 6(c) permits deductions only when such charges are not included in the price of goods. Since the contract was 'F.O.R. Destination,' all expenses incurred prior to the transfer of property are pre-sale expenses and part of the taxable turnover. The court found merit in the Revenue's argument, citing previous judgments that supported this interpretation.3. Interpretation of 'F.O.R. Destination' Contracts:The court examined the nature of 'F.O.R. Destination' contracts, where the sale is completed only upon delivery at the buyer's location. The court referred to the Division Bench decision in India Meters Ltd. v. State of Tamil Nadu, which held that freight charges incurred under 'F.O.R. Destination' contracts are part of the sale price and thus included in the taxable turnover. This decision was affirmed by the Supreme Court, which emphasized that expenses incurred by the seller on freight are part of the sale price until the transfer of title occurs at the buyer's location. The court agreed with this interpretation, stating that mere bifurcation of the sale price into different components does not exclude freight charges from taxable turnover.Conclusion:The court concluded that the freight charges paid by the Assessee for delivering Gypsum to the buyer's place of business are part of the taxable turnover. The contention that these charges should be excluded based on Rule 6(c) was rejected, as the contract was 'F.O.R. Destination,' making all pre-sale expenses includable in the taxable turnover. The writ petitions filed by the Assessee were dismissed, upholding the decisions of the Sales Tax Tribunal and the Assessing Authority.