2010 (4) TMI 1243 - HC - VAT / Sales Tax

Transit fee under M.P. Transit (Forest Produce) Rules, 2000 counts as 'sale price' under section 2(u), included in turnover

Northern Coal Fields Ltd. Versus Additional Commissioner, Commercial Tax, Jabalpur and others

The HC held that the transit fee levied under the M.P. Transit (Forest Produce) Rules, 2000 constitutes part of the 'sale price' under section 2(u) of the ... - ISSUES PRESENTED AND CONSIDERED 1. Whether the transit fee levied under the M.P. Transit (Forest Produce) Rules, 2000, payable for issuance of transit passes, forms part of the 'sale price' as defined in section 2(u) of the M.P. Commercial Tax Act. 2. Whether the nature of the transit fee (regulatory/pass-related fee collected prior to delivery) distinguishes it from excluded items such as separately charged freight/delivery, post-sale or optional service charges, and thus excludes it from 'sale price.' 3. Whether and to what extent prior judicial authorities on inclusion of statutory levies, cess or duties in sale price and turnover (including decisions treating statutory/compulsory pre-delivery charges as part of sale price and decisions excluding optional/post-sale charges) are applicable, distinguishable or determinative. 4. Whether any declared invalidity of the notification imposing the transit fee would affect the present question where such declaration is stayed and vires of the notification is not contested in the instant proceedings. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether transit fee under Rules, 2000 forms part of 'sale price' under section 2(u) Legal framework: Section 2(u) defines 'sale price' as the amount payable to a dealer as valuable consideration for sale of goods, inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before delivery, but excluding cost of freight/delivery or installation when separately charged. Precedent treatment: The Court relied on higher-court and High Court authorities (e.g., authorities recognizing statutory cess/duties recovered from purchasers as part of sale price and turnover) which treat compulsory pre-delivery statutory levies collected by sellers as part of the composite consideration. Interpretation and reasoning: The transit fee is mandated by Rules, 2000 and must be deposited (with royalty) before issuance of transit passes; transit passes are mandatory for movement of forest produce. The fee is therefore a regulatory, compulsory pre-delivery charge which is a condition precedent to effecting sale and delivery. Under section 2(u)'s express inclusion of sums charged for anything done by the dealer in respect of the goods at or before delivery, such a compulsory pre-delivery regulatory fee is encompassed within 'sale price.' The fee is not freight/delivery or installation cost when separately charged; it is a statutory prerequisite for sale/delivery rather than an optional service charge. Ratio vs. Obiter: Ratio - The transit fee, being a compulsory pre-delivery regulatory charge indispensable to delivery (transit passes), falls within the statutory definition of 'sale price.' Conclusion: The transit fee realized under the Rules, 2000 forms part of the 'sale price' under section 2(u) and is properly includible in turnover for assessment. Issue 2 - Whether the transit fee is distinguishable from excluded items (freight/delivery/post-sale charges) Legal framework: Section 2(u) expressly excludes cost of freight/delivery or installation when such costs are separately charged; jurisprudence also excludes bona fide post-sale or optional services where there is an independent bargain and the charge is not a compulsory component of the sale consideration. Precedent treatment: Authorities were considered that exclude separately bargained post-sale services (cutting/bending, service pool charges, sawing charges) from sale price where those services are optional, post-delivery, and not integral to the sale consideration. Conversely, precedents include statutory cess/levies collected as part of price where compulsory and payable at/ before delivery. Interpretation and reasoning: The transit fee is not an optional post-sale service; it is compulsory, fixed by statute/notification, and payable in advance with royalty as a precondition to issuance of the transit pass and movement of goods. Therefore, it lacks the characteristics (optional, post-sale, independently bargained) that would exempt a charge from being part of sale price under the established line of authority. Ratio vs. Obiter: Ratio - Compulsory regulatory pre-delivery charges mandated for lawful delivery are includible in 'sale price'; post-sale optional service charges remain distinguishable and excluded when criteria for exclusion are met. Conclusion: The transit fee is distinguishable from excluded freight/delivery/post-sale charges and must be included in sale price. Issue 3 - Applicability and treatment of precedents Legal framework: Interpretive principle that statutory/compulsory levies collected by a dealer from a purchaser ordinarily form part of the composite consideration where the levy is paid in connection with sale and delivery; contrasting principle that independent, optional, post-sale bargains do not. Precedent treatment (followed/distinguished): The Court followed authorities holding cess/levies collected as part of price (e.g., cases treating welfare cess, stowing duty, rescue cess, forest development cess, excise duties as part of sale price). Decisions excluding market fee or optional service charges (e.g., market fee decision; cutting/bending; service pool charges) were distinguished on facts - those involved statutory provisions/transactions where the charge was not part of the consideration for sale or was an optional/post-sale service. Interpretation and reasoning: Applying these precedents, the Court found the instant transit fee factually aligned with the line of authorities treating compulsory statutory levies as part of sale price because the fee is statutory/administrative, payable prior to delivery, and indispensable for lawful movement of goods. Ratio vs. Obiter: Ratio - Precedents recognizing compulsory pre-delivery statutory levies as part of sale price are applicable and determinative; precedents excluding optional/post-sale charges are distinguishable and therefore not controlling. Conclusion: Authorities treating compulsory levies as part of sale price are applicable and support inclusion of the transit fee; cases excluding optional or post-sale charges do not apply on the facts. Issue 4 - Effect of prior challenge to vires of notification and stay Legal framework: Validity of a statutory notification can affect liability, but where the question of vires is not raised in the present proceedings and a higher court has stayed any declaration of invalidity, the contested declaration does not negate the operation of the notification for present purposes. Precedent treatment: The Court noted that a Division Bench had earlier declared the notification ultra vires but that decision was stayed by the Apex Court. Interpretation and reasoning: Since vires of the notification was not disputed in these petitions and the earlier declaration of invalidity is stayed by the Apex Court, the Court declined to treat the notification as non-operative for the purpose of assessing whether the transit fee falls within 'sale price.' Ratio vs. Obiter: Ratio - A stayed declaration of invalidity does not permit reliance on that declaration to defeat an assessment based on a notification that remains operational; absent a successful, operative challenge, the notification's effects remain relevant. Conclusion: The stayed decision declaring the notification ultra vires does not affect the present conclusion that the transit fee is includible in sale price. Overall Conclusion The Court concluded that the transit fee levied under the M.P. Transit (Forest Produce) Rules, 2000 is a compulsory regulatory pre-delivery charge required for issuance of transit passes and lawful movement of forest produce, and therefore forms part of the 'sale price' under section 2(u) of the M.P. Commercial Tax Act and is properly includible in turnover for tax assessment; petitions challenging inclusion were dismissed.