vat for freight charges

[Ramakrishnan Seshadri]

Dear Sir,

Whether tnvat has to be charged on freight charges if it is shown in the invoice .

Could any body give us reply for this query.

Regards,

S.Ramakrishnan

[YAGAY andSUN]

Dear Ramakrishnan,

Please check the definition of sale price under Section 2 of the TNVAT in this regard.

Thanks

TeamYAGAY & SUN

(Indirect Tax and Management Consultants)

[SURESH ASTEKAR]

Dear Ramakrishnan Seshadri,

VAT is payable only on the price of the goods.  If the freight is included in the price, then the entire amount will be liable to VAT.  On the other hand, price and freight are separately agreed to, then there will be no VAT liability on the freight element.  The question whether freight is separate from price or not has to be proved by the terms of agreement / contract between the seller and the buyer.  Normally, if it is the responsibility of the seller to see that the goods are delivered to the buyer's place, then freight charges are to be included in the price.  On the other hand, if the seller's responsibility ends at the point of sale itself and the responsibility of the goods shifts to the buyer, then freight will not be included in the sale price and consequently on freight element there will be no VAT liability. 

AI Summary

VAT on freight charges depends on whether freight is included in the sale price under the parties' contract. VAT applies to the price of goods; freight is taxable if it is included in the sale price. If price and freight are separately agreed and invoiced, freight is not liable to VAT. Whether freight is part of the sale price is to be determined by the contract terms and by which party bears delivery responsibility; seller-borne delivery typically makes freight part of the price, whereas buyer-arranged carriage typically keeps freight separate.