Kerala High Court
Kerala State Electricity Board vs The Authority For Clarification on 1 March, 2023
CR
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR.JUSTICE MOHAMMED NIAS C.P.
WEDNESDAY, THE 1ST DAY OF MARCH 2023 / 10TH PHALGUNA, 1944
OT.APPEAL NO. 6 OF 2017
AGAINST THE ORDER OF THE AUTHORITY FOR CLARIFICATIONUNDER
SECTION 94 OF THE KERALA VALUE ADDED TAX ACT NO.
C3/22584/16/CT DATED 21-01-2017
APPELLANT/S:
KERALA STATE ELECTRICITY BOARD
REPRESENTED BY ITS CHIEF ENGINEER,(DISTRIBUTION
CENTRAL),OFFICE OF THE CHIEF ENGINEER,
(DISTRIBUTION CENTRAL),GANDHI SQUARE,
D.H.ROAD,ERNAKULAM - 682 016.
BY ADVS.SRI.RAJU JOSEPH (SR.)
SRI.GEORGEKUTTY MATHEW, SC, KSEB
RESPONDENT/S:
THE AUTHORITY FOR CLARIFICATION
(UNDER SECTION 94 OF KVAT TAXES),OFFICE OF THE
COMMISSIONER COMMERCIAL TAXES,
THIRUVANANTHAPURAM - 695 001.
OTHER PRESENT:
GOVERNMENT PLEADER SMT. M M JASMINE
THIS OTHER TAX APPEAL HAVING COME UP FOR ADMISSION ON
8-2-2023, THE COURT ON 1-3-2023 DELIVERED THE FOLLOWING:
:2:
O.T. Appeal No. 06 of 2017
CR
A.K.JAYASANKARAN NAMBIAR,
&
MOHAMMED NIAS C. P., JJ
............................................................
O.T. Appeal No. 06 of 2017
.................................................................
Dated this the Ist day of March, 2023
JUDGMENT
Mohammed Nias. C.P. J.
The Kerala State Electricity Board Limited (for short "Board") has
filed this appeal challenging Annexure-C order of the authority for
clarification under Section 94 of the Kerala Value Added Tax Act, 2003,
that held the charges incurred for loading, unloading, stacking, and
transportation formed part of the taxable turnover in the contract
entered into between the appellant and M/s. Kothamangalam
Aggregates, Kothamangalam, for the manufacture and supply of
electrical poles.
2. Board contends that it had invited tenderers for the purchase of
Prestressed concrete poles (for short "PSC poles"), and Annexure-A
O.T. Appeal No. 06 of 2017
purchase order contains the basic price, transportation charges, taxes,
and duties, and in all the invoices they are separately shown as is
evident from Annexure-B and therefore, except the sale price other
components do not form part of the same price and therefore,
determining the taxable turn including those charges other than the
basic price was illegal going by the provisions of the KVAT Act. Initially,
the manufacturers filed their monthly returns showing only the price of
the poles while computing the taxable turnover, which the department
accepted but later on, due to the audit objection, the department sought
to levy tax on the freight charges also, which led to one of the
manufacturers seeking a clarification. On the basis of the above
contentions, the following substantial questions of law have been
framed:-
1. Has not the authority for clarification committed an
error in holding that the assessee is not entitled to
deduct transportation charges, loading, unloading
charges etc. From the total turnover while
computing taxable turnover ?
2. Whether in the facts and circumstances of the case,
the respondent went wrong in applying the dictum in
India Meters Limited Vs. State of Tamil Nadu [(2010)
9 SCC 423 in the case of the assessee ?
3. Whether in the facts and circumstances of the case,
O.T. Appeal No. 06 of 2017
the respondent ought to have held that the basic
price as shown in Annexures A and B alone formed
taxable turnover of the assessee in view of the
provision contained in Rule 10 (e) of the Kerala Value
Added Tax Rules ?
3. The learned Senior Counsel Sri. Raju Joseph appearing for the
appellant, contended that going by the clauses in Annexure-A purchase
order and Annexure B invoice, it is clear that the sale was complete at
the factory gate and that the transportation, unloading stacking, etc.,
are not part of the sale consideration. Thus, going by 10 (e) of the
Kerala Value Added Tax Rules, freight and charges for delivery are
specifically excluded while determining taxable turnover, and as the
invoice shows these items separately, freight and charges for delivery
ought to have excluded from the taxable turnover. His further
submission is that the decision of the Supreme Court in India Meters
Limited v. State of Tamil Nadu [(2010) 9 SCC 423] is clearly
distinguishable as the factual situation was different. It is also his
argument that the terms of the agreement determine whether the sale
consideration included the transportation, unloading, and other charges,
and it cannot be said that in every case, transportation or freight
charges will be included as the sale price.
4. On the other hand, the learned counsel for the Revenue, Smt.
O.T. Appeal No. 06 of 2017
Jasmine submitted that the Clauses in the contract clearly show that the
charges for freight was included in the sale price. It is also argued that
the definition of turnover, sale, and sale price occurring in the KVAT Act
read with Annexures A and B clearly shows that the same form part of
the taxable turnover and the fact that the charges were shown
separately would make no difference in the instant case.
5. We have heard the learned counsel on either side and perused
the documents on record.
6. Annexure A, the purchase order specified the price details
fixed, including taxes, excise duty, other levies, freight, insurance,
loading, and unloading at the site. It also contained a clause that insists
that all the materials that are ordered will have to be fully insured from
the time of despatch from the manufacturer to the destination station,
including one month's storage, thereafter at the cost of the contractor.
In the clause dealing with price variation, the effect of variation in the
transporting charges factoring the price of diesel was also provided.
These clauses, according to us, read singularly or together would
clinchingly show that the cost of freight/transportation was included in
the sale price and that the sale cannot be said to be complete at the
factory gate. There are conditions to be met by the manufacturer even
after the supply of the pole at the place specified by the appellant.
O.T. Appeal No. 06 of 2017
7. The learned Senior Counsel vehemently argued that since the
charges were shown separately, the cost of freight/transportation must
be treated as excluded from the sale consideration. A similar contention
was considered by the Supreme Court in Hindustan Sugar Mills v. State of
Rajasthan & Others [(1978) 4 SCC 271] wherein the Apex Court held as
follows:
3. Where a dealer transports goods from his factory to his
place of business and sells them at a price which is
arrived at after taking into account "freight and handling
charges" incurred by him in transporting the goods, the
amount of "freight and handling charges", included in
the price would be part of the "sale price" because, it
would be payable by the purchaser to the dealer as part
of the consideration for the sale of the goods. The same
would be the legal position even if the "freight and
handling charges" are shown separately in the bill and
added to the price of the goods, for the character of the
payment would remain the same. Since 'freight and
handling 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 charged to the purchaser.
Thus, it is clear that a mere bifurcation of the charges in the invoices will
not come to the aid of the appellant, going by the principles laid down in
the above judgment.
8. The learned Senior counsel argued relying on Rule 10 (e) of the
Kerala Value Added Tax rules, that the freight and the charges for
O.T. Appeal No. 06 of 2017
delivery ought to have been excluded. The said rule is reproduced
hereunder;
10. Determination of taxable turnover:- (1) In determining
the taxable turnover, the amounts specified in the
following clauses shall, subject to the conditions specified
therein, be deducted from the total turnover of the
dealer.
xxxxx xxxxxxx
(e) all amounts falling under the following heads, when
specified and charged for by the dealer separately,
without including them in the price of goods sold:
1. freight
2. charges for delivery
3. cost of installation"
A reading of the above clearly shows that the amounts specified and
charged for by the dealer separately without including them in the price
of goods sold are alone excluded. (emphasis supplied). This rule is not
intended to exclude from the taxable turnover any component of the
price/expenditure incurred by the dealer before the sale and to make
the goods available to the intending customer at the place of sale. In the
instant case, we have already held that the freight and transportation
charges are part of the sale consideration being incidental to the sale,
and as such, 10 (e) of the KVAT Rules, 2005 which excludes those
charges when they are not included in the price of the goods sold has no
application in the instant case.
O.T. Appeal No. 06 of 2017
09. That apart, the definition of the sale price in the KVAT Act, is
relevant which reads as follows:
2 (xliv) "sale price" means the amount of valuable
consideration received or receivable by a dealer for the
sale of any goods less any sum allowed as cash discount,
according to the practice normally prevailing in the
trade, but inclusive of any sum charged for anything done
by the dealer in respect of the goods or services at the
time of or before delivery thereof, excise duty, special
excise duty or any other duty or taxes except the tax
imposed under this Act.
10. The definitions of total and taxable turnover are also extracted
here.
" 2 (xlix) (li) "total turnover" means the
aggregate turnover in all goods of a dealer at all
places of business in the State, whether or not the
whole or any portion of such turnover is liable to
tax, including the turnover of purchase or sale in
the course of inter-State trade or commerce or in
the course of export of the goods out of the territory
of India or in the course of import of goods into the
territory of India;
2 (xlix) (l) "taxable turnover" means the turnover
on which a dealer shall be liable to pay tax as
determined after making such deductions from his
total turnover and in such manner as may be
prescribed".
O.T. Appeal No. 06 of 2017
These definitions in the Act, coupled with the terms of the contract also
makes it crystal clear that the cost of transportation/loading and
unloading and delivery, etc are included in the sale price.
11. All the judgments which dealt with Rule 9(f) of the Kerala
General Sales Tax Act and Rules and Rule 6 (c) of the Tamil Nadu General
Sales Act and Rules Act, both of which are pari materia to Rule 10 (e) of
KVAT Rules held that the amounts paid by way of consideration by the
purchaser to the seller of goods in pursuance of the contract of sale
could legitimately be regarded as purchase price while calculating the
turnover for the purposes of sales tax legislation. All the payments
should have been made pursuant to the contract of sale and not dehors
it. In other words, all charges till the passing of the title to the goods
are liable to be included in the sale consideration.
12. As we have already held, the clauses in Annexures 1 and 2
clearly show that the transfer of title to the goods would take place only
on delivery of goods at the customer's place and the customer's
obligation to effect payment would arise only after the delivery is
effected. We are also mindful of the provisions of Chapter 3 of the Sale
of Goods Act, in particular, section 22 that applies where the contract of
sale of specific goods in a deliverable state, including the conditions to
do such acts with reference to the goods for the purpose of ascertaining
the price, the property does not pass until such act or thing is done.
O.T. Appeal No. 06 of 2017
13. The law applicable has again been re-iterated in India Meters
Limited (Supra) as hereunder:
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".
The discussions above would lead to the irresistible conclusion that
Annexure - C order of clarification calls for no interference, and the OT
appeal is without merit, and the same is, accordingly, dismissed.
SD/-A.K.JAYASANKARAN NAMBIAR,
JUDGE
SD/- MOHAMMED NIAS C.P.,
JUDGE
ani/
/true copy/
O.T. Appeal No. 06 of 2017
APPENDIX OF OT.APPEAL 6/2017
PETITIONER ANNEXURES
Annexure A TRUE COPY OF THE PURCHASE ORDER DATED
10/12/2010
Annexure B TRUE COPY OF THE INVOICE ISSUED BY
KOTHAMANGALAM AGGREGATES DATED 07/01/2017
Annexure C TRUE COPY OF THE ORDER NO. C3/22584/16/CT
DATED 21/01/2017
