2023 (3) TMI 492 - HC - VAT and Sales Tax

Valuation - place of removal - charges incurred for loading unloading stacking and transportation formed part of the taxable turnover or not - charges shown separately would make any difference or not - Jurisdiction of authority for clarification under Section 94 of the Kerala Value Added Tax Act 2003 - HELD THAT - 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. 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. Also 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. The law applicable has again been re-iterated in INDIA METERS LIMITED VERSUS STATE OF TAMIL NADU 2010 (9) TMI 878 - SUPREME COURT where it was held that w hen 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 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.

Summary

Issues:
1. Interpretation of taxable turnover under Section 94 of the Kerala Value Added Tax Act, 2003.
2. Applicability of Rule 10(e) of the Kerala Value Added Tax Rules in determining taxable turnover.
3. Whether charges for transportation, loading, unloading, and stacking form part of the taxable turnover in a contract for the supply of goods.

Issue 1: Interpretation of Taxable Turnover
The Kerala State Electricity Board challenged an order under Section 94 of the Kerala Value Added Tax Act, 2003, regarding the inclusion of charges for loading, unloading, stacking, and transportation in the taxable turnover of a contract for the supply of electrical poles. The Board argued that the sale was complete at the factory gate, and the transportation charges were not part of the sale consideration. However, the court found that clauses in the purchase order indicated that the cost of transportation was included in the sale price, and the sale was not complete at the factory gate. The court referred to relevant legal precedents to support its conclusion that charges included in the price, even if shown separately, are part of the sale price for tax purposes.

Issue 2: Applicability of Rule 10(e) of the Kerala Value Added Tax Rules
The appellant contended that Rule 10(e) of the Kerala Value Added Tax Rules should exclude charges for freight and delivery from the taxable turnover since they were separately shown in the invoices. However, the court held that Rule 10(e) only excludes amounts charged separately without including them in the price of goods sold. In this case, the court determined that the freight and transportation charges were part of the sale consideration and could not be excluded under Rule 10(e), as they were incidental to the sale.

Issue 3: Inclusion of Charges in Taxable Turnover
The court analyzed the definitions of sale price, total turnover, and taxable turnover under the KVAT Act to determine whether charges for transportation, loading, unloading, and delivery were included in the sale price. The court found that the terms of the contract, along with legal principles and precedents, established that these charges were part of the sale consideration. The court emphasized that all charges incurred until the passing of title to the goods should be included in the sale consideration for tax purposes, leading to the dismissal of the appeal against the order of clarification under Section 94 of the KVAT Act.

In conclusion, the High Court of Kerala upheld the order of clarification, ruling that charges for transportation, loading, unloading, and stacking were integral components of the sale price and formed part of the taxable turnover in the contract for the supply of electrical poles. The court's detailed analysis of the legal provisions, contractual clauses, and precedents supported the decision to dismiss the appeal.