K-VAT levy on freight charges

Many of the dealers today are not very clear about levy of VAT on freight charges being collected on the sale transactions. An attempt has been in this article to provide clarity on the implication of freight charges. Under the earlier Karnataka Sales Tax, the dealer of goods could have claimed deduction towards transportation charges if the amounts were shown separately. However, the same is not the case in case of KVAT introduced from 2005.

Definition of turnover

Section 2(36) of the KVAT Act defines "turnover" which is relevant to understand the amounts which are taxable. The same reads as under:

"'Turnover' means the aggregate amount for which goods are sold or distributed or delivered or otherwise disposed of in any of the ways referred to in clause (29) by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or other valuable consideration, and includes the aggregate amount for which goods are purchased from a person not registered under the Act and the value of goods transferred or despatched outside the State otherwise than by way of sale, and subject to such conditions and restrictions as may be prescribed the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of or before the delivery thereof:”.

From the definition, it is clear that turnover means the aggregate amount for which goods are sold and shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of or before the delivery thereof.

When the transfer of title in the goods is to be at the place of buyer then all charges incidental thereto like transport of goods, installation charges and other expenditures etc. incurred by the seller would become part of amount for which the goods are sold by the seller to the buyer. If the transfer of title of goods is to be at the place of seller then the subsequent charges for transporting goods, installation and other expenditure do not form part of amount for which the goods are sold.

Further, if the sale agreement entered with the buyer specifies an obligation on the part of the seller to transport the goods as incidental to the sale then the same becomes part of the amount for which the goods are sold. This view is supported by various decisions of Karnataka High court such as Prakash Retail Ltd Vs. DCCT [(2014) 68 VST 392], APCO Concrete Block and Allied Products v. DCCT [(2011) 44 VST 312].

Conclusion: The dealer while charging freight / transportation charges should refer to the terms of contracts with regard to delivery of goods and transfer of title. If the transfer is at buyer’s place, VAT need not be charged on transportation charges. Otherwise, it is liable for VAT.

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