Cst on freight

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

05 August 2014 Dear Sirs,

I am working as AM(Purchase).

Please clarify Below :

One of our supplier raised an invoice as under :

Basic cost(X) + ED(Y) + Freight(Z) + CST on(X+Y+Z).

Is this correct procedure?

How can they charge CST on Freight?

If freight includes in Basic price but not shown separately in invoice , then can we calculate ED on basic price?(i.e includes fright).

We have Modvat Benefit.

Please clarify.

Regards,
Pratap.A

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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05 August 2014 Sale price does not include Freight charges will not attract CST when shown separately in the Invoice.
If freight included in basic price but not shown separately in invoice, we have to calculate ED on basic price including freight.

Message likes : 1 times

Querist : Anonymous

Querist : Anonymous (Querist)

06 August 2014 Sir,

We have discussed again with our Vendor.

But he is not agreed and send a copy of his explanation:

01.05.2014
OPINION
FACTS
1. XXX Ltd (hereinafter referred to as xxx ) is proposing to change the method of invoicing. Hitherto, xxxx was charging an all-inclusive price from the customers. The price charged by xxxx included freight and all other charges. However, the freight and other charges were not shown separately in the invoice.

ISSUES
Based on the above facts, xxxx wishes to understand the following issues:-
1. Whether Excise / KVAT / CST are applicable on the above charges collected from customer?
2. How should the above charges be disclosed in the invoice?
OPINION
1. CST Implications
1.1. Sales price has been defined in Section 2(h) of the Central Sales Tax Act, 1956 (CST) to mean the amount payable to a dealer as consideration 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 at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charged.
1.2. On an analysis of the above definition, we can conclude that any charges collected from the customer in respect of anything to be done before the delivery of the goods shall be included in the sales price.

1.3. Freight,
1.3.1. With respect to freight, if as per the terms of the contract with the customer, the transfer of property in goods takes place at the time of removal from the factory (ex-works basis), then the amount of freight collected from the customer need not be included in the sales price. However, if as per the terms of the contract, the transfer of property in goods takes place at the time of delivery (F.O.R. basis), then the amount of freight collected should be included in the sales price.
1.3.2. It has been informed to us that most of the contracts with the customer are on F.O.R. basis and therefore, the freight amount has to be included in computing the sales price.

2. KVAT Implications
2.1. Under the Karnataka Value Added Tax Act, 2005 (KVAT), the tax is liable to be paid on the taxable turnover of the dealer. Taxable turnover is defined in Section 2(34) of the KVAT Act to mean the turnover on which the dealer is liable to pay tax as determined after making such deductions as may be prescribed. The deductions are prescribed in Rule 3(2) of the KVAT Rules, 2005.
2.2. Rule 3(2) provides deduction from the turnover for discounts, sub-contractor charges, labour charges, etc. This rule does not provides for any deduction towards any of the amounts recovered by xxxx from their customers.

2.2.1. There are few Karnataka High Court decisions to the effect that if the transfer of property in goods takes place at the factory gate, then the freight amount collected from the customer can be allowed as a deduction from the taxable turnover. However, the department officers at the adjudication stage and at the first appeal stage are levying KVAT on freight charges and the matter is being litigated. In view of the fact that your customers would be entitled to input tax deduction, it is suggested that freight charges be included in the turnover and KVAT be charges on such amount. Moreover, as informed to us most of the contracts with the customers are on F.O.R. basis, the value of freight has to be included.

3. Disclosure in invoice
3.1. The amounts can be disclosed in the invoice as provided below:-
Particulars Amount
Sale price 1,150.00
Transaction value 1,150.00

Excise duty @ 12% on Transaction value 138.00
Educess @ 2% 2.76
SHE cess @ 1% 1.38
1,292.14

Freight charges, halting charges, permit fee 75.00
Sales price 1,367.14

CST / KVAT @5.5% (assumed) on Sales price 75.19
Total Invoice price 1,442.33

We shall be glad to furnish any further clarifications, if required.

Thanking you,

Yours faithfully,

for
XXXXX
Chartered Accountants

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