1. Manufacturer seeks revision regarding inclusion of freight charges in taxable turnover, disputing the assessment of depot sales where freight was purportedly borne by dealers under agreement. (Para 1 , 2 , 3 , 11 )
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2026 Supreme(Online)(Ker) 67930
IN THE HIGH COURT OF KERALA AT ERNAKULAM
Devan Ramachandran, Basant Balaji, JJ
Ramco Cements Ltd – Appellant
Versus
State of Kerala – Respondent
OT.REV NO. 80 OF 2022 | OT.REV NO. 82 OF 2022
Important Points
Taxability of freight in 'freight to pay' depot sales depends on actual contractual arrangements and statutory requirements; the presence of Delivery Notes cannot be used as a sole presumption that the seller retained title and thus bore the freight cost.
Subject
Taxation - VAT
Act Referred
Headnote
(A) Kerala Value Added Tax Act, 2003 - Section 46(3) - Kerala Value Added Tax Rules, 2005 - Rule 10(1)(e) - Inclusion of freight charges in taxable turnover - Depot sales.
(B) Taxable Turnover - Where a manufacturer fixes a gross price inclusive of freight but reduces the amount in the invoice based on agreements where dealers pay freight ("freight to pay"), the Assessing Authority must verify the actual contractual arrangements and accounting of freight by dealers rather than relying on presumptions based on Delivery Notes. (Paras 13, 14, 23)
(C) Statutory Requirement of Delivery Notes - The presence of a Delivery Note does not necessarily imply that the title to goods remained with the seller until delivery, especially when such notes are statutorily required under the first proviso to Section 46(3) of the Act. (Paras 6, 23)
Facts of the case:
The petitioner, a cement manufacturer, conducted depot sales where the gross price typically included freight. However, for specific dealers, the freight amount was deducted from the invoice as agreed under separate contracts where the dealers bore the freight costs ("freight to pay"). The Assessing Officer and the Tribunal added these deducted freight amounts back to the total turnover, reasoning that the use of Delivery Notes indicated the title remained with the seller until delivery, thus the seller effectively paid the freight.
Findings of Court:
The court observed that the Assessing Authority failed to conduct essential factual investigations into the dealer agreements and ignored the statutory necessity of Delivery Notes under Section 46(3) of the Act. It further noted that historic "controlled pricing" regimes for cement are no longer applicable automatically post-1989.
Issues: Whether freight charges reduced from the gross invoice value in "freight to pay" transactions should be added back to the taxable turnover and whether the presence of Delivery Notes proves the retention of title by the seller.
Ratio Decidendi: The court held that conclusions regarding the burden of freight cannot be based on mere surmises of title retention via Delivery Notes, particularly when such notes are a statutory requirement. Factual verification of contractual agreements and accounting is imperative before adding such amounts to the turnover.
Result: Impugned orders set aside; remanded for reconsideration.
(B) Taxable Turnover - Where a manufacturer fixes a gross price inclusive of freight but reduces the amount in the invoice based on agreements where dealers pay freight ("freight to pay"), the Assessing Authority must verify the actual contractual arrangements and accounting of freight by dealers rather than relying on presumptions based on Delivery Notes. (Paras 13, 14, 23)
(C) Statutory Requirement of Delivery Notes - The presence of a Delivery Note does not necessarily imply that the title to goods remained with the seller until delivery, especially when such notes are statutorily required under the first proviso to Section 46(3) of the Act. (Paras 6, 23)
Facts of the case:
The petitioner, a cement manufacturer, conducted depot sales where the gross price typically included freight. However, for specific dealers, the freight amount was deducted from the invoice as agreed under separate contracts where the dealers bore the freight costs ("freight to pay"). The Assessing Officer and the Tribunal added these deducted freight amounts back to the total turnover, reasoning that the use of Delivery Notes indicated the title remained with the seller until delivery, thus the seller effectively paid the freight.
Findings of Court:
The court observed that the Assessing Authority failed to conduct essential factual investigations into the dealer agreements and ignored the statutory necessity of Delivery Notes under Section 46(3) of the Act. It further noted that historic "controlled pricing" regimes for cement are no longer applicable automatically post-1989.
Issues: Whether freight charges reduced from the gross invoice value in "freight to pay" transactions should be added back to the taxable turnover and whether the presence of Delivery Notes proves the retention of title by the seller.
Ratio Decidendi: The court held that conclusions regarding the burden of freight cannot be based on mere surmises of title retention via Delivery Notes, particularly when such notes are a statutory requirement. Factual verification of contractual agreements and accounting is imperative before adding such amounts to the turnover.
Result: Impugned orders set aside; remanded for reconsideration.
Legal Category Hierarchy
Advocates:
For the Appellants/Petitioners: S. Anil Kumar, Sabu C.J, M. Rajagopal, Rahul A., Aparna Anil
For the Respondents: T K Shaij Raj
For the Appellants/Petitioners: S. Anil Kumar, Sabu C.J, M. Rajagopal, Rahul A., Aparna Anil
For the Respondents: T K Shaij Raj
Table of Contents
2. Petitioner contends freight is excluded from turnover under contractual arrangements; Revenue argues freight is part of sale price, evidenced by invoice structure and retention of title during transit. (Para 5 , 6 , 7 )
3. Court finds lower authorities failed to evaluate foundational facts regarding contractual intent, statutory delivery requirements, and the impact of post-decontrol market pricing on freight taxability. (Para 14 , 23 , 24 )
4. Assessment of taxable turnover requires factual determination of whether freight is an independent expense borne by the purchaser or an integral part of the controlled sale price. (Para 17 , 18 , 19 , 22 )
5. Impugned orders set aside; matter remitted to the Assessing Authority for fresh determination within six months after thorough factual investigation and consideration of all legal contentions. (Para 25 , 26 )
6. Can freight charges be excluded from a manufacturer's taxable turnover for cement?
Freight charges may be excluded if not collected by the seller and if the burden is contractually assumed by the buyer as an independent expense, subject to factual verification of the transaction terms and statutory provisions. (Para 5 , 13 , 16 )
7. Does the issuance of a Delivery Note definitively prove that title to goods remains with the seller?
No; while Delivery Notes may imply title retention, they are often a statutory requirement for transport. Their existence does not automatically negate a genuine depot sale or shift in title, necessitating further factual inquiry into the underlying contract and delivery terms. (Para 6 , 9 , 23 )
8. Does the historical controlled-price rule for cement automatically determine the taxability of freight today?
No. The historical Cement Control Order rule requiring freight to be part of the controlled price is no longer applicable to transactions occurring after the 1989 decontrol; tax treatment must now be determined by current legislative provisions and specific contractual arrangements. (Para 20 , 21 , 22 )
ORDER
[OT.Rev Nos.80/2022, 82/2022]
Devan Ramachandran , J.
The petitioner in these Revisions is a manufacturer of cement; and assert that they effected depot sale of the same to dealers – both wholesale and retail – on the strength of valid Tax Invoices.
2. As per the petitioner, the Tax Invoices drawn in favour of the dealers were with the specific endorsement “freight to pay”, which is to mean that the obligation to pay the freight charges was on the latter. They explain that, as part of their normal business procedure, a gross value is fixed-which includes freight also; but that, since their dealers took upon themselves, based on agreements, that they will honour the same, an amount equal to it was reduced from such value, and so shown in the invoice itself. They allege that, however, the assessing officer still added the amounts of freight – though not part of the invoice at all, but shown as a discount therein – to their total turnover for the assessment years in question; thus constraining them to file an appeal before the statutory First Appellate Authority,, which when dismissed, forced them to approach the learned Kerala Value Added Tax Appellate Tribunal (‘the Tribunal’ for short), through a further appeal, which, however, has also concluded against them in the impugned orders.
3. The petitioner asserts that they have, therefore, been left without any other option, but to come to this Court.
4. Since both these petitions have been filed by the petitioner, and since it involves analogous, if not identical, legal issues, we have heard them together and proceed to dispose them of through this judgment.
5. Sri. S. Anilkumar - the learned counsel for the petitioner, conceded that, except in the circumstances provided in Rule 10(e) of the Kerala Value Added Tax Rules, 2005 (‘the Rules’ for short), amount of freight, if collected, ought to be shown as part of the sale price and turnover conceded on such lines. He explained that, however, as far as this case is concerned, even though his client, as a manufacturer, fixes a gross price for the article - which takes in the freight charges also – when the dealers in question agreed, under separate agreements, to honour the same on their own, such sum was reduced from the Tax Invoice issued in their favour, with endorsement “freight to pay” made on it. He contended that this arrangement concedes to no other interpretation, except that the burden to pay the freight had been taken over by the dealer, without any such being left with his client; resultant to which alone, the latter agreed to reduce the actual charges of the same from the Tax Invoice issued in favour of the former.
6. Sri.S. Anilkumar, thereafter, argued that conclusion of the learned Tribunal that, since the articles in question were supported by a Delivery Note in spite of Tax Invoice having been issued, it can only mean that the title on it continued with his client until such time as it was delivered to the consignee/dealer is in grave error because, Cement-being regulated goods - can be transported, even after a depot sale, on the strength of the statutory requirement under the first proviso to Section 46(3) of Kerala Value Added Tax Act, 2003 (‘the Act’ for short). He argued that, therefore, merely because the goods were so supported by a Delivery Note, a presumption that its title continued with his client, until it was delivered to the consignee/dealer is improper and untenable. He prayed that, hence, the impugned orders be set aside.
7. Sri. Shaij Raj - the learned Senior Government Pleader, refuted the afore contentions, relying upon several precedents, including India Meters Limited v. State of Tamil Nadu [(2010) 9 SCC 423], to argue that, except within the ambit of Rule 10(1)(e) of the “Rules”, freight which is collected as part of the sale price, will have to be added to the total turnover. He maintained that the assessing authority, as also the First Appellate Authority, and the learned Tribunal have apprec
