SALES TAX ON DELIVERY CHARGES INCURRED ON SUPPLY OF GOODS

SALES TAX ON DELIVERY CHARGES INCURRED ON SUPPLY OF GOODS <!--[if gte mso 10]> SALES TAX ON DELIVERY CHARGES INCURRED ON SUPPLY OF GOODS By Akhtar Javed, Advocate, Lahore The term value of supply has been defined in section 2(46) of the Sales Tax Act, 1990 (the Act) as "value of supply" means "in respect of a taxable supply, the consideration in money, including all Federal and Provincial duties and taxes, if any, which the supplier receives from the recipient for that supply but excluding the amount of tax:" 2. C.B.R. in its letter dated 2-4-1999 has ruled that the tax has to be assessed on total amount charged and received for a supply as the consideration in money is for' taxable supply and not for the bare taxable goods, therefore, all charges, received against the 'supply of goods constitute part of value of supply. It was further ruled that in case supplies are delivered at buyers' premises, the total consideration in money charged including delivery charges will be included in the value of supply for the assessment of tax. 3. Messrs Sitara Chemical Industries Ltd., Faisalabad are the manufacturer of Hydro Chloric Acid (HCl) and other chemicals and supply the same to different parties on ex-factory basis. The chemicals manufactured by the company are transported only in specially built vehicles for which the company has, as of necessity, advanced loans to the transporters for purchase of such vehicles which are recovered from them in instalments from the remittances received from the buyers of the chemicals who make payment against chemicals and transportation charges to Messrs Sitara Chemicals. As the company has advanced loans to the transporters for purchase of those vehicles, the delivery charges received from the buyers of the chemicals are adjusted against those loans. The company had not been including element of freight charges in the value of supply on the plea that the freight is paid by the buyers to transporters in consideration of the services provided by them. 4. The Sales Tax Collectorate Faisalabad made out a case against Messrs Sitara Chemicals for not including the element of freight charges in the value of supply. The Additional Collector (Adjudication) Faisalabad upheld the charges levelled in the show-cause notice. The company filed an appeal in the Appellate Tribunal, Lahore Bench-II. 5. After hearing and perusing the record, the Appellate Tribunal observed that: "As regards demand of sales tax on freight charges, we do not find much force in the appellant argument that freight charges were separately charged by the transporters who carried the chemicals in specially built vehicles and even in case freight charges were paid by' the buyers to the appellant's, the same were adjusted against loan instalments due from the transporters. The factual and admitted position is that the fleet of specialized vehicles is owned by the appellant-company as the vehicles are registered in their name and as per agreements placed on record, the transporters cannot use the vehicles for any other propose, any other organization or individual except for transport of chemicals supplied by the appellant. Under these circumstances, the appellant-company cannot dissociate itself from the transport/delivery of their product at the buyer's place. The supply shall, thus be deemed to have been made on delivery basis and the element of freight charged from the buyers shall form part of the value of goods. The value of supply as defined in section 2(46) of the Sales Tax Act, 1990 means the consideration in money including all Federal and Provincial duties and taxes, if any, which the supplier receives from the recipient for that supply excluding the amount of tax. In this case, the appellant has admittedly received freight charges from the buyers and therefore they become a part of the value of supply chargeable to sales tax. Demand of sales tax amounting to Rs.10,45,965 alongwith additional tax under section 34 of the Sales Tax Act, 1990 is therefore upheld." 6. Keeping in view the aforesaid judgment of the Appellate Tribunal, the registered persons are advised to include the element of freight charges in the value of supply and sales tax has to be charged and paid' on total consideration in money charged including delivery charges if these are received alongwith the consideration of goods and the goods are delivered at the door-step of the buyer.