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Freight Charges
27.A20. In contracts for the sale and delivery of goods, the sale value will include any delivery charges. Thus where goods are sold by wholesale to a retailer, tax is payable not only on the price charged for the goods but also on other charges such as freight and insurance incurred up to the time delivery takes place. If a retailer purchases goods ex factory or ex warehouse and makes his own arrangements for the delivery and insurance of the goods, the cost of delivery and insurance will not form part of the taxable sale value.
27.A21. Taxpayers and consumers in districts that are at a considerable distance from the main manufacturing and importing centres claim that they are unfairly treated by the inclusion of freight and other charges in the sale value. The complaint goes deeper than merely the inclusion of delivery charges where goods are purchased, with tax included, from a manufacturer or a wholesale merchant in the capital city. What is also objected to is the increase in sale value where goods are supplied to country retailers by country wholesalers who take delivery charges from the city to their country depots into account when fixing a wholesale selling price for the goods sold in the country.
27.A22. If freight were to be excluded from the sale value of a taxable sale by wholesale only in those cases where the cost of delivery is separately charged, the exclusion could not apply where a country wholesale merchant sells goods ex warehouse in the country. If it were desired to exclude his cost of delivery from the city to his country warehouse, problems of identification and apportionment would arise, since a wholesaler normally buys in bulk and sells in smaller lots. He would be required not only to identify the inward consignment from which the goods were taken, but also to show that the amount to be excluded was an appropriate proportion of the delivery cost of that consignment. Further complications would arise if a wholesale merchant purchased goods from another wholesaler in a country centre or from the country warehouse of a manufacturer who had freighted the goods from a city.
27.A23. If delivery charges were to be excluded from the sale value of goods it appears that under section 51(ii) of the Constitution, which prohibits any discrimination in tax laws between States or parts of States, such exclusion could not be limited to deliveries made in only certain parts of a State: it would have to be applied to all delivery charges made both in the city and the country. In a number of industries, mostly located in cities, manufacturers and wholesalers make deliveries in their own vehicles. Delivery costs are reflected in the price for which they sell their goods and are absorbed in their general overhead costs. It would be extremely difficult for these taxpayers to allocate a cost of delivery to such sales.
27.A24. In the Committee's view equity cannot be achieved in the matter of freight charges without sacrificing simplicity and certainty and unduly increasing compliance costs and the costs of collection of the tax. It therefore does not recommend any change in the present law.