Royal Uniforce Roofing Private Limited Vs ACIT (ITAT Nagpur)
Freight in a Cement Invoice Does Not Make the Buyer a Transport Contractor – No TDS u/s 194C on Composite Purchase Price
The Nagpur Bench of the ITAT has held that a purchaser of cement is not required to deduct tax at source u/s 194C merely because the supplier separately mentions freight charges in its sale invoice. Where the supplier arranges transportation and makes payment to the truck owners or operators, the buyer has no independent contract for carriage of goods. The payment retains the character of a purchase price under a contract of sale, and not payment under a works or transport contract.
The assessee, Royal Uniforce Roofing Pvt. Ltd., filed its return for AY 2015-16 declaring nil income. During the assessment proceedings, the AO noticed that the assessee had purchased cement from various vendors. In the invoices issued for sale of cement, freight charges were shown separately.
The assessee had not deducted tax at source on the freight component. The AO concluded that the freight represented payment for carriage of goods covered by section 194C. Since no TDS had been deducted, he invoked section 40(a)(ia).
The AO initially considered aggregate lease-rent/freight charges of ₹31,90,861 and made a disallowance of ₹9,57,259, being 30% of the relevant expenditure. The total income was assessed at ₹10,62,182.
The assessee challenged the disallowance before the CIT(A). The appellate authority partly accepted the assessee’s case. In respect of purchases from Reliance Cement Company Pvt. Ltd., the freight was included in the cement invoice and VAT was charged on the composite amount. The CIT(A) therefore accepted that the payment formed part of the purchase transaction and deleted the related disallowance.
However, a different conclusion was reached for purchases from M/s Manikgarh Cement. Under the applicable provisions of the Central Sales Tax Act, the vendor was not required to levy tax upon the freight component. Since Central Sales Tax was not charged on freight, the CIT(A) treated it as a separate payment and confirmed the disallowance relating to freight of ₹23,10,517.
The assessee carried the matter before the Tribunal.
The Tribunal examined the true nature of the relationship between the assessee and Manikgarh Cement. It found that Manikgarh Cement was a manufacturer and seller of cement. It was not functioning as a transporter engaged by the assessee for supplying trucks or independently carrying the assessee’s goods.
Manikgarh Cement arranged for transportation of the cement sold by it and added the freight charges to its sale invoices. The actual payment to the truck owners and transport operators was made by Manikgarh Cement and not by the assessee.
Therefore, if any obligation to deduct TDS arose upon the payments made to the truck owners or operators, that obligation had to be examined in the hands of Manikgarh Cement, which had engaged and paid the transporters.
The assessee had only purchased cement from Manikgarh Cement. There was no finding that the assessee had entered into an independent contract with the transporters, selected the trucks, controlled the transportation or directly made payments to the truck owners.
The Tribunal held that the mere disclosure of freight as a separate component in the supplier’s invoice did not alter the basic character of the transaction. The substance remained a contract for the purchase and supply of cement.
The manner in which Central Sales Tax was charged—or was not required to be charged—could not by itself determine the existence of a TDS obligation under the Income-tax Act. The tax treatment of freight under sales-tax legislation and the obligation to deduct tax u/s 194C operate in different statutory fields.
Since the assessee had not made any payment to a contractor for carrying out transportation work, section 194C was held inapplicable. Consequently, the related disallowance u/s 40(a)(ia) concerning freight of ₹23,10,517 was deleted, and the assessee’s appeal was allowed.
Author’s Comments
The decision turns on the elementary but vital distinction between a contract of sale involving delivery of goods and a separate contract for carriage of goods. Section 194C applies when a person makes payment to a contractor for carrying out work, including transportation. It does not automatically apply whenever the cost of transportation appears in a commercial invoice.
The decisive question is: Who engaged the transporter and who was responsible for paying him? If the supplier arranges transportation in fulfilment of its sale obligation and pays the transporter, the buyer’s payment to the supplier ordinarily remains consideration for purchase of goods. A separate freight line in the invoice may explain the price calculation, but it does not necessarily divide one sale contract into two contracts.
Conversely, if the purchaser independently appoints the transporter, issues transport instructions or pays freight directly to the truck operator, section 194C may apply. The terms of the purchase order, delivery conditions, lorry receipts and actual flow of payment are therefore more important than the invoice description alone.
The CIT(A)’s distinction based on whether VAT or Central Sales Tax was charged on freight was too narrow. Inclusion of freight in the sales-tax turnover may support the existence of a composite sale, but exclusion from such turnover does not conclusively establish an independent transport contract. One statute’s valuation mechanism cannot automatically decide another statute’s withholding obligation.
The ruling should also be distinguished from cases involving pure reimbursement. Where a supplier incurs freight specifically on behalf of the purchaser and recovers the exact amount under a separate arrangement, the contractual documents may require closer examination. Likewise, separate invoices for goods and transportation may indicate two distinct obligations, though even that is not conclusive.
For practical protection, purchasers should ensure that the purchase order clearly states whether delivery is the supplier’s responsibility, whether freight forms part of the agreed landed price and whether the supplier alone engages the transporter. These documents can prevent an ordinary purchase transaction from being wrongly recharacterised as a transport contract.
The principle emerging from the order is crisp: a cement manufacturer does not become the buyer’s transport contractor merely because freight is separately printed below the price of cement.
FULL TEXT OF THE ORDER OF ITAT NAGPUR
The captioned appeal at the instance of assessee pertaining to A.Y. 2015-16 is directed against the order dated 05.12.2025 framed by National Faceless Appeal Centre, Delhi (NFAC) arising out of Assessment order dated 30.03.2022 passed u/s. 147 r.w.s.144B of the Income Tax Act, 1961 (in short ‘the Act’).
2. The sole grievance of the assessee is against the disallowance for non- deduction of tax at source on the payment of Freight charges u/s.40(a)(ia) of the Act paid to M/s. Manikgarh Cement at Rs.23,10,517/-.
3. I have heard the rival contentions and perused the record placed before me. I observe that the assessee is a Private Limited company and filed the return of income for A.Y.2015 -16 on 30.09.2015 declaring Nil income. Case selected for scrutiny under CASS followed by validly serving statutory notices u/s.143(2) and 142(1) of the Act. During the course of assessment proceedings, ld. Assessing Officer observed that assessee has purchased Cement from various vendors and in the invoices issued by the vendors selling cement, Freight has been charged. However, no deduction of tax at source has been made for the Freight charges and accordingly disallowance u/s.40(a)(ia) of the Act was made at Rs.9,57,259/- @30% of the alleged payment made towards Lease rent/Freight charges at Rs.31,90,861/-. Income assessed at Rs.10,62,182/-. Thereafter, assessee preferred appeal before ld.CIT(A) and partly succeeded and only the disallowance u/s.40(a)(ia) of the Act was restricted for non deduction of tax at source on the Freight payment made to M/s. Manikgarh Cement.
4. On due consideration of submissions made by ld. Counsel for the assessee in the course of hearing and perusal of record, I notice that in the case of other vendor namely Reliance Cement Company Private Limited the Freight was included in the invoice for sale of cement but since the VAT was charged on the total cement, ld.CIT(A) has deleted the disallowance. However, in the case of M/s. Manikgarh Cement as per the provisions of Central Sales Tax Act, vendor was not the Freight charges were not subjected to Central Sales Tax. Therefore, ld.CIT(A) confirmed the disallowance.
5. I however notice that the vendor in the instant case M/s. Manikgarh Cement is not a Transporter providing Trucks for transporting of goods but is a manufacturer of Cement and is issuing the invoices to the assessee for sale of Cement. Since the goods are transported by M/s. Manikgarh Cement, the Freight charges are added in the invoice. However, the actual payment of Freight to the Truck owners/Truck operators is paid by M/s. Manikgarh Cement and therefore liability for deduction of tax at source, if any, is to be taken care by the vendor namely M/s. Manikgarh Cement. Thus, since the assessee has only purchased the goods from M/s. Manikgarh Cement, I hold that assessee was not required to deduct tax at source u/s.194C of the Act on the freight charges included in the goods invoice. Thus, finding of ld.CIT(A) is reversed and the alleged disallowance u/s.40(a)(ia) of the Act for non -deduction of tax at source at Rs.23,10,517/- is hereby deleted. Grounds of appeal raised by the assessee are allowed.
6. In the result, the appeal of the assessee is allowed.
Order pronounced on 10th September, 2026 under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963.
