BY TIOL NEWS SERVICE

NEW DELHI, FEB 06, 2018: THE issue before the Bench - whether to arrive at taxable turnover, it is necessary to deduct trade discount from total turnover. YES IS THE VERDICT.

Facts of the case:

The assessee-company, engaged in manufacturing home appliances such as mixer grinders, wet grinders and gas stoves, claimed a deduction of trade discounts, when computing the total turnover. The Department dismissed such claim of the assessee on grounds that the discount was not relatable to the sales effected by the relevant tax invoices. Although the Appellate Authority allowed such trade discount, on grounds that the quarterly scheme discount given by the assessee was an allowable deduction, since the assessee had realized the consideration from the purchaser towards the sale of goods after deducting the amount of discount, and VAT was charged only on the net amount shown in the tax invoice after allowing the benefit of discount. However, such order of the appellate authority was later set aside. Further, the High Court dismissed the assessee's appeals. Hence the present appeals by the assessee.

The Apex Court held that,

++ considered the mandate of sections 2(34) and 2(36) of the Act. Also considered the provisions of Rule 3(2)(c) of the KVAT Rules. Further considered the decision of this Court in Southern Motors v State of Karnataka. In this case, the Bench had laid down its interpretation of Rule 3(2)(c). Relying on the earlier decisions of this Court, it was held that a trade discount ought not to be disallowed merely on the ground that it is not payable at the time of each invoice or deducted from the invoice price. Such view was rendered by a bench of two Judges, including the Chief Justice. Having regard to the construction which has been placed on the provisions of Rule 3(2)(c) of the Rules in Southern Motors, the judgment of the High Court in the present case is accordingly unsustainable.

++ the liability to pay tax is on the taxable turnover. Taxable turnover is arrived at after making permissible deductions from the total turnover. Among them are “all amounts allowed as discounts.” Such a discount must, however, be in accord with the regular trade practice of the dealer or the contract or agreement entered into in a particular case. The expression “the tax invoice or bill of sale issued in respect of the sales relating to such discount shows the amount allowed as such discount” is not happily worded. The words “in respect of the sales relating to such discount” cannot be construed to mean that the discount would be inadmissible as a deduction unless the tax invoice pertaining to the goods originally issued shows the discount. This is a matter of ascertainment. The assessee must establish from its accounts that the discount relates specifically to the sales with reference to which it is allowed. In the first part of the proviso, Rule 3(2)(c) recognizes trade practice or, as the case may be, the contract or agreement of the dealer. The latter part which provides a methodology for ascertainment does not override the earlier part. Both must be construed together. Above all, it must be remembered that taxable turnover is turnover net of deductions. All trade discounts are allowable as permissible deductions.

(See 2018-TIOL-47-SC-VAT-LB)