2006 (7) TMI 630 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Deductibility of additional trade discount.
2. Deductibility of turnover discount.

Detailed Analysis:

1. Deductibility of Additional Trade Discount:
The respondent, a registered dealer under the West Bengal Sales Tax Act, 1994, claimed deductions for various discounts, including additional trade discount and turnover discount. The assessing officer only allowed cash discount, denying others. The Deputy Commissioner, on appeal, allowed prompt-payment discount but not additional trade discount. The West Bengal Commercial Taxes Appellate and Revisional Board allowed both additional trade discount and turnover discount. The Deputy Commissioner challenged this decision, arguing that the claimed "trade discount" did not qualify as such under the Act.

The definition of "sale price" under Section 2(31) of the 1994 Act includes the amount payable for the sale of goods, less any cash discount according to ordinary trade practice. The Supreme Court in Deputy Commissioner of Sales Tax v. Advani Oerlikon (P.) Ltd. [1980] 45 STC 32 clarified that trade discount should be deducted from the sale price and does not form part of it. The respondent-dealer's practice of issuing credit notes for discounts after the sale and adjusting them against future purchases was not in line with typical trade discount practices. The essential features of trade discount, as outlined by various judicial decisions and accountancy texts, include that it should be an integral part of the sale transaction, reflected in the invoice, and known at the time of sale.

The Tribunal concluded that the respondent-dealer's method of allowing additional trade discount did not qualify as a trade discount because it was not deducted at the time of sale and was contingent upon future purchases. Therefore, the additional trade discount could not be deducted from the sale price under the 1994 Act.

2. Deductibility of Turnover Discount:
The turnover discount was allowed at the rate of one percent on the total price of purchases made during a quarter for customers who purchased on credit. This discount was mentioned in the invoice but not deducted at the time of sale. The respondent claimed it as a cash discount. The assessing authority and appellate authority disallowed it, but the Board allowed the claim, treating it as an additional incentive.

The Tribunal noted that the turnover discount was related to achieving a targeted volume of purchases within a specified period and was not for prompt payment, thus not qualifying as a cash discount. However, the Supreme Court in Government of India v. Madras Rubber Factory Ltd. [1995] 77 ELT 433 considered a similar turnover discount under the Central Excise Act and treated it as a trade discount, as it was known and understood at the time of removal of goods, though quantified later.

The Tribunal held that the turnover discount qualified as a trade discount and should be excluded from the sale price or turnover under the 1994 Act, in line with the Supreme Court's judgment in the Madras Rubber Factory case.

Conclusion:
The Tribunal allowed the application in part, setting aside the Board's decision regarding the additional trade discount, holding that it did not qualify as a trade discount and could not be deducted from the sale price or turnover. However, it upheld the turnover discount as a trade discount, qualifying for exclusion from the sale price or turnover. The application was disposed of with no order as to costs.