2014 (6) TMI 874 - HC - VAT and Sales Tax

Disallowance of discount - Held that - This Court had an occasion to consider the question whether the discount falls outside the turnover in the case of Southern Motors v. State of Karnataka 2015 (3) TMI 433 - KARNATAKA HIGH COURT , wherein it was held that once the sale invoice is issued and the sale price is collected along with tax, the aggregate of such sale constitutes the total turnover and the tax is payable on taxable turnover. To arrive at the taxable turnover what are the deductions that are legitimately be made ii provided under Rule 3(2) of the Rules. One such permissible deduction is that the amount paid by way of discount provided that the discount is reflected in the sale invoice. Accordingly, by issuing a credit note after receiving the amounts, of course, before filing the returns it cannot be said that the amount of discounts goes outside the purview of the turnover. - discount do not find a place in the tax invoice. So called discount is given after completion of the sale/which is not acceptable and therefore, the order passed by the Tribunal excluding discount from taxable income is erroneous. Accordingly, the said order is hereby set aside and the order passed by the Assessing Authority which was confirmed by the First Appellate Authority is restored. - Decided in favouro of Revenue.

Summary

Issues:
Challenge to order allowing deduction towards trade discount for tax periods from April 2006 to October 2006.

Analysis:
The Revenue filed revision petitions against the Karnataka Appellate Tribunal's order allowing appeals and setting aside the disallowance of discount for the tax periods from April 2006 to October 2006. The Tribunal directed the Assessing Authority to allow the deduction towards trade discount as per the credit notes and issue a revised Demand notice. The assessee, engaged in trading electronic goods and IT products, had its assessment concluded by the Deputy Commissioner of Commercial Taxes, who disallowed the claim of deduction towards discounts for not being mentioned at the time of issue of tax invoices. The assessee issued credit notes at the end of the month, claiming the discounts. The First Appellate Authority dismissed the appeals filed by the assessee, leading to the Tribunal's decision in favor of the assessee, which was challenged by the Revenue through revision petitions.

The Court referred to the case of Southern Motors v. State of Karnataka, where it was held that discounts reflected in the sale invoice can be deducted from the total turnover to arrive at the taxable turnover. Discounts provided after issuing the sale invoice cannot be excluded from the turnover. In the present case, discounts were not included in the tax invoice but were given after the sale, which was deemed unacceptable. Therefore, the Tribunal's decision to exclude the discount from taxable income was considered erroneous. The Court set aside the Tribunal's order and restored the Assessing Authority's decision confirmed by the First Appellate Authority.

In conclusion, the revision petitions filed by the Revenue were allowed, and the impugned order was set aside. The Court noted that the judgment in the Southern Motors case was under challenge before the Supreme Court. Depending on the Supreme Court's decision, the assessee would either benefit from the order or face the consequences as per the current judgment.