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2018 (2) TMI 314

Head Note:
Valuation - allowability - quantity discounts allowed to its distributors - appellant claims the discount as a deduction from the total turnover while arriving at the taxable turnover under the Karnataka Value Added Tax Act 2003 - disallowance on the ground that the discount was not relatable to the sales effected by the relevant tax invoices.

Held that: - 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 contact 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.

It must be remembered that taxable turnover is turnover net of deductions. All trade discounts are allowable as permissible deductions.

Similar issue decided in the case of M/s. Southern Motors Versus State of Karnataka And Others [2017 (1) TMI 958 - SUPREME COURT], where it was held that If taxable turnover is to be comprised of sale/purchase price, it is beyond one's comprehension as to why the trade discount should be disallowed, subject to the proof thereof, only because it was effectuated subsequent to the original sale but evidenced by contemporaneous documents and reflected in the relevant accounts.

In computing the taxable turnover for the relevant years, the appellant would be entitled to a deduction of the trade discount - appeal allowed - decided in favor of appellant.


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