TMI Blog1974 (2) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case, the Member, Additional Sales Tax Tribunal, was right in holding that the trade discount is one kind of cash discount? (5) Whether, on the facts and in the circumstances of the case, the Member, Additional Sales Tax Tribunal, was right in holding that the discount in question is a cash discount? (6) Whether, on the facts and in the circumstances of the case, the Member, Additional Sales Tax Tribunal, was right in excluding the discount in question from the sale price of paper subject to the discount being allowed according to the practice normally prevailing in the trade? " 2.. Facts may be stated clearly to answer the questions referred. The Orient Paper Mills Ltd. (the petitioner) is a company registered under the Indian Companies Act, 1956, having its registered office at Brajarajnagar in the district of Sambalpur in Orissa. The petitioner is a registered dealer under the Orissa Sales Tax Act, 1947, and the Central Sales Tax Act, 1956 (hereinafter to be referred to as the Act). The assessment relates to the period April, 1967, to March, 1968. The petitioner manufactures and sells paper. At all material times a mill rate for the various types of papers is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . On 11th March, 1971, the order of assessment was passed determining the taxable turnover of the petitioner at Rs. 11,94,99,304.61. In computing the aforesaid taxable turnover the Sales Tax Officer included Rs. 50,12,383.29 on account of the discount and levied tax on this sum at the rate of 10 per cent as this amount had not been included in the declaration form C. The Sales Tax Officer further imposed tax on the freight payable by the purchasers. There were some other items which need not be referred as they are no longer in controversy. An appeal to the Assistant Commissioner of Sales Tax in respect of the aforesaid items was dismissed. In second appeal, the Tribunal remanded the case after recording the finding that the discount claimed by the petitioner was in the nature of a cash discount within the meaning of section 2(h) of the Act. It held that there was no sufficient material before it to show that there was a practice normally prevailing in the petitioner's trade to allow cash discount to the retailers or distributors and the matter required further examination. The case was remanded to the Assistant Commissioner of Sales Tax to give an opportunity to the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipal basis. (ii) Sales to others against the orders procured by the distributor and accepted by the company. 5.. All sales to the distributors will be at the company's selling prices ruling at the time of supply, free on rail, less such discount as may be fixed by the company from time to time. The distributor shall act in full conformity with the instructions and policy of the company and due compliance of any statutory rules and regulations and order of the Government, if any, affecting sale and distributions of the products. Such resale shall be effected by the distributor in his own name and at his own risk and the company shall in no way be concerned in any dispute, difference or question which may arise between the distributor and purchaser. 6.. In case of sales direct by the company to the buyers against the order procured by the distributor, if the distributor has procured the order on the basis of allowance of discount, the discount allowed to the distributor will be reduced to the extent of discount allowed to the buyers. 9.. The company reserves its right to effect sale of the products to any person including Government, Local Body, institutions affiliated with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eans the amount payable to a dealer as consideration for the sale of any goods. In this case the mill rate is mentioned in the catalogue. Under the agreement itself the mill rate is reduced by the discount. The consideration actually payable by the purchaser to the petitioner is the mill rate less the discount. Consideration is the amount which is actually paid or payable after the discount is deducted or deductible. The mere fact that the definition makes provision for cash discount being deducted does not take out an agreed amount to be deducted from the price while fixing the consideration. There is a fundamental distinction between cash discount and trade discount. Cash discount has been defined in Webster's Third New International Dictionary, Volume I, at page 346 as "a discount granted in consideration of immediate payment or payment within a prescribed time". In Dictionary of Economics and Commerce by J.L. Hanson, at page 130, the definition is "an inducement offered by a creditor to debtors to pay promptly". Trade discount, on the other hand, has been defined thus: "A percentage deduction from the list price of goods allowed by a manufacturer or wholesaler to customers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of buyers or sellers, the only figure that matters is the amount actually paid and received. Consideration is fixed after the discount is deducted from the quoted price and such discount is trade discount. The concept has been very clearly elucidated in P.V.S. Kabalamurthi Pillai v. P.V. Subramania PillaiA.I.R. 1931 Mad. 500. by an illustration as follows: "To seem to make a concession while in point of fact no concession is made or intended is a devise which tradesmen usually employ. To take an instance, if you want to charge for an article Rs. 75 you may quote its price as Rs. 100 and allow a discount of 25 per cent or you may quote Rs. 125 as its price with a discount of 40 per cent. In either case, the buyer pays and the seller receives only Rs. 75. So long as the buyer parts only with Rs. 75, it little signifies to him whether the price quoted is Rs. 100 or Rs. 125." 6.. This view is also supported by Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh[1969] 24 S.T.C. 487 (S.C.). In that case clause (4) of the contract, which is exactly similar to clause 5 of annexure 1, runs thus: "The price of the said productions supplied to the stockists shall be the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover of a dealer. It was contended that cash discount alone was deductible in determining the turnover and not the trade discount. After noticing the rival arguments in paragraph 6 their Lordships did not give any pronouncement whether trade discounts were deductible from the catalogue price in fixing the consideration. They merely examined the case with reference to the definition in rule 7(1)(a). This decision is of no assistance in this case. Moreover, in appeal the Supreme Court set aside this decision and remanded the case for re-examination without expressing any opinion whether trade discount is to be deducted from the catalogue price in fixing the consideration. Reliance was also placed by the learned standing counsel on Hyderabad C. F. Ltd. v. State of Andhra Pradesh[1968] 22 S.T.C. 298 (A.P.). Their Lordships observed that commission paid to the agent was not a discount within the meaning of the Andhra Pradesh Sales Tax Act and Rules where an agreement between a manufacturing company and its sole selling agent envisaged only a relationship of principal and agent and not that of vendor and purchaser and there was no evidence to show that the parties had given up the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, the principles laid down in Hyderabad Asbestos Cement Products Ltd. v. State of A.P.[1969] 24 S.T.C. 487 (S.C.). apply to this case though by clause (16) of the contract therein the purchasers clearly undertook to pay railway freight which was deducted from the invoice made out by the company. In this case there is no written agreement that freight was to be paid by the purchasers. But that is wholly immaterial. In the absence of any agreement in writing to the contrary oral evidence and conduct of the parties is admissible for determining the term of the agreement. In this case the undisputed position is that the consignments were to be sent free on rail and the freight was payable and paid by the purchasers. In such circumstances, the aforesaid decision is applicable in principle as the ultimate conclusion regarding the existence of a term that freight was payable by the purchasers is to be found in both the cases. In that case their Lordships observed: "But the form in which the invoice is made out is not determinative of the contract between the company and its customers. If, apprehending that it may have to pay sales tax on the freight, the company collected sales ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that the goods purchased have in fact not been used for the purposes declared in the certificate." We have ourselves looked into the declaration form C. It has been properly filled up. There is no omission of any column. In mentioning the net amount at a lesser sum the petitioner had to adhere to its own contention that discount is not to be included in the sale price. If we had taken a different view, then the certificate would not be defective inasmuch as it refers to all the sale transactions and makes no omission therein. In such a case the certificate is not to be corrected as has been directed by the Tribunal. The revenue would merely call upon the petitioner to pay the excess amount at the concessional rate of 3 per cent on the discount and not at 10 per cent. The position would, however, be different if any of the sale transactions would have been omitted from the net amount. 11.. On the analysis given by us, we would answer the questions referred to us thus: Q. (1) In the facts and circumstances of this case, the reduction granted by the petitioner is not a part of the sale price. Q. (2) In the facts and circumstances of this case, the Tribunal was wrong in holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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