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TMI Blog2012 (3) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... a Cements Ltd., the appellant in the other set of appeals (arising from SLP (Civil) Nos. 6861-62 of 2011), that got badly hit by the decision and its claim for deduction of many kinds of trade discounts was rejected summarily and even without an opportunity of any effective hearing to it right from the stage of assessment up to the High Court. But to put the matter in order, we must see how the issue developed before reaching this Court and for that we need to first advert to the case of M/s IFB Industries Ltd. 4. M/s IFB Industries Ltd. is a manufacturer of home appliances. It has a scheme of trade discount for its dealers under which the dealer, on achieving a pre-set sale target gets certain discount on the price for which it purchased the articles from the manufacturer, the appellant. As the discount is subject to achieving the sale target the dealer would naturally qualify for it in the later part of the financial year/assessment period, that is to say, long after the sales took place between the appellant and its dealer. For the sales taking place between the appellant and its dealer after the sale target is achieved, the dealer would of course get the articles on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover. 9. Before proceeding further, it needs to be understood that the appellant's objection would have any basis only in case it is shown that the original figure of Rs. 11,62,36,424.23 taken by the Assessing Authority as Taxable turnover' was inclusive of the amount of the scheme discount being the sum of Rs. 58,15,485/-. For, unless the amount of scheme discount was a factor of Taxable turnover' there would be no question of deducting it from taxable turnover. Only in case the appellant could show that the figure of Rs. 11,62,36,424.23 also included the amount of Rs. 58,15,485/- as the trade discount, there would be any question of deducting it from the larger figure. 10. Be that as it may, the appellant preferred appeals against the Assessment Order (Sales Tax Appeal Nos. 219 and 220 of 2006) in which it also took the objection that the computation made by the Assessing Authority by first adding up the amount of trade discount and only then deducting it from the turnover denied it the exemption of trade discount which the Assessing Authority had himself allowed in the earlier part of his order. It is significant to note, however, that in the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the buyer gets the deduction towards discount. 15. On the appellant's claim of deduction of their trade discount from the taxable turnover, the High Court made the following observation:- "Petitioner is a manufacturer engaged in supply of goods in wholesale to distributors and dealers. Sales are therefore first sales and discount if any given can only be trade margin to dealers. If tax is not to be charged on the dealer margin, then discount should be given in the invoice itself. If the petitioner has made sales in this way, then necessarily deduction should have been claimed in the monthly return itself as the taxable turnover does not cover discount/trade margin given in the invoice. On the other hand, in the Tribunals order, what is referred to as scheme discount which is nothing but incentives given by manufacturers, and wholesalers to dealers, may be for seasonal sales or may be for annual sales. Such incentives are normally given by the credit note at the end of the season or at the end of the year. These incentives given through credit notes are outside the scope of discount covered by Rule 9(a) of the KGST Rules." 16. Observing thus, the High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the High Court in Writ Petitions (WP(C) Nos. 34989 and 38517 of 2010). A single judge of the High Court declined to entertain the writ petitions filed directly against the assessment orders and by order dated January 18, 2011 dismissed the writ petitions leaving it open to the appellant to seek their remedies before the statutory authorities. 21. Against the order of the single judge the appellant filed intra-court appeals (W.A. Nos. 173 and 177 of 2011). The division bench agreed that since the appellant was confronted with an order of the division bench of the High Court, it would be pointless to relegate it to the statutory authorities. It referred to its orders passed in the cases of M/s IFB Industries Ltd. and Godrej and Boyce Mfg. Co. It also noted that against its decision in M/s IFB Industries Ltd. a SLP was filed which was admitted by this Court. It also referred to the decisions of this Court and of the Kerala High Court relied upon by the appellant in support of the contentions that a discount in order to qualify for deduction under rule 9(a) need not necessarily be shown in the invoice itself and may also be given by means of credit notes. It, however, decli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed as discount, provided that such discount is allowed in accordance with the regular practice in the trade and provided also that the accounts show that the purchaser has paid only the sum originally charged less the discount." (emphasis added) 26. It is significant to note that the rule does not speak of invoices but stipulates that the discount must be shown in the accounts. On a plain reading of the provision it is clear that the exemption is allowable subject to two conditions; first, the discount is given in accordance with the regular practice in the trade and secondly, the accounts should show that the purchaser had paid only the sum originally charged less the discount. We find nothing in rule 9(a) to read it in the restrictive manner to mean that a discount in order to qualify for exemption under its provision must be shown in the invoice itself. 27. We, therefore, find it difficult to sustain the view taken by the Kerala High Court in the orders impugned before us. 28. We are fortified in our view on the basis of some earlier decisions of this Court and some High Courts, including the Kerala High Court. 29. In Deputy Commissioner of Sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of the respective parties as the amount reliable. Orient paper Mills Ltd. v. State of Orissa, (1975) 35 STC 84: 1974 Tax LR 2224 (Ori. HC) 6. Under the Central Sales Tax Act, the sale price which enters into the computation of the turnover is the consideration for which the goods are sold by the assessee. In a case where trade discount is allowed on the catalogue price, the sale price is the amount determined after deducting the trade discount. The trade discount does not enter into the composition of the sale price, but exists apart from and outside it and prior to it. It is immaterial that the definition of "sale price" in Section 2(h) of the Act does not expressly provide for the deduction of trade discount from the sale price. Indeed, having regard to the circumstance that the sale price is arrived at after deducting the trade discount, no question arises of deducting from the sale price any sum by way of trade discount." 30. The decision of this Court in Deputy Commissioner of Sales Tax(Law) Board of Revenue (Taxes), Ernakulam v. Motor Industries Co, Ernakulam, (1983) 2 SCC 108, is on rule 9(a) of the Kerala General Sales Tax Rules and the discount admis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difficult to accept the submission made on behalf of the department. Rule 9(a) says that all amounts allowed as discount either in accordance with regular practice or in accordance with agreement would be deductible from the total turnover provided they are duly supported by the entries in the accounts of the assessee. Ordinarily any concession shown in the price of goods for any commercial reason would be a trade discount which can legitimately be claimed as a deduction under clause (a) of Rule 9 of the Rules. Such a concession is usually allowed by a manufacturer or a wholesale dealer in favour of another dealer with the object of improving prospects of his own business. It is common experience that when goods are marketed through reputed companies, firms or other individual dealers the demand for such goods increases and correspondingly the business of the manufacturer or the wholesaler would become more and more prosperous and its capacity to withstand competition from other manufacturers or other dealers dealing in similar goods would also improve. Hence any concession in price shown in such circumstances by way of an additional incentive with a view to promote one's own t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtunity to explain the circumstances under which the special discount was granted. 5. Before parting with the case, we may state that so far as the special discount is concerned, all that the authorities have to look into whether as a matter of fact, the petitioner received only the sum originally charged less the discount. It is the look out of the traders to see that the trade increase and it is for that purpose the trade discount is given. Hence, a person may not be able to clearly prove as to why the special discount was given. But if there has been a consistent practice of giving special discount, that has to be accepted by the assessing authority." 34. On the basis of the discussions made above and in light of the earlier decisions of the Court, we are unable to sustain the orders of the Kerala High Court coming under appeal. The impugned orders in both the appeals are set aside. The cases of the appellants for the respective assessment periods are remitted to the Assessing Authority with a direction to make assessments and pass fresh orders in accordance with law and in light of this judgment. The Assessing Authority shall not reject the appellants' claim for exe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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