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MRF Limited Versus Commissioner of Trade And Taxes

2015 (5) TMI 462 - DELHI HIGH COURT

Valuation - Deduction on account of “turnover discount” - Classification of movement of goods against 'F' from - interstate sale or not - Whether the VAT Tribunal fell into error in holding that the discounts on sales which are subject matter of the present appeals, were not deductible - Whether the VAT Tribunal fell into error in holding that the said sales were not inter-state sales within the meaning of expression under Section 3(a) of the Central Sales Tax Act, 1956 - Held that:- In computin .....

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has been misdirected. The facts here are dissimilar to those prevailing in Indian Pistons Limited (1973 (7) TMI 95 - MADRAS HIGH COURT). That the provision contained in Section 2(m) of Delhi Sales Tax Act does not conceive of any deduction other than “cash discount” from the sale price on which the turnover is to be computed is of no consequence, inasmuch as, as explained by Supreme Court in Advani Oerlikon (1979 (10) TMI 194 - SUPREME COURT), the effect of turnover discount, which is in the nat .....

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s of turnover. Since the said assumption is factually incorrect and the turnover discount occurred “apart from and outside” the calculation of the sale price, rather “prior to it”, as in the case of Advani Oerlikon (supra), no question arises for deduction of any trade discount from the sale price. - turnover for the assessment years in question was correctly computed by the appellant herein after deducting the turnover discount granted to its dealers and rightly so declared in the returns. The .....

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able to pay tax in respect of any goods on the ground that the movement thereof “from one State to another” was occasioned by reason of their transfer by him “to any other place of his business or to his agent or principal, as the case may be” not by reason of sale, he is obliged to submit a declaration to such effect in the prescribed format along with evidence, inter alia, of dispatch of such goods. In terms of the provision, a presumption arises that the movement of goods was “as a result of .....

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egisters but also, more importantly, made a formal declaration to such effect by issuing “form F”. No documents showing placement of orders by M/s Tyre Junction, Badarpur, Delhi for purchase of such goods have been shown the light of day and, therefore, there is nothing on which it can be inferred that the movement of goods from Haryana to Delhi had been occasioned by the sale of such goods in favour of M/s Tyre Junction. - The claim of the assessee about the inter-State sale of the goods, thus, .....

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ulati, Sh. Sparsh Bhargava, Sh. Anupam Mishra, Ms. Rachana Yadav, Sh. Shashi Mathews and Sh. Kishore Kunal, Advocates. For the Respondent : Ms. Ruchi Sindhwani, Addl. Standing Counsel, GNCTD with Ms. Megha Bharara with Ms. Bandana Shukla, Advocates, for GNCTD. ORDER Mr. Justice R. K. Gauba 1. These two appeals filed under Section 81 of Delhi Value Added Tax Act, 2004 ( DVAT Act , for short) seek to assail similar orders passed on 30.07.2014 and 04.08.2014 by Appellate Tribunal: Value Added Tax, .....

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It may be added here that notwithstanding the said repeal, the remedies available under the Delhi Sales Tax Act, 1975 continue to be available in terms of the savings clause also contained in Section 106 of DVAT, albeit through the machinery created by the new law. 2. While issuing notice on these appeals, the questions of law raised were noted in the common order passed on 06.01.2015. On the basis of hearing held on 14.01.2015, while admitting these appeals, the following questions of law were .....

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e Tribunal rendered on 30.07.2014 in Appeal nos. 111-115/ATVAT/04-05 for the said three assessments. Sales Tax Appeal No. 2/2015 pertains to the remaining assessments and is directed against the order dated 04.08.2014 passed by the Tribunal, commonly for Appeal Nos. 952-955/ATVAT/10-11 for the corresponding period. 4. It may be added here that in the first appeal, questions were also raised respecting the validity of the order of the Tribunal remanding for fresh consideration to the assessing au .....

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such discount is branded as turnover discount , which is equal to 1% of the product value in the invoice raised. The sale invoices issued invariably bear an endorsement entitlement for 1% discount . Such discount, however, is given to the dealers, once in a quarter, through credit notes . 6. The assessee is a registered dealer under Delhi Sales Tax Act, 1975 and regularly files returns. Its claim for deduction of the turnover discount from the taxable turnover for AY 1992-93 was rejected by the .....

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by orders dated 29.04.2004 and 30.04.2004 respectively on the ground that the amount of discount was not known at the time of giving invoice, also observing that the discount allowed by the assessee did not result in the sale price being reduced and that such discount was similar to bonus discount . The said first appellate authority remanded the matter for the said two years to the assessing authority for re-consideration in light of cancellation of bills claimed by RD Sales, goods returned or .....

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with direction to pass a speaking order on whether the turnover discount could be allowed. The assessing authority passed a fresh order for that period on 13.01.2003 again rejecting the claim of such deduction, for the reason the dealer had not given discount to his customer. The order dated 13.01.2003 was challenged before the Commissioner by appeal which, to the extent of claim, was rejected by order dated 29.02.2004. Similarly, appeals in respect of the AY 1995-96, 1996-97, 1997-98, 1998-99, .....

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The matter eventually reached the Addl. Commissioner (Income Tax Appeals) but order adverse to the interest of the assessee was passed on 01.12.2010 concerning the turnover discount. 9. The appeals preferred before the Tribunal against the above-noted orders of the first appellate authority were rejected by orders which are impugned in the two appeals brought to this court. On turnover discount: 10. The first question of law concerns the admissibility of the claim for deduction on account of tur .....

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was not allowed at the time of sale but at a later stage does not make any difference. ... it was wrong ... to hold that the entitlement is linked with some turnover and shall come into play only after achieving some target. This is contrary to the facts and documents placed on record in support of the contention of the appellant that irrespective of any sale target, each and every turnover of the appellant s sale to its dealer is entitled for 1% turnover discount. ... 11. The Revenue, on the o .....

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any other form of discount. Since the appellant has not given any cash discount, the discounts given by the appellant to its dealers is not entitled for deduction from the sale price. ... 12. The Tribunal upheld the arguments of the Revenue and rejected the claim of the assessee for deduction mainly observing thus: 8. ...Deduction is allowable only in respect of cash discount. In the instant case, it cannot be said that the discount was given in cash. On the contrary, it was to be credited to t .....

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in advance. Trade discount is the one allowed to a customer if he places an order for a certain amount or quantity or more. Such a discount is given to encourage a buyer to buy more at a time or within a period of time. When the Legislature has specifically used the words cash or other discount , it must be taken that it was aware of the normal trade practice in commercial circles of giving cash or other discounts. In the above case we sustain the claim for deduction on the ground that the disco .....

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ers was to be adjusted or credited into the account of the dealers on achieving certain performances. The discount given by the appellant, as such, does not fall under Section 2(m) of the DST Act which specifically provides for deduction only on cash discount and not of any other trade discount. ... 10. ...that the amount of 1% of discount does not form part of cash discount according to the practice normally prevailing in the trade as per definition of sale price u/s 2(m) r/w turnover definitio .....

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nd no other discount to such like dealers under definition of sale price. ... (emphasis supplied) 13. Similar reasons were set out for rejecting similar claim of the assessee for the other AYs by order dated 04.08.2014 which is impugned in the second appeal. 14. The assessee assails the adverse view taken by the Tribunal and argued that any concession shown in the price of goods for any commercial reasons would be a trade discount, which can legitimately be claimed as a deduction from the turnov .....

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itional incentive with a view to promote one s own business, qualifies for deduction as a discount. 15. It is argued that the VAT Tribunal erred in relying on India Pistons Ltd. vs State of Tamil Nadu (1974) 33 STC 472 (Mad.) while disallowing the deduction of turnover discount from the assessee s turnover since the facts of the present case are distinguishable from that one inasmuch as the benefit of bonus discount there had accrued to the assessee at the end of every year on achieving a pre-sa .....

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Revenue Taxes, Ernakulam vs Advani Oerlikon (P) Ltd. (1980) 1 SCC 360 : (1983) 53 STC 48, to argue that although the turnover discount may not be a cash discount in the strict sense of the word yet varies the sale price of the goods sold by Appellant. It points out that the sale price which enters into the computation of the turnover is the consideration for the goods sold by the assessee and that the actual consideration is received by it from the purchasing dealer is only after deduction of tu .....

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given subsequent to sale, yet it ultimately varies the invoice value and as a result turnover also gets varied. 17. The appellant also relies upon the Madras High Court decision in State of Tamil Nadu vs Ultramarine and Pigments Ltd. (1980) 46 STC 220 (Mad.) while interpreting the definition of sale price under Central Sales Tax Act, 1956 which is in pari-materia with Section 2(m) of the Delhi Sales Tax Act, 1975 has held that even if a discount allowed does not strictly fall within the concept .....

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3 of Delhi Sales Tax Act, 1975, every dealer whose turnover in a particular financial year exceeds the taxable quantum is liable to pay tax under the said law on all sales effected by him . The Sales Tax is levied at the rates specified in Section 4. The expression turnover is explained in Section 2 (o) as under:- (o) turnover means the aggregate of the amount of sale price receivable, or if a dealer so elects, actually received by a dealer in respect of any sale of property in goods, made duri .....

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of sales tax to the revenue is the sum total of the sale price received, or receivable, during the financial year. Naturally, amount if any refunded would stand excluded. 20. For appreciating as to what goes into the making of turnover , it is essential to understand the expression sales price which, in turn, is defined in Section 2 (m), of Delhi Sales Tax Act, 1975, as under:- (m) Sale Price means the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as .....

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to be reduced to the extent of the cash discount accorded by him to the purchasers under the normal prevailing trade practices. Unlike some other statutes governing the Sales Tax (e.g. Kerala General Sales Tax Act 1963, to which we shall make a reference a little later), Delhi Sales Tax Act does not specifically refer to any discount other than cash discount . 22. Noticeably, the language in which the meaning of these very expressions ( turnover and sales price ) is explained, for purposes of C .....

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em the catalogue price reduced by a trade discount. In the returns submitted, the assessee showed taxable turnover of inter-state sales, after deducting from the catalogue price the amount paid as trade discount to the retailers. The Sales Tax authority declined to allow such deduction. The statutory appellate authority and the High Court, in revision, however, upheld the assessee s claim. On appeal to the Supreme Court by the Revenue, it was argued that Section 2 (h) of the Central Sales Tax Ac .....

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from the sale consideration in the definition of "sale price" by Section 2(h), and there is no doubt that cash discount cannot be confused with trade discount. The two concepts are wholly distinct and separate. Cash discount is allowed when the purchaser makes payment promptly or within the period of credit allowed. It is a discount granted in consideration of expeditious payment. A trade discount is a deduction from the catalogue price of goods allowed by wholesalers to retailers eng .....

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The court upheld the claim of the assessee in Advani Oerlikon (supra) to deduction on account of trade discount for the following reasons:- 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 composi .....

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of two successive agreements between the parties observing that having regard to the nature of a trade discount, there is only one sale price which is the price payable by the retailer calculated as the difference between the catalogue price and the trade discount. 26. In Madras High Court decision of India Pistons Limited v. State of Tamil Nadu (supra), followed by the Tribunal, the assessee had claimed deduction to the extent of bonus paid by it to its distributors whose net purchase from the .....

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e nature of an incentive bonus paid to distributors whose net purchases exceeded the target figure. It did not, and could not, affect the sale value of the goods sold by the assessee. The sale price remained undisturbed in the contract between the parties. 27. The case reported as Govt. of India v. Madras Rubber Factory Ltd. (1995) 4 SCC 349 concerned Central Excise and Salt Act, 1944, Section 4 whereof prescribes the mode of valuation of excisable goods for purposes of charging of duty of excis .....

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rchases made by each such dealer. The assessee explained that the discount was granted by issuing credit notes to the dealers. The discount could not be shown in the invoice for the reason its value would be known only at the end of the half year. The objective of the scheme was to encourage the turnover of the sales. It had been found by the assessing officer that in the ultimate analysis, the dealer would pay the catalogue price reduced to the extent of credit earned. The Revenue had resisted .....

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SCC 618, though against the backdrop of the Kerala General Sales Tax Act, 1963. As alluded to earlier, the expression turnover is defined in the said law, in Section 2(xxvii), in phraseology more expansive than the one employed in the Central Sales Tax Act or the Delhi Sales Tax Act. The Kerala law would, inter alia, permit exclusion of any cash or other discount on the price allowed in respect of any sale . Rule 9(a) of the Kerala General Sales Tax Rules 1963 framed under the said statute elabo .....

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ler would qualify for it in the later part of the financial year/assessment period, i.e. long after some sales had taken place. Of course, for the sales taking place after the sales target had been achieved, the dealer would get the articles on the discounted price. In this scheme of things, the assessee would issue credit notes in favour of the dealers during the period preceding the date on which sales target was achieved. The assessee claimed discount of the amount paid towards credit notes o .....

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rnational (P) Ltd., in a very brief order this Court very succinctly described trade discount and held it to be deductible from the sale: (1) Trade discounts.-Discounts allowed in the trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of .....

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ion in determining the turnover of a dealer was also approved in IFB Industries (supra). 32. Clearly, the approach of the Tribunal in the case at hand has been misdirected. The facts here are dissimilar to those prevailing in Indian Pistons Limited (supra). That the provision contained in Section 2(m) of Delhi Sales Tax Act does not conceive of any deduction other than cash discount from the sale price on which the turnover is to be computed is of no consequence, inasmuch as, as explained by Sup .....

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target. It makes no difference, as held in the case of Madras Rubber Factory Ltd. (supra), that the discount was calculated at quarterly basis and accorded through credit notes . The credit notes, issued pursuant to the understanding indicated in the sale invoices declaring upfront the entitlement of the purchaser for such trade discount, would get effectuated by suitable adjustment in the payment of the sales price collected in their wake. The net effect apparently has been of the price being .....

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unt occurred apart from and outside the calculation of the sale price, rather prior to it , as in the case of Advani Oerlikon (supra), no question arises for deduction of any trade discount from the sale price. 35. In our view, thus, the turnover for the assessment years in question was correctly computed by the appellant herein after deducting the turnover discount granted to its dealers and rightly so declared in the returns. The assessing authorities have unjustly denied the benefit of deduct .....

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ade to M/s Tyre Junction, Badarpur, Delhi had been taxed by Excise & Taxation Officer, Faridabad. Ld. Counsel for the appellant submitted that stocks related to these sales were transferred from Faridabad, but delivery of this stock was made en-route to M/s Tyre Junction at its shop at Badarpur border. The transfer of stock was recorded in the stock register of Delhi office, but sale was shown to the said dealer. There was also complete tally of stock transferred from Faridabad and sold to T .....

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and were duly entered in the stock register. These goods were then sold to M/s Tyre Junction, Badarpur against proper invoices and also reflected in the Return. These transactions cannot, therefore, be termed as inter-State sale on the ground as submitted by Ld. Counsel for the appellant that delivery of this stock was made en-route to M/s Tyre Junction at its shop at Badarpur border and as such, the sales were rightly treated as local sale by the Ld. STO and upheld by the Ld. FAA. ... 39. Simil .....

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stocks related to these sales were transferred from Faridabad, but delivery of such stock was made en-route to M/s Tyre Junction at its shop situated at Badarpur border. The transfer of stock was recorded in the stock register of Delhi office but sale of the entire stock was shown as made to the said dealer and further that there was complete tally of stock transfer from Faridabad and sold to M/s Tyre Junction. The assessee claims to have filed the prescribed returns within prescribed time and a .....

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g with the Company for the said supplies. When the goods are to move in pursuance to a contract outside the state, the place of delivery in either State is not relevant and the transaction is an inter-state sale and not a branch transfer. 42. In above context, Section 3 of the Central Sales Tax Act, 1956 needs to be taken note of. It reads as under:- 3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce. A sale or purchase of goods shall be deem .....

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hen delivery is taken from such carrier or bailee. Explanation 2.-Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State. (emphasis supplied) 43. It may be added that in terms of Section 9(1), the tax payable by any dealer on sale of goods effected in the course of inter-state trade or c .....

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aged in the manufacture of certain goods in its factory at Faridabad (Haryana). Pursuant to specific orders received by its head office at Delhi, goods were manufactured at Faridabad according to the specifications mentioned in the contracts of sale made at Delhi. It was not a case where goods were manufactured in the general course of business for being sold as and when offers are received by the manufacturer for their purchase. The contracts of sales were finalized and only thereafter specific .....

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ales, whilst noting that the contract of sales did not require or provide that the goods should be moved from Faridabad to Delhi, holding that the circumstances as to in which State the property in the goods passes was irrelevant, the Court held:- 17. ...If a contract of sale contains a stipulation for such movement, the sale would, of course, be an inter-State sale. But it can also be an inter-State sale, even if, the contract of sale does not itself provide for the movement of goods from one S .....

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er-State movement in order that the sale may be deemed to have occasioned such movement; and (3) it is also not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State movement must be specified in the contract itself. It would be enough if the movement was in pursuance of and incidental to the contract of sale (page 801, SCC p. 737, para 9). 47. Similar questions also arose in Sahney Steel and Press Works Limi .....

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red by the Hyderabad factory after the orders for supply had been booked. Rejecting the contention of the assessee against such sales being treated as inter-state, the court following, inter alia, the view taken in K.G. Khosla (supra) held that:- ...The manufacture of the goods at the Hyderabad factory and their movement thereafter from Hyderabad to the branch office outside the State was the result of a covenant in the contract of sale or an incident of that contract that the goods manufactured .....

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utside the State and arranged to deliver them to the buyer... 48. We, however, find in the case at hand that the assessee (appellant) herein itself did not treat the transactions in question in its record as inter-State sales. The provision contained in Section 6A(1) of the Central Sales Tax Act, 1956 places the burden of proving a transfer of goods claimed to have been effected otherwise than by way of sale upon the dealer. The clause stipulates that if a dealer claims that he is not liable to .....

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vent of the failure on the part of the dealer to furnish such declaration. The format for declaration in terms of Section 6A is prescribed by Rule 12(5) of the Central Sales Tax (Registration and Turnover) Rules, 1957 in the shape of form F . 49. In the case at hand, there is a clear finding of fact recorded, and noticed by the Tribunal in the impugned order, that the goods in question were transferred from the office of the appellant in Faridabad to its office in Delhi against form F and duly e .....

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