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Post sale discounts shall not form part of the turnover

Value Added Tax - VAT and CST - By: - Bimal jain - Dated:- 15-2-2017 Last Replied Date:- 15-2-2017 - We are sharing with you an important judgment of the Hon ble Supreme Court of India in the case of Southern Motors Vs. State of Karnataka { 2017 (1) TMI 958 - SUPREME COURT } on the following issue: Issue: Whether the post sale discounts granted by the assessee by issuing credit notes are eligible for deduction from total turnover to quantify their taxable turnover? Facts & Background: M/s So .....

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s received only the net amount that is the amount shown in the invoice less the sum of discount disclosed in the credit note. Accordingly, the net amount, so received was reflected in his books of account and returns were filed under the Income Tax Act, 1961. However, the Department disallowed the claim of deduction towards discounts from the total turnover in terms of Rule 3(2)(c) of the Karnataka Value Added Tax Rules, 2005 ( the KVAT Rules ) on the ground that the same were not revealed at th .....

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able turnover. As some discounts, especially those linked to targets to be achieved in a particular period are not comprehendible at the time of sale, these logically cannot be reflected in the tax invoices. Further, in no view of the matter, Rule 3(2)(c) of the KVAT Rules can be conceded a primacy to curtail or abrogate Section 30 of the KVAT Act or Rule 31 of the KVAT Rules, lest the latter provisions are rendered otiose. Further, it is no longer res integra that trade discount is not constitu .....

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d in the tax invoice or the bill of sale issued in respect of the sales. According to them, Section 30 of the KVAT Act and Rule 31 of the KVAT Rules deal with a situation where after a tax invoice is issued, it transpires that the tax charged has either exceeded or has fallen short of the tax payable for which a credit/debit note, as the case may be, would be issued. As these two provisions do not regulate the computation of a taxable turnover, there is no correlation thereof with Rule 3(2)(c) o .....

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Hon ble Supreme Court after observing the various legal pronouncements has held that the requirement of reference of the discount in the tax invoice or bill of sale to qualify it for deduction has to be in relation to the final sale/purchase price and not limited to the original sale without the trade discount. However, the transactions allowing discount have to be proved on the basis of contemporaneous records and the final sale price after subtracting the trade discount must mandatorily be re .....

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of the taxable turnover. The contrary interpretation accorded by the High Court being in defiance of logic and the established axioms of interpretation of statutes is thus unacceptable and is negated. Treatment of post supply discounts in the GST Regime - Our Comment: As per Section 15(3)(b) of the Model CGST/SGST Act, 2016, the value of supply shall not include any discount that is given after the supply has been effected provided that: Such discount is established in terms of an agreement ente .....

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