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2018 (2) TMI 314

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 cont .....

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09. 3 On appeal, the Joint Commissioner of Commercial Taxes (Appeals - 1), Bengaluru set aside the order of the assessing authority, holding that the quarterly scheme discount given by the appellant was an allowable deduction since the appellant had realized the consideration from the purchaser towards the sale of goods after deducting the amount of discount and, VAT was charged only on the net amount shown in the tax invoice after allowing the benefit of discount. 4 The order of the first appellate authority dated 12 October 2010 was revised under Section 64 (1) of the Act by the Additional Commissioner on the ground that the quarterly discount given by the appellant was in respect of the performance of the previous quarter and not in respect of the sales offered under the same invoices. 5 The appellant instituted Sales Tax Appeals before the High Court of Karnataka. By a judgment dated 19 March 2014, a Division Bench of the Karnataka High Court dismissed the appeals. 6 The case of the appellant is that it offers a quantity discount to its distributors depending on their performance during the previous quarter. This is part of a marketing/sales strategy under which the appellant a .....

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price received by it is the net amount exclusive of discount. It is understood at the time of the sale itself that the customer would be entitled to a discount, the quantum being computed at the end of the quarter. Hence, the real sale price charged by the appellant for parting with the goods is the net amount exclusive of discount and hence the trade discount given by the appellant cannot form a part of the sales turnover. Finally, it has been urged that a literal construction of Rule 3 (2)(c) would render it unworkable and practically impossible to implement. 7 On the other hand, it has been urged on behalf of the respondents that under Rule 3 (2)(c) an amount which has been allowed as discount is permissible as a deduction in computing the taxable turnover only if the tax invoice issued in respect of the sales relating to such discount shows the amount allowed as discount. The taxable event is the sale and the sale price has to be determined on the basis of the tax invoice or sales bill issued at the time of sale from the seller to the purchaser. The sale price cannot be altered or modified subsequent to the date of issuance of the tax invoice or sales bill. According to the re .....

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4) as follows: 2(34) Taxable turnover means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed, but shall not include the turnover of purchase or sale in the course of interstate trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India and the value of goods transferred or despatched outside the State otherwise than by way of sale. The above definitions indicate that turnover is defined to mean the aggregate amount for which goods are sold, distributed, delivered or otherwise disposed of. The taxable turnover is computed after making such deductions from the total turnover and in such manner as may be prescribed ( total turnover is defined by Section 2(35) to mean the aggregate turnover in all goods of a dealer at all places of business in the States). In arriving at the taxable turnover, the statute contemplates deductions, as prescribed, are to be made from the total turnover. The liability to pay tax is on the taxable turnover. Taxable turnover is the net amount that re .....

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tered into between the parties, would not render the trade discount otherwise legal and acceptable, either non est or fictitious for evading tax liability. In the above factual premise, the interpretation as sought to be provided by the Revenue would evidently reduce Section 3(2)(c) to a dead letter, ineffective and unworkable and would defeat the objective of permitting deductions from the total turnover on account of trade discount. (Id at page 485) (emphasis supplied) Relying on the earlier decisions of this Court, it was held that a trade discount ought not to be disallowed merely on the ground that it is not payable at the time of each invoice or deducted from the invoice price. In the of view of this Court : 29…Perceptionally, 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. (Id at page 485) The Legislature, the Court held, would not be unaware of the prevalent practice of offering trade discoun .....

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ract 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. Above all, it must be remembered that taxable turnover is turnover net of deductions. All trade discounts are allowable as permissible deductions. 13 We accordingly allow the appeals and set aside the judgment of the High Court. We direct that in computing the taxable turnover for the relevant years, the app .....

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