1979 (10) TMI 194 - SC - VAT and Sales Tax

Whether for the purpose of computing the turnover assessed to sales tax under the Central Sales Tax Act. 1956 the sale price of goods is determined by including the amount paid by way of trade discount? Held that - Appeal dismissed. The sale price which enters into the computation of the assessee s turnover for the purpose of assessment under the Central Sales Tax Act is obtained after deducting the trade discount from the catalogue price. The trade discount allowed by the assessee cannot be included in the turnover.

Summary

Issues:
- Whether trade discount should be included in the turnover for computing sales tax under the Central Sales Tax Act, 1956.

Analysis:
The case involved the question of whether trade discount should be considered in the turnover for sales tax assessment under the Central Sales Tax Act, 1956. The appellant, a private limited company acting as a sole selling agent for welding electrodes, deducted the trade discount amount paid to retailers from the catalogue price while calculating the taxable turnover. The Sales Tax Officer disagreed with this deduction, leading to a series of appeals and revisions culminating in the Supreme Court.

The Revenue contended that the High Court erred in affirming that trade discount should not be included in the taxable turnover as per the Central Sales Tax Act. They argued that the definition of "sale price" in the Act only allows deduction for cash discount, not trade discount. The Revenue suggested that since the retailer is liable to pay the entire sale price as per the first contract, the entire amount should be considered in the turnover. However, the Supreme Court disagreed with this argument.

The Court examined the definitions of "turnover" and "sale price" as per the Central Sales Tax Act. It highlighted that while cash discount is specifically mentioned in the definition of sale price, trade discount is a separate concept altogether. Trade discount is a deduction from the catalogue price that enables retailers to sell goods at a profit margin. The net amount after deducting trade discount is considered the sale price, distinct from the trade discount amount.

The Court referenced previous cases to support its stance. In one case, a manufacturer's claim for deduction based on a fall in prices post-sale was rejected, emphasizing that the sale price remains fixed in the contract. Another case involving a bonus discount scheme also affirmed that incentives or bonuses do not affect the sale value of goods. The Court concluded that the sale price for turnover calculation excludes trade discount.

In the final judgment, the Supreme Court dismissed the appeal, upholding that the sale price for turnover assessment under the Central Sales Tax Act should be determined after deducting trade discount from the catalogue price. The trade discount amount paid by the assessee to retailers should not be included in the turnover for sales tax computation. The appeal was dismissed with costs, affirming the exclusion of trade discount from the taxable turnover.

Judgment:
The Supreme Court, in a detailed analysis, upheld that trade discount should not be included in the turnover for sales tax assessment under the Central Sales Tax Act, 1956. The Court clarified the distinction between cash discount and trade discount, emphasizing that the sale price for turnover calculation excludes trade discount. Previous cases were referenced to support the decision, and the appeal was ultimately dismissed, affirming the exclusion of trade discount from the taxable turnover.