1973 (7) TMI 95 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the amounts claimed by the assessee as discounts should be excluded from the taxable turnover under the Central Sales Tax Act, 1956.
2. Whether the "bonus discount scheme" qualifies as a cash discount under Section 2(h) of the Central Sales Tax Act, 1956.

Detailed Analysis:

Issue 1: Exclusion of Claimed Discounts from Taxable Turnover
The assessee argued that the amounts of Rs. 3,61,986.79 for the year 1964-65 and Rs. 33,93,140.48 for the year 1965-66 should not be included in the taxable turnover as they represented discounts granted to purchasing dealers. The assessing authority rejected this claim, stating that the amounts were rebates or bonuses, not cash discounts as defined under Section 2(h) of the Central Sales Tax Act, 1956. Both the Appellate Assistant Commissioner and the Sales Tax Appellate Tribunal upheld the assessing authority's decision. Consequently, the assessee approached the High Court seeking a deduction of these amounts from the taxable turnover.

Issue 2: Qualification of "Bonus Discount Scheme" as Cash Discount
The assessee maintained its books on a mercantile basis, crediting the discount amounts to the distributors' accounts at the end of the year, which the assessee argued was equivalent to cash payment. The scheme, termed "bonus discount scheme," was only available to distributors who exceeded a predetermined purchase target. The rebate, subject to conditions, was credited to the distributors' accounts to be used for future purchases, not paid in cash.

The court examined the conditions of the scheme and concluded that the rebate did not reduce the actual sale value of the goods already purchased and paid for. Instead, it served as a reserve for future purchases. Thus, the rebate did not directly or indirectly reduce the pre-determined or pre-paid sale price. Consequently, the amounts paid as rebates or bonus discounts could not be considered reductions of the actual sale price agreed upon or paid for the goods purchased earlier by the distributor.

The court noted that the bonus discount was determined at the end of the period and credited to the distributors' accounts, to be used for future purchases. This arrangement did not equate to a cash payment that would naturally result in a deduction from the aggregate sale prices. The court viewed the scheme as providing goods worth 5% of the total purchases made during the qualifying period free of cost, similar to other incentive schemes where customers receive free goods for making purchases above a certain value.

Legal Interpretation and Precedents:
Section 2(h) of the Central Sales Tax Act, 1956, defines "sale price" as the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade. The court emphasized that the exclusion under this section is restricted to cash discounts, not trade discounts. The court distinguished between cash discounts and trade discounts, noting that while trade discounts are general, cash discounts are a special category and the exclusion contemplated in Section 2(h) applies only to cash discounts.

The court referred to previous cases to support its decision. In Ambica Mills Ltd. v. State of Gujarat, it was held that remissions given by the assessees after the sale contract did not alter the original sale price agreed upon. Similarly, in Baidya Nath Ayurved Bhawan (P.) Ltd. v. Commissioner of Sales Tax, the court held that annuities paid in cash as part of a discount scheme were deductible from turnover. However, the court did not apply this principle to the current case, as the bonus discount was not paid in cash but credited for future purchases.

In conclusion, the court held that the bonus discount given by the assessee could not be classified as a "cash discount" under Section 2(h) of the Central Sales Tax Act. Therefore, the amounts claimed by the assessee were not deductible from the taxable turnover. The tax cases were dismissed with costs, and the petitions were dismissed.

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