1974 (2) TMI 67 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the reduction granted by the assessee to its buyers from the mill rate was part of the sale price under section 2(h) of the Central Sales Tax Act, 1956.
2. Whether the declaration in C forms required correction.
3. Whether the freight in respect of paper sold by the assessee was part of the sale price under section 2(h) of the Central Sales Tax Act, 1956.
4. Whether the trade discount is one kind of cash discount.
5. Whether the discount in question is a cash discount.
6. Whether the discount in question should be excluded from the sale price of paper subject to the practice normally prevailing in the trade.

Detailed Analysis:

Issue 1: Reduction from Mill Rate as Part of Sale Price
The court held that the reduction granted by the petitioner from the mill rate is not part of the sale price. The consideration for the sale transaction is determined only after discounts are deducted from the mill rate, and thus, the discount is not independent of the consideration and is not included in the sale price. The definition of "sale price" under section 2(h) of the Act includes the amount payable to a dealer as consideration for the sale of goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade. The court distinguished between cash discount and trade discount, emphasizing that trade discount is deducted from the catalogue price to determine the actual consideration payable.

Issue 2: Correction of Declaration in C Forms
The Tribunal was wrong in holding that the declaration in form C required correction. The court clarified that the declarations in form C mentioned the net amount of the bill, which did not include the discount. Even if the discount were considered part of the sale price, tax should be levied on the discount at the concessional rate of 3 percent and not at 10 percent. The declarations in form C were found to be properly filled, adhering to the petitioner's contention that the discount is not part of the sale price.

Issue 3: Freight as Part of Sale Price
The freight paid by the purchasers is not part of the sale price. The definition of "sale price" in section 2(h) of the Act excludes the cost of freight if it is separately charged. The court noted that the freight was initially included in the consideration and subsequently deducted by showing it separately. This method of calculation indicated that the cost of freight was separately charged and paid by the purchasers, thus not to be included in the sale price.

Issue 4: Trade Discount as Cash Discount
The Tribunal was incorrect in stating that trade discount is one kind of cash discount. The court explained the fundamental distinction between the two: cash discount is granted for immediate payment or payment within a prescribed time, while trade discount is a percentage deduction from the list price allowed by a manufacturer or wholesaler to customers engaged in trade. The court cited various definitions and authoritative texts to support this distinction.

Issue 5: Nature of the Discount
The impugned discount is not a cash discount. The court reiterated that the discount in question is a trade discount, which is deducted from the catalogue price to determine the actual consideration payable. The court referenced previous judgments and authoritative texts to emphasize that trade discount is different from cash discount and should be treated accordingly.

Issue 6: Exclusion of Discount from Sale Price
The Tribunal was wrong in remanding the case for an enquiry as to whether the discount is a cash discount according to the practice normally prevailing in the trade. The court concluded that trade discount is to be deducted from the catalogue price in accordance with the terms of the agreement, and it is only thereafter that the consideration is fixed, which is the sale price within the meaning of section 2(h). The concept of trade discount is distinct from the deduction of cash discount as referred to in the definition.

Conclusion:
The application was allowed with costs. Sales tax is not exigible from the petitioner on the discount and freight, and the declarations in form C were valid. The court answered the questions referred to it, concluding that the reduction granted by the petitioner is not part of the sale price, the declaration in form C did not require correction, freight paid is not part of the sale price, trade discount is not a cash discount, and the discount in question should be excluded from the sale price.

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