1993 (11) TMI 204 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether trade discount forms part of the sale price under Section 2(h) of the Central Sales Tax Act, 1956.
2. Distinction between trade discount and cash discount for the purpose of tax deduction.

Issue-wise Detailed Analysis:

1. Whether trade discount forms part of the sale price under Section 2(h) of the Central Sales Tax Act, 1956:

The central question referred to the court was whether the Board of Revenue was justified in holding that trade discount does not form part of the sale price, while under Section 2(h) of the Central Sales Tax Act, 1956, only cash discount has to be excluded from the sale price.

The court examined the definition of "sale price" under Section 2(h) which states: "'sale price' means 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, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charged."

The court also reviewed the definition of "turnover" under Section 2(j), which means the aggregate of the sale prices received and receivable by a dealer in respect of sales of any goods in the course of inter-State trade or commerce made during any prescribed period and determined in accordance with the provisions of this Act and the rules made thereunder.

The court considered various precedents, including the decision of the Andhra Pradesh High Court in Sirpur Paper Mills Limited v. State of Andhra Pradesh [1979] 43 STC 126, where it was held that the "balance discount" formed part of the sale price of goods. Similarly, in India Pistons Limited v. State of Tamil Nadu [1974] 33 STC 472, it was held that the expression "other discount" under the Act included bonus discount but did not attract the applicability of Section 2(h) of the Central Sales Tax Act, which excludes only "cash discount."

2. Distinction between trade discount and cash discount for the purpose of tax deduction:

The court analyzed the distinction between trade discount and cash discount. Trade discount, as defined in commercial parlance, is an allowance made by wholesale dealers to retailers off the catalogue or invoice price to enable the latter to sell goods at the catalogue price. This discount is deducted from the outward invoice sent to the retailer, and the entry in the sales book is made of the net amount. Trade discount does not appear in the books of either the seller or the purchaser.

Cash discount, on the other hand, is an allowance in addition to the trade discount made by the seller to the purchaser, provided the latter settles his account promptly or within a specified time known as the 'period of credit.' This discount is receivable by the trader when he pays his account promptly and is allowed by him to his customers for the prompt settlement of amounts due.

The court considered various judgments, including Orient Paper Mills Ltd. v. State of Orissa [1975] 35 STC 84, where it was held that trade discount was not part of the sale price. Similarly, in Deputy Commissioner of Sales Tax v. Advani Oerlikon (Private) Limited [1976] 37 STC 1, it was held that trade commission is not a part of the sale price.

The court also referred to the apex court's decision in Deputy Commissioner of Sales Tax v. Advani Oerlikon (P.) Ltd. [1980] 45 STC 32, which held that cash discount and trade discount are two separate and distinct concepts. Under the Central Sales Tax Act, cash discount is allowed when the purchaser makes the payment promptly or within the period of credit allowed. Trade discount, on the other hand, is a deduction from the catalogue price of goods allowed by wholesalers to retailers and does not enter into the composition of the sale price.

The court concluded that the Board of Revenue was justified in holding that trade discount does not form part of the sale price under Section 2(h) of the Central Sales Tax Act. The revision petition was accordingly dismissed.

Petition dismissed