2003 (9) TMI 728 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the quantitative discount claimed by the petitioner as a trade discount should be included in its taxable turnover for the purposes of imposing tax under the Bihar Finance Act, 1981.

Issue-wise Detailed Analysis:

1. Inclusion of Quantitative Discount in Taxable Turnover:

Factual Matrix:
The petitioner, a private limited company engaged in manufacturing and sale of medicines, challenged the assessment order and demand notice for the assessment year 2001-2002. The dispute centered on the inclusion of Rs. 2,95,88,480 as taxable turnover, which the petitioner claimed as a trade discount.

Petitioner's Argument:
The petitioner argued that the quantitative discount, given as free goods to stockists without charging any price, should not be included in the taxable turnover. This practice was consistent with previous years and other states. The petitioner cited two Supreme Court decisions to support that transactions without consideration do not constitute a sale under the Act.

Department's Stand:
The department acknowledged the provision of free goods but contended that the discount did not pass to the consumer and thus should be taxed. They argued that the petitioner issued form "IXC" for tax-paid goods, including those given as discounts, without showing tax collection on these transactions.

Legal Provisions and Interpretation:
The Bihar Finance Act, 1981, defines "sale" and "sale price" under sections 2(t) and 2(u). The law requires a transfer of property for money consideration to constitute a sale. The court cited precedents affirming that transactions without monetary consideration do not qualify as sales.

Court's Analysis:
The court noted that the free goods provided under the discount scheme did not involve any consideration, thus lacking an essential element of a sale. Consequently, these transactions could not be included in the taxable turnover. The court referenced several Supreme Court judgments that supported the exclusion of trade discounts from taxable turnover.

Trade Discount vs. Bonus Discount:
The petitioner's scheme was deemed a trade discount, not a bonus discount. The court emphasized that trade discounts, even if not explicitly mentioned in the Act, should be deducted from the sale price. The court cited the Supreme Court's rulings in Advani Oerlikon (P.) Ltd. and Motor Industries Co., which established that trade discounts are not part of the sale price and should be excluded from taxable turnover.

Supporting Precedents:
The court referred to the Madras High Court's judgment in State of Tamil Nadu v. Ultramarine and Pigments Ltd., which allowed quantitative discounts as integral to the agreement affecting the price. The court also noted the consistent practice of allowing such discounts in previous assessments and for other manufacturers.

Conclusion:
The court concluded that the department was unjustified in including the quantitative discount in the taxable turnover. The assessment order was quashed to the extent of including Rs. 2,95,88,480 in the taxable turnover and the corresponding tax/penalty.

Judgment:
The writ application was allowed, with the assessment order and demand notice quashed in part. The court ruled in favor of the petitioner, excluding the quantitative discount from the taxable turnover.