2011 (2) TMI 1320 - HC - VAT and Sales Tax

Denial of deduction on the discounts by the second respondent only on the premise that the discounts had been granted through credit notes raised subsequent to the tax invoices which would result in the reduction of turnover/price and constitute tax liability Held that - The sale invoice given by the dealer would be assessed on the total turnover of the assessee. But, the credit notes subsequently issued by the assesse would automatically result in lowering the amount of turnover and results in lower quantum of sales tax and that is the conclusion arrived at by the Division Bench in similar situation treating this as only incentive and not as trade discount . The assessing officer has tried to distinguish and imposed tax on the total turnover on the basis of the invoices issued without taking into consideration the discount extended in the sale transactions, which is usually permissible and it is also in vogue in the sale of goods. In the circumstances, the impugned order passed by the assessing officer at annexure L is quashed

Summary

Issues:
Assailing order under KVAT Act denial of deduction on discounts, legality of assessing officer's decision, consideration of taxable turnover, interpretation of KVATRules, determination of sale price, applicability of discounts on tax liability.

Analysis:
The petitioner challenged the order of the second respondent under the Karnataka Value Added Tax Act, 2003, regarding the denial of deduction on discounts granted through credit notes raised subsequent to tax invoices. The petitioner argued that the decision was arbitrary, illegal, and ultra vires various provisions of the KVAT Act and the Constitution of India. The Division Bench had previously addressed the issue of treating discounts as post discounts. The assessing officer's approach was deemed contrary to statute, with reference to relevant case laws.

The Government Pleader contended that under the Kerala VAT Act, dealers are not entitled to discounts unless separately shown in tax invoices. The petitioner, citing KVAT Act and rules, argued that any alteration in sale value in tax invoices, including discounts, must comply with section 30 and rule 3(2)(c) of KVATRules. The petitioner emphasized that discounts should reflect in accounts only upon payment by the buyer, questioning the assessing officer's imposition of tax based solely on tax invoices.

The judgment referred to a Supreme Court case on taxable turnover, emphasizing that trade discounts are not includable in taxable turnover. The Division Bench in a previous case remanded a matter to consider credit notes affecting turnover. Rule 3 of KVATRules determines turnover, allowing deductions including discounts. The assessing officer's opinion that post-sale discounts do not alter sale value was challenged, as discounts should reduce tax liability based on credit notes issued subsequently.

The impugned order was quashed, directing the assessing officer to recalculate taxable turnover considering discounts granted. The Division Bench's view on discounts lowering turnover was upheld, emphasizing that discounts should be factored into tax calculations. The assessing officer's failure to consider discounts was criticized, highlighting the need for proper assessment based on actual discounts given. The writ petitions were allowed, with directions for the assessing officer to seek assistance if needed and refund excess amounts collected.