2012 (3) TMI 66 - SC - VAT and Sales Tax

Kerala General Sales Tax Rules, 1963 - allowability of discount provided vide credit notes under rule 9(a) Revenue contended that discount to qualify for exemption must be shown in the invoice itself Held that - We find nothing in rule 9(a) to read it in the restrictive manner to mean that a discount in order to qualify for exemption under its provision must be shown in the invoice itself. It is significant to note that the rule stipulates that the discount must be shown in the accounts. In UOI and Ors v. Bombay Tyres International (P) Ltd., this court held trade discount to be deductible from the sale price. Further in case of Godavari Fertilizers and Chemicals Ltd. v. Commissioner of Commercial Taxes, High Court have held that discount given by means of credit notes issued subsequent to the sale is as much a trade discount admissible to deduction in determining the turnover of a dealer. Therefore, we are unable to sustain the impugned orders and remit the matter to the Assessing Authority to make assessments in light of this judgment.

Issues Involved:
1. Allowability of trade discounts under Rule 9(a) of the Kerala General Sales Tax Rules, 1963.
2. Treatment of discounts given via credit notes as trade discounts.
3. Computation method of taxable turnover by the Assessing Authority.
4. Interpretation of "turnover" and "trade discount" under the Kerala General Sales Tax Act, 1963.
5. Judicial precedents on trade discounts and their deductibility from taxable turnover.

Issue-wise Detailed Analysis:

1. Allowability of Trade Discounts under Rule 9(a):
The primary issue was whether trade discounts are allowable under Rule 9(a) of the Kerala General Sales Tax Rules, 1963. The Kerala High Court held that discounts must be shown in the invoice to qualify for deduction. Any discount given via credit notes post-sale was deemed an incentive, not eligible for exemption under Rule 9(a).

2. Treatment of Discounts Given via Credit Notes:
The appellant, M/s IFB Industries Ltd., issued credit notes for discounts after achieving sales targets. The High Court ruled these as incentives, not trade discounts, and thus not deductible. This view was also applied to India Cements Ltd., whose claim for various discounts given via credit notes was rejected by the Assessing Authority, citing the High Court's decision in M/s IFB Industries Ltd.

3. Computation Method of Taxable Turnover:
The appellant objected to the computation method used by the Assessing Authority. The Assessing Authority added the trade discount to the turnover and then deducted it, effectively neutralizing the discount. The appellant argued this denied them the actual deduction of the trade discount from their turnover.

4. Interpretation of "Turnover" and "Trade Discount":
The definition of "turnover" under Section 2(xxvii) of the Kerala General Sales Tax Act, 1963, includes the aggregate amount for which goods are sold, with Explanation 2(ii) stating that any cash or other discount allowed in respect of any sale shall not be included in the turnover. Rule 9(a) allows deduction of amounts given as discounts if shown in the accounts, not necessarily in the invoice.

5. Judicial Precedents on Trade Discounts:
The Supreme Court referred to earlier decisions, including:
- Deputy Commissioner of Sales Tax v. Advani Oorlikon (P) Ltd.: Differentiated between cash and trade discounts, holding that trade discounts must also be deducted for determining the sale price.
- Deputy Commissioner of Sales Tax v. Motor Industries Co.: Allowed exemption for trade discounts given as per regular practice or agreements.
- Union of India v. Bombay Tyres International (P) Ltd.: Held that trade discounts should be deducted from the sale price if established under agreements or trade practice.
- Godavari Fertilizers and Chemicals Ltd. v. Commissioner of Commercial Taxes: Held that discounts given via credit notes are admissible as trade discounts.
- Kalpana Lamps and Components Ltd. v. State of Kerala: Emphasized that consistent practice of giving discounts should be accepted by the assessing authority.

Conclusion:
The Supreme Court found the Kerala High Court's restrictive interpretation of Rule 9(a) unsustainable. The rule does not mandate that discounts must be shown in the invoice, but rather in the accounts. The judgment emphasized that trade discounts given in accordance with regular trade practice and shown in the accounts are deductible, even if given via credit notes. The impugned orders were set aside, and the cases were remitted to the Assessing Authority for fresh assessment in light of this judgment, directing that claims for exemption should not be rejected solely because discounts were not shown in the sale invoices. The appeals were allowed with no orders as to cost.

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