2015 (3) TMI 433 - HC - VAT and Sales Tax

Determination of turnover - Disallowance of discount - Assessee give discount on sale of motor vehicles - But, due to the policy of manufacturers of the vehicles that their motor vehicles should be sold at the same prices to all the purchasers and also as per the practice in the trade, the assessee do not show the discount in its tax invoices but issues credit notes towards the same separately - Whether the assessee-dealer can claim deductions and the amounts allowed as discounts in determining the taxable turnover without the said discount being shown in the invoice - Held that - it is clear that a harmonious reading of Section 30, Rule 31 and Rule 3(2)(c) makes it clear that if a dealer/assessee has claimed the tax in excess of what is payable under the Act, he can issue a credit note for the excess amount claimed from the purchaser within six months from the date of sale invoice. After issuance of such credit note, he should promptly declare them in his returns to be furnished for the tax period in which the credit note is received and claim reduction in tax. How the said credit note should be issued and what are the details which the credit note should contain is what is stipulated in Rule 31. However, Rule 3 deals with the determination of the turnover. Sub-Rule 2 deals with the deductions from the total turnover to arrive at the taxable turnover. If a dealer has given discount and wants to claim deductions from the total turnover to arrive at the taxable turnover, the condition precedent is all amounts allowed as discounts should be shown in the tax invoice or bill of sale, as discounts allowed and then only the said amount could be deducted from the taxable turnover. However, if the discount given is not shown in the tax invoice or bill of sale, then the dealer is not entitled to deduction of the said amount from the total turnover. Once the sale invoice is issued and the sale price is collected along with tax, the aggregate of such sale constitutes the total turnover and the tax is payable on taxable turnover. To arrive at the taxable turnover what are the deductions that are legitimately be made is provided under Rule 3(2) of the Rules. One such permissible deduction is that the amount paid by way of discount provided that the discount is reflected in the sale invoice. Accordingly by issuing a credit note after receiving the amounts, of course, before filing the returns it cannot be said that the amount of discounts goes outside the purview of the turnover. - Therefore, the learned Single Judge was justified in not entertaining the writ petition against the said order - Decided against Revenue.

Issues Involved:
1. Validity of the rectification order disallowing discounts shown via credit notes.
2. Interpretation of Section 30 of the Karnataka Value Added Tax Act and Rule 3(2)(c) of the Karnataka Value Added Tax Rules.
3. Conflict between Rule 3(2)(c) and Rule 31 of the Karnataka Value Added Tax Rules.
4. Applicability of previous judgments (Reliance Industries, Kitchen Appliances, and Pratham Motors) on the current case.

Detailed Analysis:

Issue 1: Validity of the Rectification Order Disallowing Discounts Shown via Credit Notes
The appellant challenged the rectification order passed by the Assessing Officer, which disallowed discounts shown via credit notes. The Assessing Officer's decision was based on the proviso to Rule 3(2)(c) of the Karnataka Value Added Tax Rules, which mandates that discounts must be shown in the tax invoice for them to be deductible from the total turnover. The learned Single Judge upheld this rectification order, leading to the present appeal.

Issue 2: Interpretation of Section 30 of the Karnataka Value Added Tax Act and Rule 3(2)(c) of the Karnataka Value Added Tax Rules
Section 30 of the Act, which was deleted from 1-4-2012, allowed for the issuance of credit notes for discounts, resulting in an automatic reduction in the turnover and tax amount. However, Rule 3(2)(c) specifies that for discounts to be deductible, they must be shown in the tax invoice. The court noted that there is no conflict between Section 30 and Rule 3(2)(c), as Section 30 deals with excess tax charged and credit notes, while Rule 3(2)(c) pertains to the determination of taxable turnover and mandates that discounts must be shown in the tax invoice.

Issue 3: Conflict Between Rule 3(2)(c) and Rule 31 of the Karnataka Value Added Tax Rules
The appellant argued that there was no conflict between Rule 3(2)(c) and Rule 31 of the Rules, which deals with the particulars of credit and debit notes. The court in the case of Reliance Industries held that there was no conflict between these rules. Rule 31 specifies the details required in a credit note, while Rule 3(2)(c) mandates that discounts must be shown in the tax invoice to be deductible. The court found that neither Section 30 nor Rule 31 deals with the determination of turnover, and thus, there is no conflict with Rule 3(2)(c).

Issue 4: Applicability of Previous Judgments (Reliance Industries, Kitchen Appliances, and Pratham Motors) on the Current Case
The court analyzed previous judgments to determine their applicability:
- Reliance Industries: The court held that the issuance of credit notes would automatically reduce the invoice amount, affecting the turnover. However, this judgment did not state that discounts not shown in the invoice could be deducted from the total turnover.
- Kitchen Appliances: This judgment clarified that for discounts to be deductible, they must be shown in the tax invoice. The court upheld this interpretation, stating that discounts offered after the sale cannot be deducted from the total turnover.
- Pratham Motors: This judgment referred to both Reliance Industries and Kitchen Appliances. It stated that the issuance of credit notes within six months is permissible, but it did not lay down any new law regarding the requirement of showing discounts in the tax invoice.

Conclusion:
The court concluded that a harmonious reading of Section 30, Rule 31, and Rule 3(2)(c) makes it clear that for discounts to be deductible from the total turnover, they must be shown in the tax invoice. The rectification order by the Assessing Authority, which disallowed discounts shown via credit notes not reflected in the tax invoice, was upheld. The court found no merit in the appellant's arguments and dismissed the appeals.

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