2009 (11) TMI 1020 - HC - VAT and Sales Tax

Summary

Issues involved: Whether appellants/petitioners are entitled to exemption from tax under the Value Added Tax Act, 2003 on discounts given through credit notes issued to purchasers.

Summary:
1. The judgment addresses the interpretation of the provision regarding deduction of discount under the Value Added Tax Act, 2003. The assessees contended that tax should only be levied on the sale price, and discounts granted should not be considered part of the turnover. They argued that the retrospective amendment made by Act 39 of 2005, disallowing certain discounts, was arbitrary and unconstitutional. The Court examined the statutory provisions and found that discounts must be separately shown in the tax invoice to be eligible for deduction. The amendment clarified the original provision and did not introduce new conditions for allowing discounts. The Court held that no dealer is entitled to deduction of discount unless it is separately shown in the tax invoice and the price collected is net of the discount.

2. The scheme of tax under the VAT regime differs from the Sales Tax Act, with tax ultimately borne by the consumer. The VAT Rules mandate the issuance of invoices in a specific format, Form 8, which includes a column for discounts. The Court emphasized that discounts must be shown in the tax invoice for eligibility for deduction. The Court rejected the argument that discounts not forming part of the price cannot be taxed, stating that the Legislature can prescribe conditions for granting deductions. The judgment upheld the disallowance and demand of tax on discounts given after sales through credit notes, emphasizing that discounts must be shown in the tax invoice to qualify for deduction.

3. The Court directed appellants/petitioners to clear any balance tax along with applicable interest within three weeks if they accept the disallowance. The judgment confirmed the disallowance of tax refunds based on discounts given through credit notes, while noting that penal provisions should not be invoked if the tax liability is accepted and cleared.