2016 (12) TMI 960 - HC - VAT and Sales Tax

Valuation - inclusion of quantity discount given to the dealers as part of the turnover is justified or not? - Held that - Section 7 only indicates that the dealer who allows trade discount or incentive in terms of quantity in goods in relation to any sale effected by him. The quantity so allowed as trade discount or incentive shall be deemed to be a sale by the dealer. Statute does not say that the said trade discount shall form part of the turnover of the dealer. This aspect has been clarified by the Commissioner in the circular along with the illustration. - There is no evidence to show that the end customer was given the benefit of trade discount, is not at all a matter, which the petitioner is concerned. As far as the petitioner is concerned, he had effected sale of goods by providing the quantity discount and the turnover is only with respect to the consideration received by the petitioner for the quantity which is actually sold and the discount given to the dealer in question. Under such circumstances, I am of the view that this writ petition is to be allowed - The assessing authority is directed to reconsider the matter afresh in accordance with the observations made above and Circular No.5/05 of the Commissioner of Commercial Taxes - appeal by way of remand.

Summary

Issues:
Challenge to assessment orders regarding quantity discounts included in turnover.

Analysis:
The petitioner contested assessment orders (Exts.P13, P14, and P15) for the years 2011-2014, where the Assessing Officer included quantity discounts in the turnover, rejecting the petitioner's objection. The petitioner argued that similar assessments in previous years were remitted back for reconsideration based on Circular Ext.P6, directing the exclusion of quantity discounts from turnover. The assessing officer's failure to rely on Ext.P6 was criticized by the petitioner, highlighting that the circular clarifies Section 7 of the KVAT Act regarding trade discounts. The illustration in Ext.P6 demonstrates that trade discounts do not form part of turnover unless additional amounts are realized. The petitioner emphasized that the assessing officer previously accepted this interpretation, making the current assessment inconsistent.

The government pleader, however, supported the assessment orders, stating there was no evidence that the quantity discounts reached end customers free of cost. The Court analyzed Section 7 of the KVAT Act, which deems trade discounts as sales by the dealer but does not mandate inclusion in turnover. Referring to Ext.P6, the Court noted that the circular, along with the illustration, clarifies that trade discounts do not automatically contribute to turnover. Given the assessing officer's prior acceptance of Ext.P6's interpretation in the petitioner's case for previous years, the Court found no justification for the current assessment. The Court concluded that the petitioner's sale of goods with quantity discounts should not increase the turnover unless additional amounts were realized, as per Ext.P6.

In light of the above analysis, the Court allowed the writ petition, setting aside Exts.P13, P14, and P15. The assessing authority was directed to review the matter in line with Ext.P6 and Circular No. 5/05 of the Commissioner of Commercial Taxes, emphasizing that trade discounts should not automatically inflate turnover unless additional amounts are received.