2020 (2) TMI 596 - HC - VAT and Sales Tax

Levy of tax on Trade discount - Petitioner submits that the discount offered by the manufacturer would actually reduce the price in the hands of the manufacturer who sold the cars to the Petitioner and such discount cannot be taxed in the hands of the Petitioner - HELD THAT - There is no dispute that the Petitioner is a dealer in motor cars and had received trade discount from the manufacturer from whom it had purchased the cars for retail sales at its show rooms. The trade discount which has been offered by the dealer is an incentive given by the manufacturer based on the performance of the Petitioner in the retail market. The trade discount offered by the manufacturer to the Petitioner does not in any manner enhance the taxable value of the motor cars sold by the Petitioner to the retail buyer at its show rooms. There is no basis on which the aforesaid amount of ₹ 3,48,08,441/- can be taxed as taxable turn over of the Petitioner. The two transactions are independent transactions. One transaction is between the manufacturer who is also a dealer who had passed on incentives to the Petitioner and the second transaction between the Petitioner and its buyers of its retail show room to whom the Petitioner has sold the cars. As these two are independent transactions there is no basis on which the trade discount passed to it by the manufacturer(dealer) to the Petitioner can be added in to the taxable turn over of the Petitioner for the purpose of assessment under the TNVAT Act, 2006. The writ petition stands allowed even though the Petitioner has an alternate remedy by way of appeal.

Summary

Issues:
Taxability of trade discount under the Tamil Nadu Value Added Tax Act, 2006.

Analysis:
The petitioner sought a Writ of Certiorari to challenge an order proposing to assess a trade discount received from a manufacturer as taxable under the TNVAT Act, 2006. The respondent demanded tax on the discount amount, contending it should be treated as value addition. The petitioner argued that the discount should not be added to the taxable turnover, citing relevant provisions of the Act.

The petitioner responded to the notice, explaining that the discount should not be included in the taxable turnover. Despite producing relevant documents during a personal hearing, the impugned order was passed by the respondent, noting the petitioner's failure to provide documentary evidence related to the transactions.

The petitioner relied on a circular issued by the Commissioner of Central Excise, emphasizing that the trade discount should not be taxed under Section 19(20) of the TNVAT Act, 2006. The petitioner's counsel referenced Supreme Court decisions to support the contention that trade discounts should not be included in the turnover for tax assessment purposes.

The court found that the trade discount offered by the manufacturer to the petitioner did not enhance the taxable value of the cars sold by the petitioner to retail buyers. The court concluded that the trade discount was an independent transaction between the manufacturer and the petitioner, and therefore should not be added to the petitioner's taxable turnover. The court allowed the writ petition, noting the absence of disputed facts and the lack of basis to tax the trade discount as part of the petitioner's turnover under the TNVAT Act, 2006.