2021 (4) TMI 139 - HC - VAT and Sales Tax

Disallowance of discount from the taxable turnover - discount was not actually deducted from the sale bill/voucher - non-fulfilment of conditions of Rule 19 (a) (i) of J K General Sales Tax Rules, 1962 - HELD THAT - In the cases at hand, the documents on record reveal that every voucher provides for 1% turnover discount, meaning thereby that the discount has been actually allowed as per the agreement/understanding of the parties. The said discount stand deducted as a credit note in respect thereof is issued simultaneously to be adjusted later on or by re-imbursement. It is not the case of anyone that the dealer has paid the actual price of the goods mentioned in the voucher and not the lesser amount by way of discount. In fact, upon re-imbursement as per credit note, the actual price paid by the dealer stand reduced. There is no evidence that the dealer paid to the assessee the original value of the goods and not the discounted price - the authorities below have adopted a too technical an approach in disallowing the deduction of discount from the taxable turnover of the assessee. The Tribunal is not justified in disallowing 1% discount from the taxable turnover of the assessee and the findings that the assessee does not fulfil the conditions of Rule 19 of the Rules are perverse and not tenable - Reference allowed.

Issues Involved:
1. Whether the Tribunal is justified in disallowing the discount from the taxable turnover of the assessee on the ground that it was not actually deducted from the sale bill/voucher and, as such, does not fulfil the conditions of Rule 19 (a) (i) of the Rules.

Issue-wise Detailed Analysis:

Background and Facts:
The case involves multiple Sales Tax References concerning the same parties, M/s. MRF Limited, for different accounting years from 1995-1996 to 2001-2002. The facts are identical across these years, and the legal proposition remains the same. The assessee, M/s. MRF Limited, is engaged in the manufacturing of tyres, tubes, flaps, tread rubber, etc., and sells these products through various sale depots, including one at Jammu. The assessee allows a 1% discount to its dealers as per a pre-determined agreement, which is indicated on each invoice and credited to the dealers' accounts at the end of each quarter.

Assessing Authority's Decision:
The assessing authority disallowed the exclusion of this discount from the turnover of sales on the ground that the discount was not deducted from the invoice amount but was adjusted later, categorizing it as a bonus or incentive rather than a discount. This decision was upheld by the Deputy Commissioner of Sales Tax (Appeals) and the Jammu and Kashmir Sales Tax (Appellate Tribunal).

Substantial Question of Law:
The High Court identified the substantial question of law as: "Whether the Tribunal is justified in disallowing the discount from the taxable turnover of the assessee on the ground that it was not actually deducted from the sale bill/voucher and, as such, does not fulfil the conditions of Rule 19 (a) (i) of the Rules."

Legal Provisions and Interpretation:
- Section 2 (ll) of the Act defines 'sale price' and Section 2 (n) of the Act defines 'turnover,' which includes the aggregate amounts of sale and purchase made by any dealer.
- Rule 19 of the J&K General Sales Tax Rules, 1962 specifies that the taxable turnover shall be determined after allowing deductions, including discounts actually allowed in the customary course of business or in accordance with the agreement with the purchaser, provided such discount has been deducted from the price in the sale bill/voucher and the purchaser has paid the price less by that discount.

High Court's Analysis:
The High Court found that the definition of turnover and the conditions under Rule 19 support the deduction of discounts from the taxable turnover. The court noted that the invoices clearly mentioned the 1% discount entitlement, and credit notes were issued for the same, indicating a clear understanding between the assessee and its dealers. The Supreme Court's observation in Union of India v. Bombay Tyres International (P) Ltd. was cited, which held that trade discounts should be allowed to be deducted from the sale price if provided under agreements or terms of sale, regardless of the time of payment.

Precedent:
The High Court referred to a similar case involving the same assessee before the Delhi High Court, which held that the turnover should be computed after deducting the turnover discount granted to the dealers. This decision was upheld by the Supreme Court, making it final and conclusive.

Conclusion:
The High Court concluded that the assessee is entitled to have its taxable turnover determined after excluding the 1% turnover discount. The authorities below were found to have adopted a too technical approach in disallowing the deduction. The conditions of Rule 19 were deemed to be met as the discount was actually allowed, deducted from the price in the sale bill/voucher, and the purchaser paid the price less by the discount.

Judgment:
The references were answered in favor of the assessee, and it was held that the Tribunal was not justified in disallowing the 1% discount from the taxable turnover. The authorities were directed to proceed accordingly.

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