1983 (2) TMI 251 - SC - VAT and Sales Tax

Whether on the facts and in the circumstances of the case the Appellate Tribunal was justified in law in holding that the assessee was entitled to exemption under rule 9(a) of the Kerala General Sales Tax Rules, 1963 from payment of sales tax on the turnover relating to service discount ? Whether the value of goods returned by the purchasers could be deducted under rule 9(b)(i) of the Rules from the total turnover of the year of assessment in which the goods were actually returned when they had been sold in the previous assessment year? Held that - The appeal is dismissed in so far as the first question is concerned. The appeal is allowed in so far as the second question is concerned.

Summary

Issues Involved:
1. Entitlement to exemption under rule 9(a) of the Kerala General Sales Tax Rules, 1963, for "service discount."
2. Deductibility of the value of goods returned under rule 9(b)(i) of the Rules from the total turnover of the year of assessment in which the goods were actually returned when they had been sold in the previous assessment year.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption for "Service Discount" under Rule 9(a):
The first issue concerns whether the assessee is entitled to exemption under rule 9(a) of the Kerala General Sales Tax Rules, 1963, for "service discount." The assessee, a dealer in diesel fuel injection parts, claimed a deduction for "service discount" allowed to its main distributors, the T.V.S. group of companies, as an additional trade discount. This discount was over and above the normal trade discount and was allowed in consideration of the extra benefit derived by the assessee from marketing its goods through these distributors.

The department contended that the additional discount could not be termed as a discount since it was allowed as an overriding commission and incentive to promote trade. However, the court found that the discount was indeed a trade discount as it was allowed in accordance with the trade agreement and duly reflected in the assessee's accounts. The court emphasized that any concession in the price of goods for commercial reasons qualifies as a trade discount under rule 9(a) of the Rules. The court concluded that the "service discount" was a legitimate trade discount and upheld the High Court's decision allowing the deduction.

2. Deductibility of Returned Goods under Rule 9(b)(i):
The second issue pertains to whether the value of goods returned by purchasers could be deducted under rule 9(b)(i) of the Rules from the total turnover of the year of assessment in which the goods were actually returned, even if they had been sold in the previous assessment year. The assessee claimed a deduction for goods returned within three months from the date of sale, but the assessing authority disallowed it on the ground that the sales were completed in the previous assessment year.

The court clarified that under rule 9(b)(i), the deduction for returned goods must be claimed in the assessment year in which the goods were sold, provided they were returned within three months of delivery and the necessary entries were made in the accounts. The court reasoned that allowing deductions in the subsequent financial year would result in the turnover of that year escaping taxation and could complicate matters if the dealer ceases operations in the subsequent year.

The court noted that even if the goods are returned after the annual return is filed, the assessee can file a revised return or claim adjustment or refund, and the department must comply with such claims. The court disagreed with the High Court's contrary view and held that deductions for returned goods cannot be claimed in the assessment year subsequent to the year of sale.

Conclusion:
The appeal was dismissed concerning the first issue, affirming the entitlement to exemption for "service discount." However, the appeal was allowed concerning the second issue, requiring modifications to the orders of assessment for 1973-74 and rectification of the assessment for 1972-73. No costs were awarded.