2014 (4) TMI 590 - HC - VAT and Sales Tax

Valuation - deduction of quantity discounts allowed in the tax invoices Taxable turnover - Eligibility for Tax Deduction Held that - From bare perusal of the invoice it is clear that the discount shown in the invoice is not relatable to the sale of goods by the said invoice, and that being so, the assessee cannot claim deduction under rule 3 of the Rules - Quarterly discount in the form of quantity discount/scheme discount was allowed in the tax invoices on the basis of performance of the previous quarter and not in respect of the sales reflected in the said invoices. Relying upon M/s. Southern Motors vs- State of Karnataka and another 2008 (7) TMI 862 - KARNATAKA HIGH COURT - The proviso to clause (c) of Rule 3(2) of the KVAT Rules makes it mandatory that the said discount should be reflected in the sale invoice and that too it should be in respect of the sale of goods reflected in the said sale invoice, otherwise the dealer assessee is not entitled for deduction of the amount of discount from the total turnover - The discount shown in the relevant invoices was not relating to the sales reflected in the said invoices, but for the sales effected earlier - No reason is found to interfere with the order passed by the Revisional Authority - Therefore, the appeals are dismissed - Consequently, the interim application stands disposed of Decided against Assessee.

Summary

Issues:
Sales Tax Appeals arising from order dated 08.05.2012 by Revisional Authority under KVAT Act, 2003 disallowing quantity discounts claimed by appellant-assessee. Interpretation of Rule 3(2)(c) of KVAT Rules for deduction of discounts in tax invoices. Justification of Revisional Authority's decision in setting aside FAA's order.

Analysis:
The appellant-assessee, a private Limited Company engaged in manufacturing Home Appliances, claimed quantity discounts given to distributors as deductions from taxable turnover. The Assessing Authority disallowed these discounts, stating they were not related to sales in relevant tax invoices under Rule 3(2)(c) of KVAT Rules. Appellant appealed under Section 66(1) of KVAT Act, raising questions on the validity of disallowance and violation of judicial discipline by Revisional Authority.

The main contention was that discounts reflected in tax invoices were part of regular trade practice and should be allowed as deductions. Appellant cited judgments of Supreme Court and Patna High Court to support their claim. However, the Court noted differences in the rules considered in those judgments and the current Rule 3(2)(c) of KVAT Rules.

Rule 3 of KVAT Rules determines turnover and taxable turnover, allowing deductions under sub-rule (2). Proviso to clause (c) specifies that discounts must be reflected in sales invoices for deduction. The Court emphasized that discounts should be related to sales in the invoices to be eligible for deduction, as per the rule.

The Court referred to a previous case upholding the constitutional validity of the proviso to sub-Rule 2(c) of Rule 3. In the present case, the assessee sought deductions for quantity/scheme discounts not directly related to goods sold in the invoices. The Court found that discounts were based on past performance, not on sales in the invoices, making them ineligible for deduction under Rule 3.

Ultimately, the Court upheld the Revisional Authority's decision, stating that discounts in tax invoices were not related to sales and, therefore, not eligible for deduction. The questions of law raised were deemed irrelevant, leading to the dismissal of the appeals and disposal of the interim application.