2019 (2) TMI 132 - HC - VAT and Sales Tax

Valuation - inclusion of discount in assessable value - application of Explanation VII to Section 2(lii) - addition of discount for purpose of computing of turnover - estimation of sales turnover at 3.12% gross profit. Whether the Tribunal was correct in having applied Explanation VII to Section 2(lii) and added on the discount for the purpose of computing the turnover? - Held that - As far as the Explanation VII to Section 2(lii) of the Act, the issue stands covered by a judgment of a Division Bench of this Court in State of Kerala v. Syed Muhammed 2016 (10) TMI 1023 - KERALA HIGH COURT . Therein also the assessee having suffered loss received some amounts from the suppliers for the purpose of recouping the loss suffered by it. Based on Explanation VII to Section 2(1ii) the amount transferred to recoup the loss was included in the turnover - the first question in favor of the Revenue and against the assessee. Whether the lower authorities were correct in having estimated the sales turnover at 3.12% gross profit and added on the discount for the purpose of computing the taxable turnover? - Held that - There has been double taxation effected by application of Explanation VII to Section 2(lii). The actual purchase price by adding on the duty wages and loading and unloading charges was found to be ₹ 1,14,88,348/-. An estimate was made of the total taxable turnover @ 3.12% G.P. and the figure arrived at was ₹ 1,18,46,786/-. Hence the sale price was in excess of the purchase price. In that context, there was no requirement for an addition of the discount applying Explanation VII to Section 2(lii). Either the Assessing Officer could have added on the discount to the returned turnover or taxed the estimated turnover adding G.P. When the sales turnover is estimated after computing the G.P then necessarily the entire turnover is taxed - There cannot be an exercise made of applying gross profit and then addition of the discount amounts; in which event there would be double taxation on the estimated component. The estimation made with G.P. @3.12% is sustained and the Assessing Officer is directed to adopt the taxable turnover at ₹ 1,18,36,786/- after including the estimation with respect to the other suppression - the question in favor of the assessee and against the Revenue. Appeal allowed in part.

Summary

Issues:
1. Application of Explanation VII to Section 2(lii) for adding discount to turnover computation.
2. Estimation of sales turnover at 3.12% gross profit and adding discount for computing taxable turnover.

Analysis:
1. The primary issue in this case revolved around the application of Explanation VII to Section 2(lii) for adding a discount to the turnover computation. The assessee had initially declared its purchase price but failed to include duty wages and loading/unloading charges, resulting in an enhanced purchase price. The Assessing Officer estimated the taxable turnover at a 3.13% Gross Profit and added a discount received by the assessee. The Tribunal upheld this decision, citing a Division Bench judgment that supported including amounts received to recoup losses in turnover. Additionally, a Supreme Court decision under the Karnataka enactment was referenced, stating that discounts by suppliers should not be added to the purchaser's sales turnover. Despite this, the court sided with the Revenue, emphasizing the absence of a similar provision in the Kerala VAT Act.

2. The secondary issue dealt with the estimation of sales turnover at 3.12% gross profit and the subsequent addition of the discount, potentially leading to double taxation. The court acknowledged the double taxation concern and highlighted that when the sales turnover is estimated with Gross Profit, the entire turnover should be taxed. Considering the actual purchase price and the estimated turnover, the court concluded that there was no need to add the discount separately. Therefore, the court sustained the estimation at 3.12% Gross Profit and directed the Assessing Officer to adopt the taxable turnover without adding the discount, as it was already reflected in the estimated turnover. Consequently, the court ruled in favor of the assessee on this aspect, directing the Revenue not to make any additional adjustments for the discount, as it was already accounted for in the estimation.

In conclusion, the court partially allowed the revision, with each party bearing their respective costs. The judgment clarified the application of Explanation VII to Section 2(lii) for adding discounts to turnover calculations and emphasized the importance of avoiding double taxation in estimating taxable turnover based on Gross Profit.