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TMI Blog2012 (3) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned orders and remit the matter to the Assessing Authority to make assessments in light of this judgment. - Civil Appeal Nos. 2516-2517 of 2012 - - - Dated:- 27-2-2012 - Aftab Alam, Anil R. Dave, JJ. JUDGMENT Aftab Alam, J 1. Leave granted in both the Special Leave Petitions. 2. How far deductions are allowable under rule 9(a) of the Kerala General Sales Tax Rules, 1963 ( the Rules hereinafter) for trade discounts? 3. A division bench of the Kerala High Court has held that unless the discount was shown in the invoice itself, it would not qualify for deduction and further that any discount that was given by means of credit note issued subsequent to the sale of the article was in reality an incentive and not trade discount eligible for exemption under rule 9(a) of the Rules. The decision was rendered somewhat gratuitously in the case of M/s IFB Industries Ltd., (the appellant in the appeals arising from SLP (Civil) Nos. 26102-03 of 2010) but it is the India Cements Ltd., the appellant in the other set of appeals (arising from SLP (Civil) Nos. 6861-62 of 2011), that got badly hit by the decision and its claim for deduction of many kinds of trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t amounting to ₹ 58,15,485/- and arrived at the figure of total turnover proposed' that came to ₹ 14,27,69,607/-. From the total turnover, he then deducted the amounts of (i) AMC, (ii) Sales return, (iii) Second sales, (iv) Tax Collected and (v) Scheme Discount being the sum of ₹ 58,15,485/- and, thus, finally arrived at the figure of ₹ 11,95,56,460/- as the taxable turnover proposed'. 7. The Assessing Authority passed a similar order for the assessment period 2002-03 as well. 8. The appellant had objection to the computation made by the Assessing Authority. It contended that though in principle allowing deduction for the trade discount the Assessing Authority actually denied any deduction by subtracting the amount of trade discount only after first adding it to the turnover. In the computation made by the Assessing Authority the amount of trade discount, thus, got neutralized and the appellant did not actually get any deduction of the trade discount from its turnover. 9. Before proceeding further, it needs to be understood that the appellant's objection would have any basis only in case it is shown that the original figure of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant, safe in the belief that the Assessing Authority had in principle accepted its claim for deduction of the trade discount from the taxable turnover, confined its revision to the computation made by the Assessing Authority. The High Court, nevertheless, went into the basic question whether the discount under the scheme of the appellant at all qualified for deduction under rule 9(a) of the Rules. In a brief order dated June 26, 2009 that does not refer to any earlier precedents of this Court or even of the Kerala High Court, the High Court observed that from a plain reading of rule 9(a) it appeared that what is allowable as discount in the computation of taxable turnover is the trade discount given in the bills. According to the High Court, what is insisted in the rule is that the purchaser should have paid the price charged, less the discount. and this certainly meant that the discount should be shown in the original invoice and tax should be charged only on the net amount exclusive of discount so that the buyer gets the deduction towards discount. 15. On the appellant's claim of deduction of their trade discount from the taxable turnover, the High Court made the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given later. 19. By the time the case of the India Cement Ltd. (appellant in the appeals arising from SLP(C) Nos. 6861-6862 of 2011) came up for assessment for the assessment periods 2003-04 and 2004-05 the decision of the High Court in M/s IFB Industries Ltd. was firmly before the Revenue authorities. The Assessing Authority, therefore, turned down the claim of the appellant, the India Cement Ltd., for exemption of different kinds of discount, namely, special discount, annual discount, turnover discount, target discount etc. given by means of credit notes and aggregating to the large sum of ₹ 25,55,83,751.82. The Assessing Authority referred to the High Court decision in M/s IFB Industries Ltd. and rejected the appellant's claim for deduction of the aforesaid amount from their taxable turnover holding that, discounts given through credit notes were nothing but incentives and did not come under rule 9(a) of the Rules. 20. The appellant challenged the assessment orders before the High Court in Writ Petitions (WP(C) Nos. 34989 and 38517 of 2010). A single judge of the High Court declined to entertain the writ petitions filed directly against the assessment orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or other valuable consideration. It is followed by several explanations. Explanation 2(ii) is as follows:- Explanation 2:- Subject to such conditions and restrictions, if any, as may be prescribed in this behalf,- (i) xxx (ii) any cash or other discount on the price allowed in respect of any sale and any amount refunded in respect of articles returned by customers shall not be included in the turnover. (emphasis added) 24. It is, thus, to be seen that the very definition of turnover recognises discounts other than cash discount and provides that those other discounts too like the cash discount shall not be included in the turn over. 25. Rule 9(a) provides as follows:- 9. Determination of taxable turnover - In determining the taxable turnover, the amounts specified in the following clauses shall subject to the conditions specified therein, be deducted from the total turnover of the dealer:- (a) All amounts allowed as discount, provided that such discount is allowed in accordance with the regular practice in the trade and provided also that the accounts show that the purchaser has paid only the sum originally charged less the discount. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh discount is alone specifically contemplated from the sale consideration in the definition of sale price by Section 2(h), and there is no doubt that cash discount cannot be confused with trade discount. The two concepts are wholly distinct and separate. Cash discount is allowed when the purchaser makes payment promptly or within the period of credit allowed. It is a discount granted in consideration of expeditious payment. A trade discount is a deduction from the catalogue price of goods allowed by wholesalers to retailers engaged in the trade. The allowance enables the retailer to sell the goods at the catalogue price and yet make a reasonable margin of profit after taking into account his business expense. The outward invoice sent by a wholesale dealer to a retailer shows the catalogue price and against that a deduction of the trade discount is shown. The net amount is the sale price, and it is that net amount which is entered in the books of the respective parties as the amount reliable. Orient paper Mills Ltd. v. State of Orissa, (1975) 35 STC 84: 1974 Tax LR 2224 (Ori. HC) 6. Under the Central Sales Tax Act, the sale price which enters into the computation of the turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (purchasers) namely the T.V.S. group of companies which constitute a prestigious group of commercial concerns over and above the normal trade discount in consideration of the extra benefit derived by the assessee by reason of the marketing of its goods through them. This additional trade discount is allowed in accordance with the trade agreement subject to periodical variation depending upon the cost structure and changes in market conditions. It is not disputed that there were such agreements between the assessee and the purchasers and the accounts of the assessee truly reflected the actual discount allowed to the purchasers. What is however urged by the department is that the said additional discount allowed by the assessee could not strictly be termed as discount as it was in lieu of services rendered by its main distributors by way of popularisation of the sales and consumption of the products sold by the assessee. We find it difficult to accept the submission made on behalf of the department. Rule 9(a) says that all amounts allowed as discount either in accordance with regular practice or in accordance with agreement would be deductible from the total turnover provided they ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a discount given by means of credit notes issued subsequent to the sale is as much a trade discount admissible to deduction in determining the turnover of a dealer. 33. A bench of the Kerala High Court in Kalpana Lamps and Components Ltd. v. State of Kerala, (2006) 143 STC 666, in paragraphs 4 and 5 of the judgment observed and held as follows:- 4. According to us, in the present case, the Appellate Tribunal dismissed the appeal merely on the ground that the circumstances under which the special discount has been granted to the customer (sic). Learned counsel for the petitioner submits that the petitioner was not able to convince the Tribunal because no opportunity was given by both the authorities, viz., the assessing authority and the appellate authority. They rejected the case of the petitioner merely on the ground that the books of accounts were not produced. Hence, the petitioner prayed for an opportunity to explain the circumstances under which the special discount was granted. 5. Before parting with the case, we may state that so far as the special discount is concerned, all that the authorities have to look into whether as a matter of fact, the petitioner recei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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