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TMI Blog2006 (7) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Deputy Commissioner, Commercial Taxes, Corporate Division. By order dated July 27, 2001 the Deputy Commissioner modified the assessment order by allowing deduction of prompt-payment discount in addition to cash discount. He did not allow any other deduction. The respondent moved the West Bengal Commercial Taxes Appellate and Revisional Board (in short, "the Board") in revision. The Board allowed both "the disputed additional trade discount" and "turnover discount" in addition to the cash discount and prompt-payment discount allowed by the Deputy Commissioner. Being aggrieved by the aforesaid decision of the Board the Deputy Commissioner of Commercial Taxes, Corporate Division, has filed this application under section 8 of the West Bengal Taxation Tribunal Act, 1987. Mr. S. Bhattacharyya, learned State Representative appearing for the petitioner has not disputed that a dealer is entitled to get deduction of "trade discount" but he has contended that the discount which the dealer claimed as "trade discount" was not at all trade discount. He has referred to the essential features of "trade discount" as mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged as turnover tax payable under section 16B during such period: Provided that an election as aforesaid once made shall not be altered except with the permission of the Commissioner and on such terms and conditions as he may think fit to impose." According to the definition of "sale price" only "cash discount according to ordinary trade practice" is permitted to be deducted from sale price. The Supreme Court, however, in Deputy Commissioner of Sales Tax v. Advani Oerlikon (P.) Ltd. [1980] 45 STC 32, dealing with a similar provision in the Central Sales Tax Act, 1956 has laid down (at page 34): "Under the Central Sales Tax Act, the sale price which enters into the computation of the turnover is the consideration for which the goods are sold by the assessee. In a case where trade discount is allowed on the catalogue price, the sale price is the amount determined after deducting the trade discount. The trade discount does not enter into the composition of the sale price, but exists apart from and outside it and prior to it. It is immaterial that the definition of 'sale price' in section 2(h) of the Act does not expressly provide for the ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... features of "trade discount" have been discussed in several judicial decisions also. In a judgment of the Orissa High Court in Orient Paper Mills Ltd. v. State of Orissa reported in [1975] 35 STC 84 concept of trade discount was discussed. In the said judgment following excerpt from "Advanced Accounting" by J.R. Batliboi was approvingly quoted: "The same concept also is to be found from the book 'Advanced Accounting' by J.R. Batliboi (25th Edition) at page 14. The entire passage may be extracted: 'Distinction between trade discount and cash discount.--Trade discount is an allowance made by wholesale dealers to retailers off the catalogue or invoice price. This allowance is made between buyers and sellers engaged in the same class of trade. The object of the trade discount being allowed by the wholesale dealer to the retailer is to enable the latter to sell the goods at the price mentioned in the catalogue or price list issued by the wholesale trader. The trade discount is to enable the dealer to meet all the necessary business expenses and yet leave him a margin of profit on his selling the goods at the catalogue price. The amount of trade di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ser after realisation of the price mentioned in the invoice is not a usual accountancy practice in the trade circle. Object of allowing trade discount is to enable the purchasers to earn profit by selling at the listed price. The system of allowing discount by issuing credit notes and adjustment thereof at the time of subsequent purchase indicates that the real purpose behind such discount was to compel the purchasers to continue to purchase goods from the respondent-dealer if they wanted to avail of the discount facility. If a purchaser did not purchase any goods from the dealer after a particular purchase, he might not get the discount at all. Trade discounts are to be deducted from the sale amount as "trade discount" does not form part of the sale price. What does not form part of the sale price in usual course of business and trade practice cannot be charged and realised as "sale price". From the judicial decisions placed before us certain features of trade discount have emerged. (1) The discount is to be an integral part of transaction of sale itself. (2) The discount should be related to the price of the goods sold and it cannot have any relation to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settled that the amount of trade discount cannot be included as a component of the sale price particularly when it was payable and deductible at the time of sale. Primary and basic feature of normal trade discount is that the discount component cannot be realised from the purchaser as "sale price" and it is to be separately shown and deducted from the sale price unless it was not possible to compute or deduct at the time of invoice. If the listed price is realised from the purchaser and shown in the invoice or seller's account as sale price without any indication about such discount, subsequent adjustment of an amount against price of subsequent purchases cannot ordinarily qualify as trade discount. In the present case not only full price was realised but also sales tax and surcharge were charged on the full price without any discount. Respondent-dealer has relied upon observations of the Supreme Court in Motor Industries Co. [1983] 53 STC 48, Advani Oerlikon [1980] 45 STC 32 and Government of India v. Madras Rubber Factory Ltd. [1995] 77 ELT 433 (SC). In Motor Industries Co. [1983] 53 STC 48 (SC) the dealer was claiming deduction of "service discount" u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gue 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 realisable: Orient Paper Mills Ltd. v. State of Orissa [1975] 35 STC 84." The judgment of the Supreme Court in Advani Oerlikon [1980] 45 STC 32 was not placed and considered in Motor Industries Co. [1983] 53 STC 48 (SC). An analysis of the system followed by the respondent-dealer clearly shows there was not only no deduction of the disputed discount at the time of sale but not even any indication that the purchaser would get such deduction at any future point of time. Moreover, the object of such additional discount was to promote its sale. The discount was being given by issuing credit notes which could not be used for any purpose other than adjustment against the price of any future purchase. Whole purpose was to ensure continuous purchase by the purchasers if they wanted to avail of the discount. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made by the seller to purchaser upon consideration of prompt payment within or before the stipulated date during the period of credit. Admittedly this "turnover discount" was not allowed for prompt payment. This discount was related to achievement of targeted volume of purchases by a dealer within a specified period. Both the assessing authority and the appellate authority disallowed the claim for deduction of the said "turnover discount" on the ground that the said discount could not be cash discount. Board allowed the claim on the ground that it was "very close to the concept of bonus discount", treated it as additional incentive and relied on the observations of the Supreme Court in Motor Industries Co. [1983] 53 STC 48. We have already explained the observations of the Supreme Court in Motor Industries Co. [1983] 53 STC 48, made in the context of the provisions of the Kerala General Sales Tax Rules, 1963 which permitted deduction of all kinds of discounts allowed for commercial reason. A bonus-discount is not trade discount in the strict sense of the term. To qualify for deduction under the West Bengal Act the discount was/is to be either cash d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Credit Scheme, this deduction is liable to be allowed. He found that in the ultimate analysis the dealer pays one per cent less than the catalogue price and that the said claim is also consistent with the clarificatory order of this court in Bombay Tyre International [1984] 2 ECC 102 (SC). (1)Here italicised. 57.. The learned Additional Solicitor General, however, contended that this discount, not being known or paid at the time of removal/ sale, cannot be allowed. 58.. In the light of the findings recorded by the Assistant Collector, it must be held that this is a discount which is known and understood at the time of removal of the goods though it is quantified later. The Assistant Collector has also recorded a finding, 'I also find that such system of grant of discounts is not uncommon in the trade'. Keeping in view the clarificatory order of this court in Bombay Tyre International [1984] 2 ECC 102, this claim must be held to have been rightly allowed by the Assistant Collector." In the present case invoices clearly mentioned that the customer was entitled to one per cent discount. Obviously it was known and understood at the time of removal of the purchased goo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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