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TMI Blog2018 (2) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the discount would be inadmissible as a deduction unless the tax invoice pertaining to the goods originally issued shows the discount. This is a matter of ascertainment - The assessee must establish from its accounts that the discount relates specifically to the sales with reference to which it is allowed. In the first part of the proviso, Rule 3(2)(c) recognizes trade practice or, as the case may be, the contact or agreement of the dealer. The latter part which provides a methodology for ascertainment does not override the earlier part. Both must be construed together. It must be remembered that taxable turnover is turnover net of deductions. All trade discounts are allowable as permissible deductions. Similar issue decided in the case of M/s. Southern Motors Versus State of Karnataka And Others [2017 (1) TMI 958 - SUPREME COURT], where it was held that If taxable turnover is to be comprised of sale/purchase price, it is beyond one's comprehension as to why the trade discount should be disallowed, subject to the proof thereof, only because it was effectuated subsequent to the original sale but evidenced by contemporaneous documents and reflected in the relevant accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the sales offered under the same invoices. 5 The appellant instituted Sales Tax Appeals before the High Court of Karnataka. By a judgment dated 19 March 2014, a Division Bench of the Karnataka High Court dismissed the appeals. 6 The case of the appellant is that it offers a quantity discount to its distributors depending on their performance during the previous quarter. This is part of a marketing/sales strategy under which the appellant allows a certain percentage as a quarterly discount to its dealers on the basis of the sales turnover generated by a dealer in every quarter of the financial year. The discount is given by the appellant to its dealers in the sales invoices raised in the subsequent quarter. The amount of the discount is deducted from the gross sale price and VAT is collected and remitted on the net sale price. According to the appellant, the discount is offered in the regular course of business and the amount which it receives towards sales consideration is only the net amount exclusive of discount, on which VAT is collected. Sales tax is leviable on the sale consideration received/receivable. Section 2 (36) defines the expression turnover as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is permissible as a deduction in computing the taxable turnover only if the tax invoice issued in respect of the sales relating to such discount shows the amount allowed as discount. The taxable event is the sale and the sale price has to be determined on the basis of the tax invoice or sales bill issued at the time of sale from the seller to the purchaser. The sale price cannot be altered or modified subsequent to the date of issuance of the tax invoice or sales bill. According to the respondents, Rule 3 (2)(c) makes it mandatory that only a discount reflected in the sales invoice is eligible for deduction. Admittedly, the discounts shown in the invoices of the appellant were not for sale but for the performance of the previous period of three to six months before the date of the invoice. In the submission of the respondents, a harmonious reading of Section 3, the charging section, along with the definition of taxable turnover in Section 2(34), total turnover in Section 2(35) and turnover in Section 2 (36) read with Rule 3(2)(c) would show that a performance-based discount, issued at a much later date after assessing the performance of the dealer for a given period would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivered or otherwise disposed of. The taxable turnover is computed after making such deductions from the total turnover and in such manner as may be prescribed ( total turnover is defined by Section 2(35) to mean the aggregate turnover in all goods of a dealer at all places of business in the States). In arriving at the taxable turnover, the statute contemplates deductions, as prescribed, are to be made from the total turnover. The liability to pay tax is on the taxable turnover. Taxable turnover is the net amount that remains upon making deductions as prescribed from the turnover. 9 Rule 3 of the Rules provide for the determination of turnover. Clause (1) of Rule 3 provide for the determination of the total turnover of a dealer. Clause (2) provide for the determination of the taxable turnover. Taxable turnover is arrived at by making the deductions which are stipulated in clause (2) from the total turnover. Rule 3(2)(c) provides as follows: (2) The taxable turnover shall be determined by allowing the following deductions from the total turnover:- (c) All amounts allowed as discount: PROVIDED that such discount is allowed in accordance with the regular practice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable at the time of each invoice or deducted from the invoice price. In the of view of this Court : 29 Perceptionally, if taxable turnover is to be comprised of sale/purchase price, it is beyond one's comprehension as to why the trade discount should be disallowed, subject to the proof thereof, only because it was effectuated subsequent to the original sale but evidenced by contemporaneous documents and reflected in the relevant accounts. (Id at page 485) The Legislature, the Court held, would not be unaware of the prevalent practice of offering trade discounts in commercial dispensations. In the view of the Court: 38 To insist on the quantification of trade discount for deduction at the time of sale itself, by incorporating the same in the tax invoice/bill of sale, would be to demand the impossible for all practical purposes and thus would be illogical, irrational and absurd. (Id at page 492) This Court accordingly read down the first proviso to Rule 3(2)(c) in the following manner: 40. On an overall review of the scheme of the Act and the Rules and the underlying objectives, in particular of Sections 29 and 30 of the Act and Rule 3 of the Rules, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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