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TMI Blog2022 (5) TMI 1300X X X X Extracts X X X X X X X X Extracts X X X X ..... te. (c) The Legislature incorporated the second limb to the Fifth proviso to Section 11(3) and by such amendment, the Legislature has taken out from the purview of assessment, credit notes received subsequent to invoice and payment of tax by the manufacturer/supplier and not claiming refund or adjustment of input tax. (d) In cases in which tax is paid at the time of invoice, and no adjustment of input tax is claimed by the manufacturer or the supplier, then, even if the dealer sells it at a lesser price and claims input credit proportionate to the sales price, and subsequently receives credit note from manufacturer/supplier, such credit notes, discount, loss on recoupment is not included for assessment, subject to manufacturer/supplier not claiming refund or adjustment of input tax already deposited. In other words, the credit notes not affecting input tax already deposited cannot be treated as taxable turnover by the extended meaning of Section 2 subsection (lii) Explanation VII of the Kerala Value Added Tax Act. (e) In the scheme of value addition and payment of tax on such value addition, the levy of tax is justified on value addition, but, without value addition, sale, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered dealer under the Kerala Value Added Tax Act 2003 (for short, the Act ). The petitioner is a trader in cement. As per the trade practice, the suppliers extend discounts to buyers based on the purchases made by the dealers from the suppliers in an accounting year. The deductions, namely, turnover discount, target discount, additional discount, special discount etc., are allowable deductions from the sales price or the purchase price, as the case may be, subject to the value of goods paid by buyers is the amount less such discount. W.P.(C) No.5467/2017 is filed challenging reassessment order dated 24.01.2017 for return period 2013-14. During the return period, the dealer received cash discount from the suppliers based on the purchases the petitioner made from respective suppliers. The returns filed by the dealer, in regular course, are accepted. Subsequently, the 1st respondent issued a notice under Section 25 of the Act proposing to revise the returns and complete the assessment on best judgment for the year 2013-14. The reason for reassessment is that a part of the sales turnover of the dealer has not undergone self assessment and did not suffer valueadded tax. The repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax payable by the petitioner on the enhanced sales turn over. 11. Thirdly, if it is found that the petitioners' sale price in respect of the product, is less than his purchase price, but it cannot be demonstrated that the discount subsequently received by the petitioners is an amount received towards the balance of the sale price, then, so long as the supplier of goods to the petitioners has paid his output tax, on the price inclusive of the discount that was subsequently offered to the petitioners, the input tax credit availed by the petitioners cannot be varied, taking note of the provisions of the 5th proviso to Section 11(3) of the KVAT Act. The assessment order was challenged as contrary to the tests laid down by the learned Single Judge in W.P.(C) No.5077/2009 and batch. We hasten to add that the challenge of assessment orders as contrary to the Single Judge s judgment is not examined by us. 3.2 The common case of dealers is that credit note received subsequent to the date of the invoice is covered by the Fifth proviso to Section 11(3) of the Act, but the Revenue, by applying Explanation VII to Section 2(lii) of the Act, contends that where a dealer sells any goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act while deciding what constitutes turnover. Therefore, the correctness of the ratio laid down in the decisions (a) Cement House v. State of Kerala; (b) State of Kerala v. Syed Muhammed and (c) Tenny Devassy v. State of Kerala was, for valid reasons, was doubted by the Division Bench in the Reference Order dated 24.07.2020. 4.1 It is further contended that Explanation VII to Section 2(lii) would result in taxing the discount offered as credit notes by the supplier, which does not form part of the sale price. Section 6, the charging section, stipulates the charge on the sales turnover, at any rate, does not include the discount offered as recoupment of loss, reimbursement of price, etc. The supplier has paid tax on the invoice price, affirming not to claim adjustment from input tax. The dealers can claim credit of input tax proportionate to the price at which the dealer sells to a third party. There is no escapement of tax. 4.2 The interpretation canvassed by Revenue on Explanation VII to Section 2(lii) for arriving at the purchase price and sale price results in the erroneous and illegal application of Explanation VII to Section 2(lii) of the Act. Explanation VII t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 2(lii) read together, there is no escape from the conclusion that credit notes, discounts, received at a subsequent point of time, are received on account of the sale of goods by dealer at a price lower than the purchase cost. The inclusion of such an amount in turnover is legal and justifiable. 5.1 Replying to the argument of dealers on Section 11(3), it is contended that the dealer s interpretation of proviso to Section 11(3) is unavailable. He argues that Section 11(3) deals with, subject to provisions of sub-sections (4) to (13), the input tax credit shall be allowed to a registered dealer in respect of the return period against the output tax payable by him for such period. The dealer shall pay to Government the balance of the output tax in excess of the input tax, credited in the manner prescribed. Being Value Added Tax, by giving credit to the tax already paid, tax is collected on the value added to the goods at the hands of the latest dealer. A proviso is understood and appreciated as an exception. 5.2 The first part of the Fifth proviso denied credit of input tax, where the tax paid on the turnover is subsequently allowed as a discount and disallowed where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 2005 (for short Amendment Act ) with effect from 01.04.2005. The amended provision, i.e., Explanation VII, reads as under: *** *** *** Explanation VII:- Where a dealer sells any goods purchased by him at a price lower than that at which it was purchased and subsequently receives any amount from any person towards reimbursement of the balance of the price, the amount so received shall be deemed to be turnover in respect of such goods. The Fifth proviso to Section 11(3) was amended with effect from 01.04.2005 by the Kerala Finance Act 2008 , and the latter portion was added to the existing proviso. The Budget Speech dealing with the amendment to the Fifth proviso to Section 11(3) of the Act is excerpted hereunder: There is some disquiet among trade regarding the treatment of credit notes. It is proposed to amend the KVAT Act to make it clear that credit notes that do not affect input tax credit will be permitted. It will be further clarified that reimbursement of expenses in the trade through credit note will not affect the tax liability of the dealer. Circular No.41/2007, issued by the Commissioner for ready reference, is excerpted hereunder: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. (emphasis supplied) It is fairly well established that in a taxing Act one must merely look at what is clearly stated in the Section or the Act. There is no room for intendment. There is no equity about tax. There is no presumption to tax, and nothing is read into a Section. Likewise, nothing is implied. One looks at the language used by the Legislature for deciding the incidence, person, or rate of tax. In the instant circumstance, the State Legislature has jurisdiction to define and decide the taxable events, turnover, taxable turnover, total turnover, taxable persons, the measure of tax, and the rate of tax under the Act. As part of its policy of imposing compensatory tax from the above-stated situations, the Legislature, in its wisdom and experience, defines what constitutes sale price, purchase price, turnover etc. The liability to pay or exemption from payment arises depending upon the expression employed by the Legislature. 6.4 At this juncture, we keep in perspective the basic concepts of Value added and Value added tax . Value added . The increase in value of a product or service resulting from an alteration in the form, location or availabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an Act are to be applied only when there is nothing repugnant in the subject or context, and this is so even if such a qualifying provision is not expressly stated by the legislature. 7.2 An explanation, at times, is appended to a section to explain the meaning of words contained in the section. It becomes part and parcel of the enactment. The meaning to be given to an explanation must depend upon its terms, and no theory of its purpose can be entertained unless it is to be inferred from the language used. Purposive construction is permissible if any other construction which does not fit in with the description or the avowed purpose. We may sum up the objects of an explanation by quoting from to Sundaram Pillai v. Pattabiraman (1985) 1 SCC 591: (a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve. (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or change th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, in the following words: (AIR p. 1600, para 9) 9. As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment, and ordinarily, a proviso is not interpreted as stating a general rule. And in the words of Kapur. J.2 (AIR p. 717, para 9) *9. ...The proper function of a proviso is that it qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso would fall within the main enactment.... (emphasis supplied) 92. But then these principles are subject to other principles of statutory interpretation which may supplement or even substitute the above formula. These other rules which have been categorised by Justice G.P. Singh are summarised as follows: 92.1. A proviso is not construed as excluding or adding something by implication: Except as to cases dealt with by it. a proviso has no repercussion on the interpretation of the enacting portion of the section so as to exclude something by implication which is embraced by clear words in the enactment. 92.2. A proviso is construed in relation to the subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, this is only true of a real proviso. The insertion of a proviso by the draftsman has not always strictly adhered to its legitimate use and at times a section worded as a proviso may wholly or partly be in substance a fresh enactment adding to and not merely excepting something out of or qualifying what goes before. 93. Perhaps the most comprehensive and oft-cited precedent governing the interpretation of a proviso is the decision of this Court in S. Sundaram Pillai v. V.R. Pattabiraman, S. Murtaza Fazal Ali, J. speaking for a three-Judge Bench of this Court held: (SCC p. 610, para 43) 43. .To sum up, a proviso may serve four different purposes: (1) qualifying or excepting certain provisions from the main enactment: (2) it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable: (3) it may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and (4) it may be used merely to act as an optional addenda to the enactment with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f, or amounts covered by credit notes received by the dealer on account of reimbursement of any expenses incurred by the dealer are not reckoned for the purpose of assessment under this Act. In other words, the word but whether is used in the Fifth proviso as a conjunction, a preposition or an adverb is appreciated. The word but is used as a conjunction for joining two ideas or statements when the second one is different from the first one. The first limb of the Fifth proviso reads thus: Provided also that input tax credit shall not be available in respect of the tax paid on the turnover subsequently allowed as discount, and shall be disallowed where it is found that the dealer has claimed input tax credit under this section on such turnover or of such goods used in the manufacture of goods sent outside. The first limb deals with where a dealer allows discount subsequent to sale; the input tax in relation to the discount so allowed will be denied to the buyer. The amended proviso does not deny such claim if, firstly, the amount covered by credit notes that do not affect the input tax credit already availed of; secondly, the amount covered by credit notes received by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I must be read and interpreted as defined in the Act unless the context otherwise requires. The Fifth proviso is a context otherwise spelt out by Kerala Finance Act 2008, effective from 01.04.2005. The Legislature, in its competence, wisdom and policy of providing measures to a few individuals in the trade, added a second limb to the Fifth proviso to Section 11(3) of the Act. The amended portion of proviso does not deny such claim if, firstly, the amount covered by credit notes that do not affect the input tax credit already availed of; secondly, amount covered by credit notes received by the dealer towards reimbursement of expenses incurred by the dealer. 9.1 The argument of Revenue to include such cash credits as turnover under Section 2(lii) Explanation VII does not fit into the context in which the Fifth proviso is incorporated. We have construed the text of relevant provisions and apply natural and literal meaning to the expressions both in Section 2 and 2(lii) read with Explanation VII and Fifth proviso to Section 11(3) of the Act. The Revenue applies the extended meaning of Explanation VII to Section 2(lii) of the Act for bringing within the scope of turnover. This argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to invoice and payment of tax by the manufacturer/supplier and not claiming refund or adjustment of input tax. (d) In cases in which tax is paid at the time of invoice, and no adjustment of input tax is claimed by the manufacturer or the supplier, then, even if the dealer sells it at a lesser price and claims input credit proportionate to the sales price, and subsequently receives credit note from manufacturer/supplier, such credit notes, discount, loss on recoupment is not included for assessment, subject to manufacturer/supplier not claiming refund or adjustment of input tax already deposited. In other words, the credit notes not affecting input tax already deposited cannot be treated as taxable turnover by the extended meaning of Section 2 subsection (lii) Explanation VII of the Kerala Value Added Tax Act. (e) In the scheme of value addition and payment of tax on such value addition, the levy of tax is justified on value addition, but, without value addition, sale, or purchase, and for the amount retained by the dealer value-added tax is demanded contrary to Section 11(3) Fifth proviso of the Act. The question is answered as indicated above. The matters are directed to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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