Maya Appliances (Private) Limited vs The Additional Commissioner of Commercial Taxes

Dilip B. Bhosale, J.—Heard learned Counsel by consent for final disposal of the appeals at the stage of admission. These sales tax appeals arise from the order dated 8-5-2012 passed by the Additional Commissioner of Commercial Taxes, Zone-I, Bangalore (for short ''Revisional Authority''), in exercise of the powers u/s 64(1) of the Karnataka Value Added Tax Act, 2003 (for short, ''KVAT Act''). By this order, the Revisional Authority set aside the order passed by the Joint Commissioner of Commercial Taxes (Appeals-1), Bangalore (for short ''the FAA''), dated 12-10-2010 whereby the order of Deputy Commissioner of Commercial Taxes (DM-31), VAT Division-3, Bangalore (for short ''Assessing Authority''), dated 29-5-2010, for the tax periods between April 2006 to March 2007, April 2007 to March 2008 and April 2008 to March 2009, has been set aside.

In the present appeals, filed u/s 66(1) of the KVAT Act, the appellant-assessee, in the memorandum of appeals, has formulated the following questions of law for our consideration:

(i) Whether on the facts and in the circumstances of the case and in law and so also in the light of judgment of the Supreme Court, the Additional Commissioner of Commercial Taxes, Zone 1 was justified in passing the impugned order holding that quantity discounts allowed in the tax invoices are not eligible for deduction?

(ii) Whether on the facts and in the circumstances of the case and in law, the Additional Commissioner of Commercial Taxes, Zone I acted in violation of judicial discipline in passing the impugned order without following the judgment of the Supreme Court mentioned in the grounds of appeal?

The appellant-assessee is a Private Limited Company registered under the Companies Act, 1956 and engaged in manufacture of Home Appliances like Mixer Grinder, Wet Grinder, Gas Stoves etc. The assessee claims that as per their regular trade practice they allow discounts such as scheme discount/quantity discount to its distributors and claim the same as deduction from the total turnover while arriving at the taxable turnover. The Assessing Authority had disallowed the quantity discount accorded by the appellant to its distributors on the ground that such discounts are not relatable to the sales effected by the relevant tax invoices. In other words, it was held that the quantity discount, as claimed by the assessee, is not allowable under Rule 3(2)(c) of the Karnataka Value Added Tax Rules, 2005 (for short ''KVAT Rules'').

The sole contention urged before this Court by learned Counsel for the appellant was that the discount allowed by the assessee was reflected in the tax invoice and it was granted as per regular practice and what the assessee received by way of consideration was net after deduction of discount. He submitted that this is nothing but a trade discount and hence the assessee is entitled for deduction to be allowed under Rule 3(2)(c) of the KVAT Rules. In support of his contention, he placed reliance upon the judgment of the Supreme Court in IFB Industries Ltd. Vs. State of Kerala, and the judgment of the Patna High Court in Mapra Laboratories Pvt. Ltd. Vs. State of Bihar and Others .

We have perused both the judgments and we find that the provision that fell for consideration of the Supreme Court in IFB Industries case, namely Rule 9(a) of the Kerala General Sales Tax Rules, 1963 and the Rule that falls for our consideration namely Rule 3(2)(c) are not identical. Rule 9(a) of the Kerala General Sales Tax Rules, 1963 does not speak of tax invoices, but it simply stipulates that the discounts must be shown in the accounts. Rule 3(2)(c) of the KVAT Rules is different. Even the provision that fell for the consideration of the Patna High Court also was different.

Charging provision in the KVAT Act is Section 3, which provides that the tax shall be levied on every sale of goods in the State by a registered dealer or a dealer liable to be registered under the provisions of the Act. Section 4 provides that every dealer who is or is required to be registered shall be liable to pay tax on his taxable turnover. Section 2(34), defines ''taxable turnover'' to means that the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed. ''Total turnover'' is defined by Section 2(35) to means the aggregate turnover in all goods of a dealer at all places of business in the State. Section 2(36) defined ''turnover'' to means the aggregate amount for which goods are sold or distributed or delivered or otherwise disposed of in any of the ways referred to in clause (29) by a dealer.

At this stage, it would be advantageous to reproduce the relevant part of Rule 3 of KVAT Rules for better appreciation of the submission advanced by learned Counsel for the appellant. Rule 3(2)(c) and first proviso of KVAT Rules reads thus:

Determination of turnover.--.....

(2) The taxable turnover shall be determined by allowing the following deductions from the total turnover.--

(a) x x x x x x

(b) x x x x x x

(c) All amounts allowed as discount:

Provided that such discount is allowed in accordance with the regular practice of the dealer or is in accordance with the terms of any contract or agreement entered into in a particular case and the tax invoice or bill of sale issued in respect of the sales relating to such discount shows the amount allowed as discount.

(emphasis supplied)

Rule 3 of the Rules deals with the determination of turnover. The total turnover of a dealer, shall be aggregate of what is mentioned in this rule. Sub-rule (2) of Rule 3 deals with the determination of taxable turnover. The taxable turnover shall be determined by allowing the deductions mentioned in sub-rule (2). The proviso to clause (c) of sub-rule (2) of Rule 3 makes it clear that such discount is allowed in accordance with the regular practice of the dealer or is in accordance with the terms of any contract or agreement entered into a particular case and "the tax invoice or bill of sale issued in respect of the sales relating to such discounts show the amount allowed as discount". It is thus clear that a dealer may have the particular practice or a contract agreement with the purchaser in respect of such discount to be given. Such practice or contract or agreement should be in existence before issuing of tax invoice. The dealer seeking benefit of deduction of the value representing discount from the "total turnover in the sale invoice", can mention the gross value of the property sold plus tax and discounts given and then declare the same in the return to be filed by him on that basis, to arrive at the taxable turnover. If the said discount is not reflected in the sale invoice, the same cannot be deducted from the total turnover in arriving at the taxable turnover. Thus, under sub-rule (2) of Rule 3 of the Rules the taxable turnover shall be determined by allowing the deductions. The proviso to clause (c) of sub-rule (2) makes it mandatory that the said discount should be reflected in the sale invoice and that too, in our opinion, it should be in respect of the sale of goods reflected in the said sale invoice, otherwise the dealer-assessee is not entitled for deduction of the amount of discount from the total turnover.

The constitutional validity of the proviso to sub-rule (2)(c) of Rule 3 of the KVAT Rules fell for consideration of this Court in W.P. No. 9464 of 2008 ( Southern Motors Vs. State of Karnataka, ). This Court while upholding the constitutional validity of the said provision in paragraph 5 of the judgment observed thus:

The value of the sale transaction is as fixed at the time of sale and even in terms of the charging section. There is no scope for fixing the price later. If under the rule, the benefit is made available subject to the condition that the discounted price should have been so indicated in the invoice value of the goods, the condition is neither ultra vires Section 30 of the Act nor is discriminatory. I do not find any infirmity in the rule nor the rule being ultra vires under the provisions of Section 30 of the ''KVAT'' Act.

In the Writ Appeal No. 1198 of 2008, challenging the judgment dated 16-7-2008 in W.P. No. 9464 of 2008, the dealer/assessee did not press challenge to the constitutional validity of Rule 3(2)(c) of the Rules.

In the present case, the assessee seeks deduction of the value representing quantity/scheme discount allowed in the tax invoices in view of their performance during 3-6 months and not in respect of the goods sold by the said tax invoices, mentioning gross value. It is true that the invoices to which the assessee made reference, state the gross value of the goods sold plus tax and the quantity/scheme discount and then declared the same in the return filed by him to arrive at taxable turnover. The tax invoice, to which our attention was drawn, shows that certain goods manufactured by the assessee were sold to the distributors and as per the scheme, discount was offered on the basis of their past performance. From bare perusal of the invoice it is clear that the discount shown in the invoice is not relatable to the sale of goods by the said invoice, and that being so, in our opinion, the assessee cannot claim deduction under Rule 3 of the Rules. It is not in dispute that the quarterly discount in the form of quantity discount/scheme discount was allowed in the tax invoices on the basis of performance of the previous quarter and not in respect of the sales reflected in the said invoices.

Learned Counsel for the assessee fairly submits that the discount shown in the invoice was not for the sale of goods mentioned in the said invoice but it was for the performance of the assessee during 3-6 months prior to the date of invoice. The scheme discount offered clearly shows that it was by way of incentive to the dealer for doing good business during 3-6 months prior to the date of invoice. It is definitely not relatable to the sale of goods by the said invoice. It is necessary that the discount reflected in the tax invoice of sale should be in respect of the sales relating to such discount shown in the said invoice. Rule 3 of the KVAT Rules clearly provides that the tax invoice or bill of sale should be in respect of the sales relating to such discount shown therein only will be allowed to be deducted under Rule 3(2)(c) of the KVAT Rules. Admittedly, the discount shown in the relevant invoices was not relating to the sales reflected in the said invoices, but for the sales effected earlier. It is in this backdrop, in our opinion, the Revisional Authority has rightly set aside the order passed by the FAA and restored the order passed by the Assessing Authority holding that the discounts reflected in the tax invoices were not relatable to the sales effected by those tax invoices. We do not find any reason to interfere with the order passed by the Revisional Authority. The questions of law raised, in our opinion, do not arise for our consideration, in these appeals and hence, the appeals are dismissed summarily. Consequently, the interim application stands disposed of.