M/S Maya Appliances (P) Ltd Now Known As ... vs Addl. Commissioner Of Commercial Taxes

1 The appellant manufactures home appliances such as mixer grinders, wet grinders and gas stoves. According to the appellant, based on a regular trade practice, it allows discounts to its distributors. These discounts may take the form of a scheme discount or, as the case may be, a quantity discount. The appellant claims the discount as a deduction from the total turnover while arriving at the Digitally signed by SATISH KUMAR YADAV Date: 2018.02.06 14:41:55 TLT Reason: taxable turnover under the Karnataka Value Added Tax Act 2003 (‘the Act’). 2 2 On 29 May 2010, the Deputy Commissioner of Commercial Taxes, Bengaluru disallowed the quantity discount accorded by the appellant to its distributors on the ground that the discount was not relatable to the sales effected by the relevant tax invoices. The assessing authority held that the quantity discount offered by the appellant could not be allowed under Rule 3(2)(c) of the Karnataka Value Added Tax Rules 2005 (‘the Rules’). The period in question was 1 April 2006 to 31 March 2007, 1 April 2007 to 31 March 2008 and 1 April 2008 to 31 March 2009.

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 the aggregate amount for which the goods are sold and the term ‘aggregate’ means the net amount for which the goods are sold. The appellant claims that allowing a discount on the basis of the quarterly performance of its dealers is only a measure adopted by it for the computation of the discount. However, the discount is given in a sales bill and VAT is collected on the net sale consideration after the deduction of the discount. The High Court, it has been submitted, erred in rejecting the case of the appellant on 4 the ground that the discount is given in respect of the performance of the previous quarter and not in respect of the sales transaction for which the invoice is raised. The High Court, it has been submitted, has failed to notice that Section 2(36) mandates that turnover be computed as the aggregate amount for which goods are sold. It has been urged that deductions on account of trade discounts are given under agreement; or under terms of sale or by established practice and should not be disallowed only because they are not payable at the time of each invoice or deducted, from the invoice price (Union of India v Bombay Tyre International Ltd1). Moreover, periodical discounts such as half yearly discounts cannot, by their very nature, be shown on the face of each invoice as the discount is known only at the end of the relevant period. Since the discount is known and understood at the time of the removal of goods, though quantified later, it was held to be eligible for deduction as held in Government of India v Madras Rubber Factory Ltd2. In sum and substance, the case of the appellant is that the sale price received by it is the net amount exclusive of discount. It is understood at the time of the sale itself that the customer would be entitled to a discount, the quantum being computed at the end of the quarter. Hence, the real sale price charged by the appellant for parting with the goods is the net amount exclusive of discount and hence the trade discount given by the appellant cannot form a part of the sales turnover. Finally, it 1 (2005) 3 SCC 787 2 (1995) 4 SCC 349 5 has been urged that a literal construction of Rule 3 (2)(c) would render it unworkable and practically impossible to implement.

13 We accordingly allow the appeals and set aside the judgment of the High Court. We direct that in computing the taxable turnover for the relevant years, the appellant would be entitled to a deduction of the trade discount, following the parameters laid down in paragraph 40 of the judgment in Southern Motors (supra) and as explained above. There shall be no order as to costs.

.................................................CJI [DIPAK MISRA] .…...............................................J [A M KHANWILKAR] ...................................................J [Dr D Y CHANDRACHUD] New Delhi February 06, 2018