In computing taxable turnover Trade Discount needs to be deducted: SC

M/s Maya Appliances (P) Ltd Vs Addl. Commissioner of Commercial Taxes & Ors (Supreme Court of India)

The liability to pay tax is on the taxable turnover. Taxable turnover is arrived at after making permissible deductions from the total turnover. Among them are “all amounts allowed as discounts.” Such a discount must, however, be in accord with the regular trade practice of the dealer or the contract or agreement entered into in a particular case. The expression “the tax invoice or bill of sale issued in respect of the sales relating to such discount shows the amount allowed as such discount” is not happily worded. The words “in respect of the sales relating to such discount” cannot be construed to mean 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. Above all, it must be remembered that taxable turnover is turnover net of deductions. All trade discounts are allowable as permissible deductions.

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.

FULL TEXT OF THE HON’BLE SUPREME COURT JUDGMENT / ORDER IS AS FOLLOWS:-

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 taxable turnover under the Karnataka Value Added Tax Act 2003 (‘the Act’).

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