Credit notes not affecting input tax already deposited not to be treated as taxable turnover

Saji Thomas Vs Assistant Commissioner (Kerala High Court)

Facts- The writ petitioner is a registered dealer under the Kerala Value Added Tax Act 2003. 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 value-added tax. The reply of the dealer is that the cash credit or discount now proposed to be included in the turnover was on the purchases made by the dealer/petitioner. The respective suppliers/manufacturers paid tax on the gross amount shown in the tax invoice. The discount received on purchases by the dealer from the supplier, firstly, suffered tax at the hands of the supplier, and secondly, there is no concealment of turnover. The dealer’s reply was rejected, confirming the proposal to add the amount received by way of discount to total turnover and tax was demanded.

Conclusion- 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 sub-section (lii) Explanation VII of the Kerala Value Added Tax Act.

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.

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