The present appeal was preferred by the Petitioner, MRF Ltd., against the assessment orders disallowing exclusion of discount from their turnover of sales. Initially, the appeal was rejected, both by the Deputy Commissioner of Sales Tax (Appeals) and the Jammu and Kashmir Sales Tax (Appellate Tribunal), Jammu. However, the High Court held that the Tribunal was not justified in disallowing the discount from the taxable turnover of the Petitioners.
The present case was related to specific Sales Tax References concerned with M/s. MRF Limited but for different accounting years. Since the facts were identical in all of them and the same legal proposition rose, as a result thereof, the Court, with the parties’ consent, considered it convenient to take them up together.
The assessee was a company manufacturing tyres, tubes, flaps, and tread rubber and sold its products across the country through various sale depots. It allowed a 1% discount to its dealers as per the pre-determined agreement, and the same was duly indicated on each invoice. The discount was allowed uniformly to all dealers without any condition of achieving any particular target and was credited to their respective accounts at the end of each quarter. The assessing authority passed assessment orders regarding the relevant accounting years, disallowing the exclusion of discount from the turnover of sales of the assessee on the ground that the discount was not deducted from the invoice amount and was adjusted later on. Hence, it acted as a bonus or incentive to the dealers.
The assessee preferred appeals against the assessment orders before the Deputy Commissioner of Sale Tax (Appeals), Jammu, which were dismissed by a common order on the ground that the discount was not deducted from the invoices, and hence, was not liable to be excluded from the turnover. The assessee was not satisfied by the appellate orders and preferred further appeals to the J&K Sales Tax (Appellate Tribunal), Jammu. The latter one was also dismissed on the same lines. Therefore, the assessee demanded a reference under Section 12-D of the J&K General Sales Tax Act 1962 to the High Court on the ground that the matter involved substantial question of law as to whether discount granted to the dealers on purchase of the products manufactured by the assessee is deductible from the gross turnover for levy of tax upon the assessee. The Tribunal vide order dated 28.01.2010 refused reference to the High Court. Further, the assessee preferred these references contending that the refusal on the Tribunal’s part to refer the matter to the High Court was illegal and that the references involve substantial questions of law that must be considered and answered by the Court.
Arguments Before the Court
Sh. Pranav Kohli, the learned counsel of the Petitioners, submitted that given the definition of turnover contained in Section 2 (n) of the Act read with Rule 19 of the J&K General Sales Tax Rules 1962, the taxable turnover of an assessee would be liable to be determined after allowing certain deductions that include a discount on the sales/purchases.
Sh. D. C. Raina, the learned counsel of the Defendants, submitted that the assessee did not qualify for any deduction of discount on the sales as the discount allowed was not deducted at the price of the goods indicated in the Sale bill/voucher and that there was no proof that the purchaser had paid lesser amount than shown in the Sale bill/voucher by way of discount as required under Rule 19. Thus, the authorities have correctly disallowed the deduction of the discount from the turnover of the assessee.
The Court heard the facts and was satisfied that the references do involve a substantial question of law.
For the present case, the Court referred to provisions such as Section 2 (ll) of the Act that defines ‘sale price’, Section 2 (n) of the Act that defines ‘turnover,’ and Rule 19 of the Rules. The Court observed that the assessee had a clear understanding with the dealers, allowing them a 1% discount on the value of the product and reimbursing the same based on credit notes. The grant of such discount is clearly depicted in the sale bill/voucher/invoices. Further, the Court referred to the case of Union of India and Ors. v. Bombay Tyres International (P) Ltd., (2005) 3 SCC 787, where the Supreme Court observed that the trade discounts should be allowed to be deducted from the sale price if pre-determined. It was held that such trade discounts should not be disallowed only because they are not payable at the time of sale or deducted from the invoice price. The Court also referred to another Delhi High Court case involving similar controversy concerning the present assessee itself.
Referring to the cases mentioned above, the Court opined that the assessee herein was also entitled to have its taxable turnover determined after excluding a 1% turnover discount. It further said that the assessee fulfilled the conditions enumerated in Rule 19 of the Rules, as the Rule mentioned above provided for calculating the taxable turnover after allowing deduction of the discount granted from the price of the goods mentioned in the sale bill/voucher.
After hearing the parties’ contentions and making the observations above, the Court concluded that the authorities had adopted a very technical approach in disallowing the deduction of discount from the taxable turnover of the assessee. The Court answered the references favouring the assessee and held that the Tribunal was not justified in disallowing a 1% discount from the taxable turnover of the assessee, and the findings that the assessee did not fulfil the conditions of Rule 19 were wrong. Further, the Court allowed the references and directed the authorities to proceed accordingly.
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