DEPUTY COMMISSIONER OF SALES TAX (LAW), BOARD OF REVENUE (TAXES), ERNAKULAM versus MOTOR INDUSTRIES CO., ERNAKULAM

Citation: [1983] 2 S.C.R. 384 · Decided: 18-02-1983 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Case Partly allowed

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Judgment (excerpt)

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384 
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DEPUTY COMMISSIONER OF SALES TAX (LAW), 
BOARD OF REVENUE (TAXES), ERNAKULAM 
v, 
MOTOR INDUSTRIES CO., ERNAKULAM 
February 18, 1983 
(P. N. BHAOWATI AND Ii. S. VENKATARAMIAH, JJ.J 
Kera/a G•neral Sales Tax Rule's, 1963-rs .9(a) and 9(b)(i)-Wh.nan 
additional disco"u_nt allowed may be deducted from taxable turnover under r. 9(a)~ 
Deduction in respect of ·returned goods' under r. 9(b)(i) can only be made from 
turnover of assessment year in which returned goods were sold. 
The respondent was an assessee under the Kerala General Sales Tax 
Act, 1963. In determining the taxable turnover for the assessment year 1973-74, 
it claimed exemptions in respect of a 'service discount' under r. 9(a) and an 
amount of Rs. 982.83 in res Peet of 'sales returns' under r, 9(b)(i) of the Kerala 
General Sales Tax Rules, 1963. The Assistant Commissioner disallowed the 
claim on both the counts stating that while tht 'service discount' had not been 
allowed as a discount in accordance with the terms of the sale but as an over-
riding commission aod incentive to promote trade, the 'sales returns' related to 
the sales completed in the assessment year 1972-73. Io appeal, the Deputy 
Commissioner allowed the a:ssessee's claim in respect of 'service discount' in 
full and that in respect of 'sales returns' to the extent of Rs. SS2.10. The 
Department's appeal before the Appellate Tribunal and the revision filed by it 
before the High Court were dismissed. 
The appellant contended that the 'service discount' could not strictly be 
termed as discount as it was in lieu of services rendered by the respondent's main 
distributors by way of popularisation of the sales and consumption of the 
products sold by the assessee and that it was either in the nature of a set-off 
on account of reciprocal prorrlises or it amounted _to consideration for an 
"agreement sly led as .. trading in"; and that the deduction claimed in respect of 
'sales returns' could not. be allowed from ·the taxable turnover for the year 
1973-74 6S any deduction under r. 9(b)(i) couid only be made from the total 
turnover of the assessment year in which tbe· goods were actually sold. 
Dismissing the appeal in so far as it concerned the 'service discount", 
and allowing the same in respect of. 'sales returns', 
HELD: 
Rule 9 (a) !lays that all amounts allowed as discount either in 
accordance with regular practice or in accordance with agreement would be 
deductible from the total turnover provided they are duly supported by the 
~ntries in the accounts of tb~ ~s~es~ee. 
Ordin~rily~ any concession shown in 
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c.s.T. v. MOTOR INDUSTRIES 
3ss 
the price of goods for any commercial reason would be a trade discount which 
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can 1cgitimately be claimed as a deduction under r. 9(a). Such a concession is 
usually allowed with the object of improving prospects of one's own business. 
It is common experience that when goods·are marketed through reputed concerns, 
the demand for -such 'goods increases and correspondingly the business of the 
manufacturer or the wholesale dealer would become more and more prosperous. 
Hence any concession in price shown in such circumstances by way of an 
additional incentive with a view to promote one's own trade does qualify for 
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ded_uction as a trade discount. It cannot be termed as a service charge. [389A-D] 
In the instant case, the 'sefvice discount' in respect of which the deduc-' 
tion was claimed was· the additional trade discount allowed by the assessee to 
its main distributors over and above the normal trade discount in consideration 
of the extra benefit derived by the assessee by reason of the marketing of its 
goods through them. It is not disputed that there were such agreements between 
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the assessee and the purchasers 8nd the accounts of the assessee truly reflected 
the actual discount allowed to the purchasers. Apart from buying the products 
of the assessee" no other service was rendered by the dealers to the aSS01see. · 
The additional discount or 'service discount' is no other than the discount 
referred to in r.9 (a). [388 E-H; 389 D-E] 
(b) 'Trade-in' contracts are those where goods at'e transferred by the 
seUer for consideration partly' in money and partly in exchange of some other 
go_ods to be sold by the buyer to the seller. In such .cases there may be one 
contract of sale only of the principal goods coupled with a subsidiary agreement 
that if the buyer delivers to the s

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