MAYA APPLIANCES (P) LTD NOW KNOWN AS PREETHI KITCHEN APPLIANCES PVT. LTD. versus ADDL.COMMISSIONER OF COMMERCIAL TAXES & ORS

Citation: [2018] 2 S.C.R. 250 · Decided: 06-02-2018 · Supreme Court of India · Bench: DIPAK MISRA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2018] 2 S.C.R.
M/S MAYA APPLIANCES (P) LTD NOW KNOWN AS PREETHI
KITCHEN APPLIANCES PVT. LTD.
v.
ADDL.COMMISSIONER OF COMMERCIAL TAXES & ORS
(Civil Appeal Nos. 357-367 of 2018)
FEBRUARY 06, 2018
[DIPAK MISRA, CJI, A. M. KHANWILKAR AND
DR. D. Y. CHANDRACHUD, JJ.]
 Karnataka Value Added Tax Rules, 2005 – r.3(2)(c) – Claim
for deduction of trade discount from the total turnover – Appellant’s
case that it offers a quantity discount to its distributors depending
on their performance during the previous quarter – According to
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
– Appellant claimed the discount as a deduction from the total
turnover while arriving at the taxable turnover under the Act –
High Court rejected the case of appellant on 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 invoice
is raised – On appeal, held: Having regard to the construction
placed on r.3(2) of the Rules in the case of Southern Motors v. State
of Karnataka, the judgment of the High Court is unsustainable –
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
[2018] 2 S.C.R. 250
250
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first part of the proviso,  r.3(2)(c) recognizes trade practice or, as
the case may be, the contract 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 – Accordingly, appellant entitled to deduction of a trade
discount  – Karnataka Value Added Tax Act, 2003 – ss.2(35) and 3.
The appellant manufactures home appliances. 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 claimed discount as a deduction from the total
turnover while arriving at the taxable turnover under the
Karnataka Value Added Tax Act, 2003.  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 first appellate authority set aside the order.
However, under s.64(1) of the Act, the Additional Commissioner
revised the order of the first appellate authority holding that the
quarterly discount given by the appellant was in respect of the
performance of the previous quarter and not in respect of the
sales offered under the same invoices. Appeals dismissed by the
High Court. Hence, the present appeals.
Allowing the appeals, the Court
HELD: 1. The definitions of ‘Turnover’ and ‘Taxable
turnover’ under s.2(36) and s.2(34) of the Karnataka Value Added
Tax Act 2003 respectively indicate that turnover is defined to
mean the aggregate amount for which goods are sold, distributed,
delivered or otherwise disposed of. The taxable turnover is
computed after making such deductions from the total turnover
and in such manner as may be prescribed (‘total turnover’ is
defined by Section 2(35) to mean the aggregate turnover in all
goods of a dealer at all places of business in the States). In arriving
at the taxable turnover, the statute contemplates deductions, as
prescribed, are to be made from the total turn

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