IFB Industries Ltd. vs State of Kerala

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2012 Supreme(SC) 179

2012 (2) Supreme 225
SUPREME COURT OF INDIA
Aftab Alam and Anil R. Dave, JJ.
M/s IFB Industries Ltd. — Appellant
versus
State of Kerala — Respondent
Civil Appeal Nos. 2516-2517 of 2012
(Arising out of S.L.P. (Civil) Nos. 26102-26103 of 2010)
and
The India Cements Ltd. — Appellant
versus
The Assistant Commissioner & Ors. — Respondents
Civil Appeal Nos. 2521-2522 of 2012
(Arising out of S.L.P. (Civil) Nos. 6861-6862 of 2011)
Decided on : 27-2-2012

Headnote:Kerala General Sales Tax Act, 1963- Section 2(xxvii) -Kerala General Sales Tax Rules, 1963-Rule 9(a) -Trade Discounts-Availability of deductions under Rule 9(a)-Order passed by High Court holding that unless discount was shown in the invoice itself, it would not qualify for deduction and that any discount that was given by means of credit note issued subsequent to sale of the article was in reality an incentive and not trade discount eligible for exemption under rule 9(a) of the Rules-Appeals thereagainst-. Plain reading of Rule 9(a) shows that exemption is allowable subject to two conditions- Discount is to be given in accordance with the regular practice in the trade - Accounts should show that purchaser had paid only the sum originally charged less the discount- Nothing in rule 9(a) to read it in the restrictive manner to mean that a discount in order to qualify for exemption under its provision must be shown in the invoice itself-Impugned orders of High orders held liable to be set aside-Appeals allowed (Paras 26, 27, 34, 35)
       Facts of the Case :
        A. Issue in consideration in present appeals was How far deductions are allowable under rule 9(a) of the Kerala General Sales Tax Rules, 1963 for trade discounts? High Court in the impugned order had held that unless discount was shown in the invoice itself, it would not qualify for deduction.
       Findings of the Court :
        A.The Court held that the very definition of “turnover” recognises discounts other than cash discount and provides that those other discounts too like the cash discount shall not be included in the turn over. Apart fom that even rule does not speak of invoices but stipulates that discount must be shown in the accounts. On a plain reading of the provision it is clear that the exemption is allowable subject to two conditions; first, the discount is given in accordance with the regular practice in the trade and secondly, the accounts should show that the purchaser had paid only the sum originally charged less the discount.
        B. Hence held that there was nothing in rule 9(a) to read it in the restrictive manner to mean that a discount in order to qualify for exemption under its provision must be shown in the invoice itself. View taken by High Court in the orders impugned held unsustainable. Appeals were allowed

JUDGMENT

Aftab Alam, J.

1. Leave granted in both the Special Leave Petitions.

2. How far deductions are allowable under rule 9(a) of the Kerala General Sales Tax Rules, 1963 (“the Rules” hereinafter) for trade discounts?

3. A division bench of the Kerala High Court has held that unless the discount was shown in the invoice itself, it would not qualify for deduction and further that any discount that was given by means of credit note issued subsequent to the sale of the article was in reality an incentive and not trade discount eligible for exemption under rule 9(a) of the Rules. The decision was rendered somewhat gratuitously in the case of M/s IFB Industries Ltd., (the appellant in the appeals arising from SLP (Civil) Nos. 26102-03 of 2010) but it is the India Cements Ltd., the appellant in the other set of appeals (arising from SLP (Civil) Nos. 6861-62 of 2011), that got badly hit by the decision and its claim for deduction of many kinds of trade discounts was rejected summarily and even without an opportunity of any effective hearing to it right from the stage of assessment up to the High Court. But to put the matter in order, we must see how the issue developed before reaching this Court and for that we need to first advert to the case of M/s IFB Industries Ltd.

4. M/s IFB Industries Ltd. is a manufacturer of home appliances. It has a scheme of trade discount for its dealers under which the dealer, on achieving a pre-set sale target gets certain discount on the price for which it purchased the articles from the manufacturer, the appellant. As the discount is subject to achieving the sale target the dealer would naturally qualify for it in the later part of the financial year/assessment period, that is to say, long after the sales took place between the appellant and its dealer. For the sales taking place between the appellant and its dealer after the sale target is achieved, the dealer would of course get the articles on the discounted price but for the sales that took place before the sale target was achieved, the appellant would issue credit notes in favour of the dealer. The Assessing Authority, in principle, accepted the appellant’s claim for deduction of the amount of discount given by it to its dealers through credit notes under rule 9(a) of the Rules and it was only a dispute over computation that took the matter to the High Court and the High Court held that the discount in question was not trade discount at all and it was not eligible for deduction in terms of rule 9(a).

5. The case of the appellant (M/s IFB Industries Ltd.) relates to assessment periods 2001-02 and 2002-03. Dealing with the assessment periods 2001-02, the Assistant Commissioner (Assessment), Commercial Taxes, (the Assessing Authority) in its order dated January 27, 2006 observed that the dealer had given discount to the tune of Rs.58,15,485/- and as the discount was allowable in ordinary course of business, that turnover was allowed as exempted.

6. In making the computation, however, the Assessing Authority started with the figure of ‘Taxable turnover as per account (Home appliances) Vth Schedule Items’ that was Rs.11,62,36,424.23. He then added to it the amounts of (i) Turnover under AMC, (ii) Sales return, (iii) Stock transfer, (iv) Second sale, (v) Tax collected and (vi) Scheme Discount amounting to Rs.58,15,485/- and arrived at the figure of ‘total turnover proposed’ that came to Rs.14,27,69,607/-. From the total turnover, he then deducted the amounts of (i) AMC, (ii) Sales return, (iii) Second sales, (iv) Tax Collected and (v) Scheme Discount being the sum of Rs.58,15,485/- and, thus, finally arrived at the figure of Rs.11,95,56,460/- as the ‘taxable turnover proposed’.

7. The Assessing Authority passed a similar order for the assessment period 2002-03 as well.

8. The appellant had objection to the computation made by the Assessing Authority. It contended that though in principle allowing deduction for the trade discount the Assessing Aut

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2012 Supreme(SC) 179

Cases Referred (5)