2017 Supreme(SC) 61

SUPREME COURT OF INDIA
DIPAK MISRA, AMITAVA ROY, JJ.
M/S. SOUTHERN MOTORS – APPELLANT
Versus
STATE OF KARNATAKA AND OTHERS – RESPONDENT
CIVIL APPEAL NOS.10955-10971 OF 2016 (ARISING OUT OF SPECIAL LEAVE PETITION (C) Nos.28309-28325/2013) WITH Civil Appeal Nos. 10972-10978 of 2016 (Arising out of SLP (C) Nos. 27752-27758 of 2014)
Decided On : 18-01-2017

IMPORTANT POINTS
While interpreting fiscal statute it is not the spirit but the letter of law that has to be looked into.
Section 30 deals only with the incidence of tax and not the spectrum of situations or eventualities bearing on the tax liability.
Trade discount subject to proof of such regular trade practice will be legal and acceptable.
There is no repugnance or conflict amongst Section 29, 30 of Karnataka Value Added Tax Act, 2003 and rule 3 of Karnataka Value Added Tax Rules, 2005. They complement each other.
Words in a statute must be extended their ordinary meanings. But if literal construction results in anomaly or absurdity, the courts must find out underlying intention of the legislature. For that court can strain the language so as to avoid unintended mischief.

Headnote:(a) Interpretation of statute – Fiscal statute – It is not the spirit but the letter of law that has to be looked into – If a particular tax cannot be brought within the letter of the law, the subject could not be made liable for the same – Emphasis has to be to the strict letter of law and not merely on the spirit of the statute or the substance of law. (Para 17)

       (1980) 1 SCC 360; 1957 SCR 837 – Relied upon

       (1936) AC 1 24; (1869)4 HL 100 – Referred

       (b) Karnataka Value Added Tax Act, 2003 – Section 30 – Section 30 deals only with the incidence of tax and not the spectrum of situations or eventualities bearing on the tax liability. (Para 26)

       (c) Karnataka Value Added Tax Rules, 2005 – Rule 3(2)(c) – Trade discount – Looking to competitive market disclosing trade discount in original sale/purchase invoice reflected in the tax invoice or the bill of sale may not be advisable – Actual quantification of trade discount may be deferred till actual sale/ purchase – Such trade discount subject to proof of such regular trade practice will be legal and acceptable – Any other interpretation would render section 3(2)(c) ineffective and unworkable. (Para 27)

       (d) Karnataka Value Added Tax Act, 2003 – Section 29, 30 r/w rule 3, Karnataka Value Added Tax Rules, 2005 – There is no repugnance or conflict amongst these three provisions – These provisions ensure correct computation of the taxable turnover for an accurate computation of the tax liability – These provisions, for all practical purposes, complement each other. (Para 28)

       (e) Interpretation of Statute – Words in a statute must be extended their ordinary meanings – But if literal construction results in anomaly or absurdity, the courts must find out underlying intention of the legislature – For that court can strain the language so as to avoid unintended mischief. (Para 34)

       AIR 1981 SC 1922; AIR 1985 SC 1698; (2016) 11 SCC 147; [1949] 2 All ER 155 – Relied upon

       (1969) 2 SCR 252; (1988) 2 SCC 299 – Referred

       (f) Karnataka Value Added Tax Rules, 2005 – Rule 3(2)(c), First proviso r/w sections 29 and 30, Karnataka Value Added Tax Act, 2003 – Legislature cannot be presumed to either ignorant or unaware of the prevalent practice of offering trade discount at the time of making amendment to First proviso to Rule 3(2)(c) – Legislature could not have intended to deny the benefit of deduction of trade discount if not reflected in the text invoice or the bill of sale at the point of the sale – Deduction of trade discount – Requirement of reflection in the tax invoice or bill of sale – Should be construed as relating to final sale/purchase price and not limited to the original sale – Transactions allowing discount have to be proved on the basis of contemporaneous records – Final sale price after deducting the trade discount must mandatorily be reflected in the accounts –

       First proviso to Rule 3(2)(c) has to be so read down. (Para 36, 37)

       2011 (71) Karnataka Law Journal 234; (2012) 4 SCC 618; (2016) 10 SCC 56; (2005) 3 SCC 787;

       (2016) 8 SCALE 70 – Referred

       Facts of the case:

       This case relates to determination of taxable turnover as defined in Section 2(34) of the Karnataka Value Added Tax Act, 2003 in the context of section 30 of the Act and Rule 3(2)(c) in particular of the Karnataka Value Added Tax Rules, 2005.

       The appellant is a dealer in the motor vehicles and registered under the Act. During the years 2007-2008 and 2008-2009, it raised tax invoices on the purchasers as per the policy of manufacturers of vehicles to maintain uniformity in the price thereof. After the sales were completed, credit notes were issued to the customers granting discounts, in order to meet the competition in the market and for allied reasons. Consequentially, it received/retained only the net amount, that is, the amount shown in the invoice less the sum of discount disclosed in the credit note. Accordingly, the net amount, so received was reflected in his books of account and returns were filed under Income Tax Act, 1961 et al.

       The Assistant Commissioner of Commercial Taxes, (Audit-1.6), VAT Division No.1-1, Gandhi Nagar, Bangalore i.e. the respondent No.3, as the Assessing Authority by his reassessment orders dated 21.06.2010 allowed deductions claimed by the appellant towards discount accorded by the credit notes from the total turnover to quantify the taxable turnover. Subsequent thereto, in the face of the decision of the High Court in State of Karnataka vs. M/s Kitchen Appliances India Ltd., 2011 (71) Karnataka Law Journal 234, recognizing only discounts mentioned in the tax invoices as eligible for deduction from the total turnover in terms of Rule 3(2)(c) of the Rules, the Assessing Authority passed the rectification orders dated 21.05.2012 under Section 41(1) of the Act, disallowing the deduction of post sale discounts earlier awarded by the corresponding credit notes. The appellant unsuccessfully challenged these rectification orders before the High Court.

       Finding of the Court:

       Requirement of reflection in the tax invoice or bill of sale should be construed as relating to final sale/purchase price and not limited to the original sale.

       Result: Appeals allowed.