IMPORTANT POINT
All trade discounts are allowable as permissible deductions.

JUDGMENT :

D.Y. CHANDRACHUD, J.

1. The appellant manufactures home appliances such as mixer grinders, wet grinders and gas stoves. 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 claims the discount as a deduction from the total turnover while arriving at the taxable turnover under the Karnataka Value Added Tax Act 2003 (‘the Act’).

2. On 29 May 2010, the Deputy Commissioner of Commercial Taxes, Bengaluru disallowed the quantity discount accorded by the appellant to its distributors on the ground that the discount was not relatable to the sales effected by the relevant tax invoices. 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 Rules’). The period in question was 1 April, 2006 to 31 March, 2007, 1 April, 2007 to 31 March, 2008 and 1 April, 2008 to 31 March, 2009.

3. On appeal, the Joint Commissioner of Commercial Taxes (Appeals – 1), Bengaluru set aside the order of the assessing authority, holding that the quarterly scheme discount given by the appellant was an allowable deduction since the appellant had realized the consideration from the purchaser towards the sale of goods after deducting the amount of discount and, VAT was charged only on the net amount shown in the tax invoice after allowing the benefit of discount.

4. The order of the first appellate authority dated 12 October 2010 was revised under Section 64 (1) of the Act by the Additional Commissioner on the ground 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.

5. The appellant instituted Sales Tax Appeals before the High Court of Karnataka. By a judgment dated 19 March 2014, a Division Bench of the Karnataka High Court dismissed the appeals.

6. The case of the appellant is that it offers a quantity discount to its distributors depending on their performance during the previous quarter. This is part of a marketing/sales strategy under which the appellant allows a certain percentage as a quarterly discount to its dealers on the basis of the sales turnover generated by a dealer in every quarter of the financial year. The discount is given by the appellant to its dealers in the sales invoices raised in the subsequent quarter. The amount of the discount is deducted from the gross sale price and VAT is collected and remitted on the net sale price. According to the 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. Sales tax is leviable on the sale consideration received/receivable. Section 2 (36) defines the expression ‘turnover’ as the aggregate amount for which the goods are sold and the term ‘aggregate’ means the net amount for which the goods are sold. The appellant claims that allowing a discount on the basis of the quarterly performance of its dealers is only a measure adopted by it for the computation of the discount. However, the discount is given in a sales bill and VAT is collected on the net sale consideration after the deduction of the discount. The High Court, it has been submitted, erred in rejecting the case of the 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 the invoice is raised. The High Court, it has been submitted, has failed to notice that Section 2(36) mandates that turnover be computed as the aggregate amount for which goods are sold. It has been urged that deductions on account of trade discounts are given under agreement; or under terms of sale or by established practice and shou