The petitioner, a company incorporated under the Companies Act, 1956 having its registered office at Madurai, engaged in retail sale of motor vehicles/chassis manufactured by M/s. General Motors India Private Limited and Ashok Leyland Ltd., apart from spares, has its outlet in the State of Karnataka at the address shown in the cause title, is a registered dealer under the Karnataka Value Added Tax Act, 2003 (for short ‘Act’) and Karnataka Value Added Tax Rules, 2005 (for short ‘Rules’).

2. According to the petitioner, during the period April 2006 to January 2008, it effected sales in the following manner:

(A) ASHOK LEYLAND LIMITED:

A proforma invoice is raised disclosing the ex-showroom price (M.R.P) of the chassis, inclusive of VAT. On receipt of the full consideration (either in part from the financier and the balance from the purchaser and in case of excess payment, refund to the purchaser) a tax invoice is raised making the purchaser (customer) and the financier aware of a discount as set out in a worksheet prepared prior to or simultaneous with the tax invoice. The vehicle is handed over only after the receipt of the price, less the discount from the customer. Thereafter, a credit note is raised on the customer in respect of the discount, including the tax element on the discount, resulting in reduction in the price.

(B) GENERAL MOTORS INDIA PROVATE LIMITED:

A proforma invoice is raised disclosing on road price of the car inclusive of all VAT, road tax, Insurance, etc., and the customer fills up the ‘order form’ leading to the preparation of a ‘customer worksheet’ disclosing payment received and discount offered. Therefore, a ‘tax invoice’ is raised disclosing the ex-showroom price inclusive of VAT and on receipt of the price, less the discount, the vehicle is delivered. It is thereafter that a credit note is raised on the customer in respect of the discount including the tax element on discount, resulting in reduction in price.

It is further stated that discount extended to customers are dependant upon various factors such as quantity of offtake, corporate, fleet, product discount, retail volume discount, etc. The petitioner having filed its returns for the period April 2006 to January 2008, was issued with a notice dated 27-12-2007 Annexure “D” to show cause against a proposal to reject the claim of deduction by way of discount as not being in compliance with Rule 3(2)(c) of the Rules and that the discount was not brought to the notice of the buyers, which when questioned in W.P.1959/2008, the petitioner was directed to file its objections.

3. The petitioner having responded to the show cause notice, was issued with yet another notice dated 15-12-2009 Annexure-“F” with the very same proposal, to which a reply was caused contending that the Karnataka Appellate Tribunal in STA Nos.410-415/2007, recorded a finding that discounts granted through credit notes subsequent to raising tax invoice are eligible for deduction and that the Rule 3(2)(c) of the rules, is invalidated. It is the allegation of the petitioner that the 2nd respondent-Assessing Authority, without application of mind, confirmed the proposal by order dated 16-01-2010 Annexure-“H”.

Hence this petition for the following reliefs:

a. A Writ of Declaration or any other writ or order or direction in the nature of a Writ of Declaration, declaring the words” and the tax invoice or bill of sale issued in respect of the sales relating to such discount shows the amount allowed as discount” contained in Rule 3(2)(c) of the Karnataka Value Added Tax Rules, 2003 as ultravires Section 2(36), 4 and Section 30 of the Karnataka Value Added Tax Act, 2003 read with rule 31 of the KVAT Rules and Article 14, 19(1)(g), 265 and Entry 54 of List II of the VII Schedule to the Constitution of India, as far as the petitioner is concerned; and

b. Writ of Certiorarified Mandamus to call for the impugned order passed under Section 39(1) of the KVAT Act, dated 16.01.2010 by