The main legal point established is that discounts given through credit notes are not entitled to deduction from the turnover under the KVAT Act, and the circular issued by the Commissioner to obtain declarations from suppliers is justified and consistent with the statutory provisions.

The petitioners, in this batch of cases, are second dealers of cement, electrical goods etc. in the State. The goods sold by the petitioners are taxable under the KVAT Act. While paying tax on sales turnover, petitioners have taken input tax credit collected by the suppliers. The suppliers, periodically, give credit notes to the petitioners by way of incentives for sale of various goods under various schemes. The Assessing Officers, in all the cases, considered the amount covered by the credit notes as discount given by the suppliers and, consequently, while giving input tax credit, tax attributable to the credit note amount was reduced, thereby reducing the input tax credit claimed by the petitioners based on purchase bills. The input tax credits on credit note amounts were reduced because petitioners have not complied with circular No.41/07 dated 18/09/2007 issued by the Commissioner of Commercial Taxes, produced as Ext.P2 in WP(C) No.9806/2008. According to the petitioners, the requirement of circular among other things is that, the recipients of credit notes should produce certificate from the suppliers to the effect that the suppliers have not claimed any deduction of the credit note amount towards discount or otherwise in their turnover, or in other words, tax stands paid on full amount shown in bills issued and thereafter no deduction is claimed based on credit notes issued. This requirement introduced in the circular is under challenge by the petitioners. The assessment orders to the except of reduction of input tax credit on the credit note amount is also under challenge for the reason that it is wrongly disallowed. Learned Government Pleader pointed out that reduction in input tax on credit note amounts is made only because of noncompliance of the circular by the petitioners.

2. I have heard various counsel appearing for the petitioners and learned Government Pleader appearing for the respondents.

3. In order to appreciate the contention, the relevant provision, which provide for deduction of discount in the determination of taxable turn over, has to be referred. Therefore, the said provision is extracted hereunder.

“Section 2(iii) ‘Turnover’ means the aggregate amount for which goods are either bought or sold, supplied or distributed by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or for other valuable consideration, provided that the proceeds of the sale by a person not being a Company or Firm registered under the Companies Act, 1956 (Central Act 1 of 1956) and Indian Partnership Act, 1932 (Central Act 9 of 1932) (or society including a co-operative society or association of individuals whether incorporated or not) of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover.

Explanation I - ---------

Explanation II - ---------

Explanation III – Subject to such conditions and restrictions, if any, as may be prescribed in this behalf;

(i)----------------

(ii) Any discount on the price allowed in respect of any sale where such discount is shown separately in the tax invoice and the buyer pays only the amount reduced by such discount, or any amount refunded in respect of goods returned by customers shall not be included in the turnover.”

From the above, it is clear that discount to be allowed as deduction in the turn over is only trade discount, which is shown separately in the invoice, where under the purchaser pays for the goods, only the amount, reduced by discount, shown in the bill. In other words, under the above provision, discount given through credit notes, periodically, will not be entitled to any deduction from the turnover. Consequently, the suppliers from whom petitioners purchase the goods are not entitled to any deduction of credit note amount in the determination of th