ULTRA TECH CEMENT LTD Vs. STATE OF KERALA

JUDGEMENT

(1.) THE question raised in the connected Writ Petitions and Writ Appeals is whether the appellants/petitioners are entitled to exemption from tax payable under the Value Added Tax Act, 2003, hereinafter called the "Act", on the discount allowed by them after sales through credit notes issued to purchasers. Excepting one or two assessee - dealers who are engaged in sale of automobiles and spares, all other assessees are either manufacturers or wholesalers of cement. Admittedly assessees made sales, collected tax under the Act, and remitted the same along with monthly returns. However, according to them, depending upon the target achieved, and the prompt payments, assessees have later issued credit notes to dealers representing discount which appellants/petitioners are entitled to deduction in the determination of taxable turnover and therefore the tax paid on the discount given should be refunded to them. The learned single Judge considered all the contentions in a detailed judgment but rejected the claim stating that the provisions of the Act and Rules and Form 8, which is the format of tax invoice prescribed under the Act and Rules do not provide for deduction of discount except cash discount separately shown in the tax invoice. It is against this judgment of the learned single Judge that Writ Appeals are filed by some of the assessees. However, when Writ Appeals are posted for hearing, pending Writ Petitions are also posted and we have heard senior counsel Sri. K.P. Kumar and other counsel appearing for the appellants/petitioners and Special Government Pleader appearing for the respondents.

(2.) SALES tax under the VAT regime came into force in the State with effect from 1.4.2005. The charging Section, namely, Section 6(1) of the Act provides for levy of tax on the taxable turnover. "Taxable turnover" under Section 2(l) means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed. "Turnover" as defined under Section 2(iii) and clause (ii) of Explanation III to Section 2 (iii) provides for exclusion of discount in the computation of turnover. The said clause of Explanation III providing for deduction of discount as originally contained in the statute is as follows:

(3.) SENIOR counsel appearing for the assessees relying on Entry 54 of List II of 7th Schedule to the Constitution contended that discount which does not form part of price cannot be brought to tax as the constitutional entry authorises only tax on sale of commodity which means that tax should be on actual sale price. We do not think the contention is tenable because it is within the powers of the Legislature to prescribe terms and conditions for grant of deduction from sale price. In fact dealers are entitled to give discount at any time that is after raising tax invoice and after making sales through credit notes after the end of the month, quarterly, periodically or even after the end of the year. However, question to be considered is what discount qualifies for deduction from payment of tax. It is obvious from the statutory provisions discussed above that in order to qualify any discount for deduction whether it be trade discount, or cash discount, or any other form of discount, such discount should be shown in the tax invoice separately and the sale price along with tax thereon should be collected from the buyer without including the discount granted. Since conditions for deduction of discount from taxable turnover is mandatory, appellants/petitioners have no escape from liability to pay tax on the original sale price on which they have in fact collected sales tax and remitted the same. The present attempt to get refund of tax paid based on the discount allowed through credit notes in our view is not tenable and is not permissible under the Act. For the forgoing reasons, we confirm the judgment of the learned single Judge upholding disallowance and demand of tax on discount given after sales through credit notes. However, since the Legislature itself has felt that discount provision calls for clarification, we feel penal provision should not be invoked against the appellants/petitioners, provided they accept disallowance, clear the arrears if any, with interest due thereon. We therefore direct the respondents to recall the orders in the case of such of the appellants/petitioners who concede liability in terms of the judgment and who remit balance tax if any along with applicable rate of interest within three weeks from the date of receipt of a copy of this judgment.