MADRAS CEMENTS Vs. ASSISTANTS COMMISSIONER COMMERCIAL TAXES

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 01/04/2005. The charging Section, namely, S.6(1) of the Act provides for levy of tax on the taxable turnover. 'Taxable turnover' under S.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 S.2(lii) and clause (ii) of Explanation III to S.2(lii) 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.) Before proceeding to consider the case on merits, we have to consider the distinction between the scheme of tax on sale of goods both under the VAT regime and under the Sales Tax Act existing prior to that. Under the Sales Tax Act except few items, all other goods were taxable at the point of first sale in the State. Therefore tax was levied and collected only from the first seller. Contrary to this, the scheme under the VAT regime is that tax collected by the first seller is given as input tax credit to the second seller, and the tax paid by the second seller is given as input tax credit to the third seller and ultimately the entire tax is borne by the ultimate consumer. In other words, tax paid on the value addition by series of dealers is ultimately passed on to the ultimate customer and dealers get reimbursement of the tax paid by them. Since S.11(1) of the Act provides for input tax credit, the Government decided to prescribe procedure for grant of input tax credit. For this purpose, form of Tax Invoice itself is prescribed under R.58(10) of the VAT Rules, which makes it mandatory that every dealer shall compulsorily issue bill in the prescribed format. Form 8 prescribed under the said rule specifically requires the seller to show all the details including the value or price on which tax is collected, and the amount of tax collected with specific column for discount and free gift allowed. In other words, unlike under the provisions of the Sales Tax Act and Rules, Form 8 prescribed under the VAT Rules provides for specific deduction of discount and charge of tax is on the net value which is the taxable turnover. Even though counsel appearing for the assessees relied on several decisions of the Supreme Court and that of the High Courts on discount, particularly the decision in D. C. Law v. Advani Coolikon (P) Ltd., 1980 KHC 571 : 45 STC 32 (SC) : 1980 (1) SCC 360 : AIR 1980 SC 609 , we do not think these decisions have any relevance for the purpose of deciding the assessees' claim for deduction under the VAT regime the features of which we have already found are different from the scheme available under the Sales Tax Act. We therefore proceed to consider the case with reference to the statutory provisions. The contention of the assessees that discount is allowable irrespective of time and manner in which the seller gives it to the purchaser does not find a place in the statute. On the other hand, provision of deduction of eligible discount is specifically covered by clause (ii) of Explanation III to definition of 'turnover'. Going by the main clause in the definition, namely, turnover, it is clear that tax is on the actual sale price. Explanation specifically clarifies that any discount on the price allowed in respect of any sale if shown separately has to be excluded. Admittedly under the original provision and in the amended provision, eligibility for deduction of discount is only when it is allowed on the price and only if it is separately shown. The amendment made by Act 39 of 2005 to Explanation III to S.2(l) was for inclusion of 'tax invoice' and the requirement of purchaser paying only the sale price reduced by discount amount. The question to be considered is whether original provision which did not contain these words conveys a different meaning or whether the amendment made is only clarification of the original provision. There is no dispute that Form 8 which is the tax invoice prescribed under R.58(10) provides for separate column for discount and the rule makes it mandatory for a selling dealer to compulsorily raise invoice in the prescribed form. So much so, in our view discount if separately shown as stated in the original Explanation means only discount shown separately in the tax invoice. Therefore even prior to clarification made by Act 39 of 2005, the requirement of showing discount separately in the original provision can only mean showing discount separately in the tax invoice. Another addition made in the amended provision for allowing discount is that sale price should be the amount reduced by discount amount granted. In our view, when discount is given from the sale price by the seller and tax is charged on the net price after excluding the discount, seller's claim is only sale price reduced by discount and no buyer can be called upon to pay discount amount after seller grants it as reduction in the tax invoice itself. Original provision did not contemplate buyer paying discount amount along with price or in other words, payment is always net of the discount. Therefore in our view the additions made to Explanation III(ii) to S.2(l) through amendment with retrospective effect do not convey any new meaning and content to the original provision to which only further clarification is made to avoid unnecessary controversy and litigation. Since we have already found that amendment has not brought out any new provision or condition for allowing discount and is only a meticulous clarification of the original provision, there is no need for going into constitutional validity of the amendment with retrospective effect which does not arise for consideration because, in our view, the provision which originally stood also did not entitle the assessees for claiming deduction of discount granted other than in the tax invoice. In other words the meaning and scope of provisions before and after amendment are that no dealer is entitled to deduction of discount unless it is separately shown in the tax invoice and the price collected is net of the discount.