C T O Vs. RADIANT INDUSTRIES OF INDIA

JUDGEMENT

(1.) THE Board of Revenue has referred the following question of law on the directions being given by this Court : " Whether, on the facts and in the circumstances of the case, the Board of Revenue was justified in holding that trade discount does not form part of the sale price, while under section 2 (h) of the Central Sales Tax Act, 1956, only cash discount has to be excluded from the sale price ?" THE brief facts of the case are that in the assessment order for 1968-69 and 1969-70 under section 9 (2) of the Central Sales Tax Act, the assessing authority levied tax on the trade discount. THE decision which was taken by the assessing authority was that under section 2 (h) of the Central Sales Tax Act, it is only the cash discount which is allowed. Section 2 (h) read as under : " 'sale price' means the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charged. " THE definition of "turnover" of section 2 (j) of the Central Sales Tax Act is as under : " 'turnover' used in relation to any dealer liable to tax under this Act means the aggregate of the sale prices received and receivable by him in respect of sales of any goods in the course of inter-State trade or commerce made during any prescribed period and determined in accordance with the provisions of this Act and the rules made thereunder. " According to the submission of the learned counsel for Revenue, if any deduction is made subsequent to the sale of goods by way of issue of credit note, it is not allowable as deduction. THE decision of the Andhra Pradesh High Court in the case of Sirpur Paper Mills Limited v. State of Andhra Pradesh [1979] 43 STC 126 has been relied. In this case, the amount of the bill was split into sale price of the goods and balance as discount payable to the distributor. THE customer paid total amount of the bills. THE amount of discount was credited to account called balance discount. In these circumstances, it was held that on the definitions of "sale price" and "turnover", the "balance discount" formed part of the sale price of goods. It is immaterial what the assessee did subsequently so long as the payment was in respect of goods sold. THE decision of the Madras High Court in the case of India Pistons Limited v. State of Tamil Nadu [1974] 33 STC 472 has also been relied upon where a distinction was drawn between the local Act and the Central Act and it was held that the expression "other discount" used under the Act included the bonus discount but, it is not a "cash discount" so to attract the applicability of section 2 (h) of the Central Sales Tax Act which merely excludes "cash discount" and not all trade discounts. THE decision of Brown v. National Provident Institution [1921] 2 AC 222 was also taken into consideration where it was observed, "the word 'discount' is in the Oxford English Dictionary defined, in its primary meaning, as an abatement or deduction from the amount, or from the gross reckoning or value of anything, and, as used in commerce (1) is defined to mean a deduction (usually at a certain rate per cent) made for payment before it is due of a bill or account; or any deduction or abatement from the nominal value or price; (2) 'the deduction made from the amount of a bill of exchange or promissory note by one who gives value for it before it is due".

(2.) IN Orient Paper Mills Ltd. v. State of Orissa [1975] 35 STC 84 (Orissa) it was held that the cash discount as referred in section 2 (h) of the Central Sales Tax Act is different from the trade discount. As the trade discount was to be deducted from the catalogue price in accordance with the terms of the agreement and it was only thereafter that the consideration was to be fixed, the trade discount was not part of the sale price.

(3.) IN Deputy Commissioner of Agricultural INcome-tax and Sales Tax v. Travancore Rayons Ltd. [1977] 40 STC 432 (Ker) it was held that where a trade commission or discount has been granted by a dealer to buyers of goods and has been deducted from the invoices of sales issued to the buyers, the consideration for the sale is only the amount which is actually paid or payable after the commission or discount is deducted and the amount representing the commission or discount is not liable to be added to or included in the turnover of the dealer for the purpose of assessment to Central Sales tax. IN Deputy Commissioner (C. T.) v. South INdia Viscose Ltd. [1977] 40 STC 442 (Mad.) where the assessee claimed the deduction from the turnover, rebate on sales of rayon yarn and the Tribunal found that the rebate formed an integral part of the agreement or contract between the assessee and its buyers and had been allowed by the assessee in accordance with regular practice, it was held that the rebate was an allowable deduction under the Central Sales Tax Act. IN Deputy Commissioner of Sales Tax v. Advani Oerlikon (P.) Ltd. [1980] 45 STC 32 it was held by the apex Court that the cash discount and the trade discount are two separate and distinct concepts and under the Central Sales Tax Act cash discount is allowed when the purchaser makes the payment promptly or within the period of credit allowed and it is granted in consideration of expeditious payment. A trade discount is a deduction from the catalogue price of goods allowed by wholesalers to retailers engaged in the trade. The trade discount does not enter into the composition of the sale price, but exists apart from and outside it and prior to it. It was also observed that it is immaterial that the definition of "sale price" in section 2 (h) of the Act does not expressly provide for the deduction of trade discount from the sale price. As the sale price is arrived at after deducting the trade discount, no question of deduction from the sale price of any sum by way of trade discount arises. IN this case the judgment of the Gujarat High Court in the case of Ambica Mills Ltd. v. State of Gujarat [1964] 15 STC 367 was also considered where the remission was allowed from the sale price to the purchaser on account of a general fall in prices when delivery of the goods was effected. It was held that the sale price remained the stipulated price in the contract between the parties and the fall in prices occurred after the contract of sale had been finalised and, with a view to relieving the purchaser to some extent of the loss which could have been occasioned there by, the manufacturer sought to bear part of the loss by granting a rebate or remission to the purchaser. Another decision of the Madras High Court in the case of INdia Pistons Limited v. State of Tamil Nadu [1974] 33 STC 472 was also referred where the bonus of which the deduction was sought by the assessee from the turnover was paid under a bonus discount scheme not to all customers but only to distributors whose net purchases from the assessee exceeded the target figure agreed to between the parties. The amount of rebate allowed was credited to the customer's account and treated as a reserve from which the distributors could make future purchases. The rebate of the bonus discount was not allowed as a deduction by the Madras High Court, which was approved. It was in the nature of an incentive bonus paid to distributors whose net purchases exceeded the target figure. It did not, and could not, affect the sale value of the goods sold by the assessee. The sale price remained undisturbed in the contract between the parties. This judgment of the apex Court was relied in the case of Deputy Commissioner of Agricultural INcome-tax and Sales tax v. Aluminium INdustries Ltd. [1980] 45 STC 251 (SC) where the assessee effected sales of goods to its dealers and allowed a trade discount on the catalogue price to cover the expenses incurred by the dealers and permit a margin of profit to them. It was held that the trade discount could not be included in the taxable turnover.