1972 (7) TMI 104 - HC - VAT and Sales Tax

Court rules commissions paid to vendors are not discounts to buyers but payments for services, denying deduction claim.

VMM Venkatachalam Chettiar Versus State of Madras

The court held that the turnover disputed by the petitioner did not represent discounts to buyers but rather commissions paid to vendors for services ... - Issues:1. Whether the disputed turnover represented a discount allowed to buyers.2. Whether the vendors were employees of the petitioner or independent buyers.3. Whether the petitioner is entitled to claim a deduction under rule 5-A of the Rules.4. Whether the commission paid to vendors can be considered a discount on the price paid by the buyer.Detailed Analysis:1. The primary issue in this case was whether the turnover of Rs. 14,859.75 represented a discount allowed to buyers. The petitioner, a manufacturer of ice fruits and cakes, sold products through street vendors who were provided with goods and commissions. The authorities treated the vendors as employees of the petitioner, leading to the inclusion of the entire sale proceeds as the petitioner's turnover. The petitioner argued that the commission paid to vendors should be considered a discount under the tax laws. However, the courts found no evidence of outright sales to vendors and concluded that the commission represented payment for services, not a discount on sales to consumers.2. The second issue revolved around the nature of the relationship between the petitioner and the vendors. The petitioner contended that there was a sale to vendors who then sold the goods independently. However, the courts found that the vendors returned unsold goods at the end of the day, indicating no direct sale by the petitioner. The commission paid was deemed compensation for selling services, supporting the view that vendors were not independent buyers but agents or employees of the petitioner.3. The petitioner sought to claim a deduction under rule 5-A of the Rules, arguing that the discount need not be given only to the buyer. However, the courts held that the discount allowed by the seller to the buyer on the sale price should be excluded from the turnover. Since no discount was given to actual consumers, the commission paid to vendors could not be considered a discount under the law, leading to the rejection of the petitioner's claim for deduction.4. Finally, the issue of whether the commission paid to vendors could be considered a discount on the price paid by the buyer was addressed. The courts relied on precedent to establish that commission paid to selling agents cannot be deducted as a discount allowed to the buyer if there were no direct sales to the agents. The commission was deemed payment for services rendered, not a discount on sales to consumers, leading to the dismissal of the petitioner's claim for deduction under rule 5-A.