2010 (5) TMI 775 - HC - VAT and Sales Tax

Court affirms inclusion of manufacturer credit notes in dealer turnover under tax law

The court upheld the decision to include the manufacturer's credit notes in the dealer's turnover, rejecting the argument that they were inter-State ... Addition of incentive received by the petitioner from the manufacturer in the form of credit notes as turnover under Explanation VII to section 2(lii) of the Kerala Value Added Tax Act, 2003 Held that:- Nothing stops the manufacturer from recouping the loss sustained by the distributor and besides recouping loss the manufacturer can even provide for margin also to dealer which is done subsequent to the sales by issuing credit notes as is done in this case. On facts found by the lower authorities, we have no doubt in our mind that credit notes issued by the manufacturer to the petitioner towards recoupment of additional sale price is for the goods sold by the petitioner. So much so Explanation VII is clearly attracted in this case and the Tribunal therefore rightly upheld the order of the first appellate authority sustaining the assessment of credit amount paid by the manufacturer to the petitioner who is the distributor of their products. Revision dismissed. Issues:1. Addition of incentive received by the petitioner from the manufacturer as turnover under Explanation VII to section 2(lii) of the Kerala Value Added Tax Act, 2003.Analysis:The revision petitioner, a dealer in ceramic tiles, received an amount in the form of credit notes from the manufacturer, which was added to the taxable turnover by the assessing officer. The petitioner's appeal was rejected by the Tribunal, leading to the current revision. The petitioner argued that the amount received was a discount on inter-State purchases and not assessable under the relevant Explanation. However, the Government Pleader highlighted that the lower authorities found the sale price to be below the purchase price, attracting the Explanation. The Tribunal's findings indicated that the sale price was indeed lower than the purchase price in some cases, justifying the addition of the credit notes to the turnover.The Explanation in question aims to tax the actual sale price, regardless of when the amount is received by the dealer. It clarifies that any amount received for the sale of goods is assessable as turnover, irrespective of the source. In this case, the lower authorities established that some sales were below the purchase price, considering freight and handling charges. The Tribunal's findings supported the inclusion of the credit notes in the turnover, as they were issued to compensate for selling goods at a lower price. The manufacturer's credit notes were deemed to recoup losses and provide margins to the dealer, aligning with the purpose of the Explanation.The petitioner's argument that the credit notes were for inter-State purchase discounts was dismissed, as there was no evidence of such claims by the manufacturer. The court upheld that the credit notes were issued to cover losses incurred by the dealer due to selling products below the purchase price. Ultimately, the court dismissed the revision petition, affirming the Tribunal's decision to include the credit amount in the petitioner's turnover.