Turnover inclusion of supplier reimbursements: post-sale payments to recoup loss are not cash or trade discounts.

Amounts received by a dealer from suppliers after sale, where the goods were sold below purchase price and the payments later made good the trading loss, are treated as turnover under the deeming provision in Explanation VII to Section 2(ii) of the Kerala Value Added Tax Act unless the dealer proves a different character for the receipt. Post-sale reimbursements of this kind are conceptually distinct from cash discount or trade discount, because those discounts are part of the purchase structure at the time of transaction. On the facts noted, the later supplier payments were not deductible as discount and were brought within taxable turnover.

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Issues: (i) Whether amounts received by a dealer from suppliers after the purchase and sale of goods, though described as discounts, are liable to be treated as turnover under Explanation VII to Section 2(ii) of the Kerala Value Added Tax Act; (ii) Whether such receipts can be excluded as cash discount or trade discount.

Issue (i): Whether amounts received by a dealer from suppliers after the purchase and sale of goods, though described as discounts, are liable to be treated as turnover under Explanation VII to Section 2(ii) of the Kerala Value Added Tax Act.

Analysis: Explanation VII deems amounts received towards reimbursement of the balance of price as turnover where goods are sold below purchase price. The actual purchase cost must include incidental expenses such as loading and unloading charges. On the facts found, the dealer had sold goods below purchase price and received amounts later from suppliers to recoup the loss. In the absence of clinching evidence to show a different character, those receipts attracted the deeming provision.

Conclusion: The amounts received from suppliers were rightly treated as turnover under Explanation VII to Section 2(ii) of the Kerala Value Added Tax Act, in favour of Revenue.

Issue (ii): Whether such receipts can be excluded as cash discount or trade discount.

Analysis: Cash discount and trade discount are deductions known at the time of purchase and form part of the sale structure then and there. Amounts received much later to make good a trading loss are conceptually different and cannot be equated with such discounts. The Tribunal erred in extending the law on cash discount and trade discount to post-sale reimbursements unsupported by evidence.

Conclusion: The receipts could not be treated as cash discount or trade discount and were not deductible from turnover, in favour of Revenue.

Final Conclusion: The assessment was restored and the revision succeeded because the post-purchase supplier payments were held to be part of taxable turnover under the deeming provision.

Ratio Decidendi: Amounts received after sale from suppliers to recoup loss on goods sold below purchase price, if not proved to be a genuine discount at the time of purchase, are deemed turnover under the statutory reimbursement provision.

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