2016 (10) TMI 1023 - HC - VAT and Sales Tax

Court allows revision, discounts deemed reimbursements under Kerala VAT Act.

The court allowed the revision, setting aside the Tribunal's order and confirming the assessment by the Assessing Officer. Discounts received ... Valuation - discount - whether the discounts received by the assessee much after purchase from the supplier would have to be deemed as turn over as per Explanation VII to Section 2(ii) of the Kerala Value Added Tax Act or whether it would have to be treated as either a 'cash discount' or 'trade discount'? - Held that: - the assessee has suffered loss and they have received certain amounts from their suppliers, without which the assessee would not have been able to recoup the loss suffered by it. The conditions that are to be present for applying the mandate of Explanation VII to Section 2(ii) thus being obvious from the accounts of the assessee, any explanation to the nature of the amounts received by it, in the absence of specific and' clinching evidence/documents to prove such nature, would be of no avail - the amounts received by the assessee, which they call 'discounts' are, in fact, the amounts that would fall within the ambit of Explanation VII to Section 2(ii) and hence liable to be added to the turnover. Revision allowed - decided in favor of revisionist. Issues:1. Interpretation of discounts received by the assessee after purchase from suppliers under the Kerala Value Added Tax Act.2. Application of Explanation VII to Section 2(ii) of the Act in determining turnover.3. Distinction between cash discount, trade discount, and reimbursements for loss suffered by the dealer.4. Analysis of legal precedents and their applicability in the case.5. Assessment of whether amounts received by the assessee should be included in the turnover.Issue 1: Interpretation of Discounts ReceivedThe case involved a registered dealer trading in cement who received discounts from suppliers after purchase. The assessing authority proposed to include these discounts in the turnover, citing Explanation VII to Section 2(ii) of the Act. The Tribunal confirmed that the dealer sold goods at a lower price than purchased, leading to the inclusion of discounts in turnover.Issue 2: Application of Explanation VIIExplanation VII to Section 2(ii) states that if a dealer sells goods at a lower price than purchased and receives reimbursement from any person, the amount received is deemed as turnover. The Tribunal found that the discounts received by the dealer after purchase should be added to the turnover as they were essential for recovering losses incurred due to selling goods below purchase price.Issue 3: Distinction Between DiscountsThe Tribunal misinterpreted the nature of discounts received, failing to distinguish between cash discounts obtained at the time of purchase and reimbursements received later to cover losses. The court emphasized that discounts received after purchase, even if termed trade discounts, were essentially reimbursements for losses incurred by selling goods below purchase price.Issue 4: Analysis of Legal PrecedentsThe Tribunal erred in applying legal precedents related to cash and trade discounts to the amounts received by the dealer post-purchase. The court highlighted the distinction between discounts received at the time of purchase and reimbursements received later, stating that the latter should be included in turnover as per Explanation VII.Issue 5: Inclusion in TurnoverThe court confirmed that the amounts received by the dealer, though labeled as discounts, were reimbursements for losses suffered due to selling goods below purchase price. The Assessing Officer and the first appellate authority were justified in applying Explanation VII to include these amounts in turnover, as established by the facts of the case.In conclusion, the court allowed the revision, setting aside the Tribunal's order and confirming the assessment made by the Assessing Officer. The case highlighted the importance of correctly interpreting discounts received post-purchase and their treatment in turnover calculations under the Kerala Value Added Tax Act.