1979 (10) TMI 90 - SC - VAT and Sales Tax

Court rules trade discount not part of turnover for sales tax assessment under Central Sales Tax Act, clarifies discount types

The court held that the trade discount allowed by the appellant should not be included in the turnover for sales tax assessment under the Central Sales ... Whether for the purpose of computing the turnover assessed to sales tax under the Central Sales Tax Act, 1956 the sale price of goods is determined by including the amount paid by way of trade discount? Held that:- The sale price which enters into the computation of the assessee's turnover for the purpose of assessment under the Central Sales Tax Act is obtained after deducting the trade discount from the catalogue price. The trade discount allowed by the assessee cannot be included in the turnover. Appeal dismissed. Issues:- Determination of turnover for sales tax assessment including trade discount in sale price.Analysis:The judgment in question addresses the issue of whether the amount paid by way of trade discount should be included in the turnover assessed for sales tax under the Central Sales Tax Act, 1956. The appellant, a private limited company acting as a sole selling agent for welding electrodes, deducted the trade discount from the catalogue price while computing the taxable turnover for the assessment year 1971-72. The Sales Tax Officer disagreed with this deduction, leading to a series of appeals and revisions. The primary contention raised by the Revenue was that the trade discount should not be excluded from the turnover as the definition of 'sale price' in Section 2(h) of the Act only allows deduction for cash discount, not trade discount. The Revenue argued that the retailer enters into two separate contracts with the appellant, one for the catalogue price and another for the trade discount, and hence, the entire catalogue price should be included in the turnover. However, the court analyzed the definitions of 'turnover' and 'sale price' under the Act, emphasizing the distinction between cash discount and trade discount. It clarified that trade discount is a deduction from the catalogue price allowing the retailer to sell goods at a profit margin, and the net amount after deducting trade discount constitutes the sale price. The court also discussed relevant precedents to support its interpretation of the law.The court highlighted that under the Central Sales Tax Act, the sale price for turnover calculation is the consideration for which goods are sold, and in cases where trade discount is allowed, the sale price is determined after deducting the trade discount. The judgment emphasized that trade discount exists separately from the sale price and is deducted before arriving at the sale price. The court rejected the argument of two separate contracts for catalogue price and trade discount, stating that there is only one sale price between the dealer and retailer, calculated as the difference between the catalogue price and trade discount. The court referenced previous cases to support its conclusion that any deductions like bonus discount or remission do not affect the sale value of goods and should not be included in the turnover. Ultimately, the court held that the trade discount allowed by the appellant should not be included in the turnover for sales tax assessment under the Central Sales Tax Act.In conclusion, the court dismissed the appeal, upholding that the sale price for turnover calculation should be determined after deducting the trade discount from the catalogue price. The judgment clarified the distinction between cash discount and trade discount, emphasizing that trade discount forms a separate component outside the sale price and should not be included in the turnover. The decision provides a comprehensive interpretation of the relevant provisions of the Central Sales Tax Act and establishes a clear precedent regarding the treatment of trade discounts in sales tax assessments.