2022 (1) TMI 442 - HC - VAT and Sales Tax

Court allows Revision Petition for industrial gases company, emphasizing trade discounts and CST treatment

The Court allowed the Revision Petition, ruling in favor of the petitioner, a private limited company engaged in the manufacture and sale of industrial ... Levy of CST - inter-state sales effected without C-Form declarations - amount claimed as deduction by the petitioner to be in the nature of discount requiring compliance of Rule 3(2)(c) of the Karnataka Value Added Tax Rules, 2005 or not - levy of CST on the notional value adopted in compliance of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - HELD THAT:- It is not in dispute that the tax invoices were raised by the petitioner and subsequently credit notes were issued, whereby in the credit note, value is shown as ₹ 3/-, whereas ₹ 6/- is shown in the invoice. The authorities referring to Rule 3(2)(c) of the Rules and Section 30 of the Act as it stood during the relevant period proceeded to reject the claim of the assessee i.e., the value of goods sold to any related parties in terms of Rule 9 of the Central Excise Valuation (Determination of price of Goods) Rules, 2000. The Tribunal rejected the appeal on the premise that the petitioner cannot claim reduction in the notional value, much less the discount not being reflected in the invoice. In view of the ruling of the Hon’ble Apex Court in the case of M/S. SOUTHERN MOTORS VERSUS STATE OF KARNATAKA AND OTHERS [2017 (1) TMI 958 - SUPREME COURT], to deny the benefit of deduction only on the ground of omission to reflect the trade discount though actually granted in future, in the tax invoice/bill of sale at the time of the original transaction would be to ignore the contemporaneous actuality and be unrealistic and held that the view of the authorities runs counter to the avowed objective of the correct determination of the taxable turnover considering Section 30 of the Act, which stood during the relevant period and Rule 3(2)(c) and the proviso thereof. Though the petitioner has contended before the Tribunal that issuing of credit note to the purchasing dealers could not be construed as discount, even assuming that it is discount not reflected in the books of accounts, the principles enunciated by the Hon’ble Apex Court in Southern Motors, would certainly apply to the facts of the case on hand. Revision petition allowed. Issues:Challenge to order of Karnataka Appellate Tribunal under Section 65(1) of Karnataka Value Added Tax Act, 2003 regarding assessment years 2007-2008 and 2008-2009.Detailed Analysis:1. The petitioner, a private limited company engaged in the manufacture and sale of industrial gases, raised invoices to related companies based on Central Excise Valuation Rules, issuing credit notes for price differences. A notice proposed disallowing deductions on inter-state sales returns, leading to a demand for CST at 4%. The petitioner contended the credit notes were solely for price differences, but the assessing authority disallowed the claim, which was upheld by appellate authorities. The petitioner raised questions of law challenging the treatment of deductions as discounts and the levy of CST on notional values.2. The petitioner argued that related parties were treated as such under the Central Excise Act, valuing goods as per Central Excise Valuation Rules. They emphasized that taxes should be paid on the actual sale price, not the notional value for excise duty. The Tribunal considered the claim as a discount, citing Karnataka VAT Rules, and denied the deduction, upholding the tax demand.3. The petitioner invoked the Supreme Court judgment in Southern Motors case, arguing that discounts should be reflected in final sale prices, not limited to the original sale price. They also relied on another Supreme Court judgment to support their position. The Revenue contended that notional values for excise duty also apply to VAT, and as credit notes were not reflected in tax invoices, no discount could be granted, justifying the Tribunal's decision.4. The Court noted discrepancies in the values shown in invoices and credit notes, and the authorities' reliance on specific rules to reject the petitioner's claim. However, considering the Southern Motors judgment, the Court held that denying deductions based on the omission to reflect trade discounts in the original transaction's invoice was unrealistic. The Court ruled in favor of the petitioner, applying the principles from the Southern Motors case to the present situation.5. The Court concluded that questions of law raised by the petitioner were covered by the Southern Motors judgment, and in favor of the assessee. Therefore, the Revision Petition was allowed based on the application of the Southern Motors ruling to the case at hand, rendering the discussion on the second question academic.