The Jammu and Kashmir High Court while providing relief to the MRF Limited said that the Tribunal was not justified in disallowing 1% discount from the taxable turnover.
The assessee, MRF Limited is a company engaged in manufacturing of tyres, tubes, flaps, tread rubber etc. and sells its products across the country through various sale depots including one at Jammu. In the course of selling its products, the assessee allows 1% discount to its dealers as per pre-determined agreement and the entitlement of such discount to the dealer is duly indicated on each invoice. The discount, so allowed uniformly to all dealers without any condition of achieving a particular target, is credited to the accounts of the respective dealers at the end of each quarter.
The assessing authority passed assessment orders disallowing exclusion of discount from the turnover of sales of the assessee on the ground that the discount was not deducted from the invoice amount and since it is being adjusted later on, it was in the nature of bonus or incentive to the dealers.
The assessee preferred appeals against the assessment orders before the Deputy Commissioner of Sale Tax (Appeals), Jammu. The appeals were dismissed by a common order again on the ground that the discount was not deducted from the invoices and, as such, it is not liable to be excluded from the turnover.
The assessee not satisfied by the appellate orders, preferred further appeals to the Jammu and Kashmir Sales Tax (Appellate Tribunal), Jammu but the same were also dismissed on the same lines. The Assessee, therefore, demanded a reference under Section 12-D of the J&K General Sales Tax Act,1962 to the High Court on the ground that the matter involves substantial question of law as to whether discount granted to the dealers on purchase of the products manufactured by the assessee is deductible from the gross turnover for the purposes of levy of tax upon the assessee.
The substantial question of law involved in this case was whether the Tribunal is justified in disallowing the discount from the taxable turnover of the assessee on the ground that it was not actually deducted from the sale bill/voucher and, as such, does not fulfil the conditions of Rule 19 (a) (i) of the Rules.
The division bench headed by the Chief Justice Pankaj Mithal and Justice Sindhu Sharma noted that the documents on record reveal that every voucher provides for 1% turnover discount, meaning thereby that the discount has been actually allowed as per the agreement/understanding of the parties. The said discount stand deducted as a credit note in respect thereof is issued simultaneously to be adjusted later on or by reimbursement.
The court further observed that it is not the case of anyone that the dealer has paid the actual price of the goods mentioned in the voucher and not the lesser amount by way of discount. In fact, upon re- imbursement as per credit note, the actual price paid by the dealer stands reduced. There is no evidence that the dealer paid to the assessee the original value of the goods and not the discounted price.
Therefore, the court held that the authorities below have adopted a too technical an approach in disallowing the deduction of discount from the taxable turnover of the assessee.
“The references are accordingly answered in favour of the assessee and it is held that the Tribunal is not justified in disallowing 1% discount from the taxable turnover of the assessee and the findings that the assessee does not fulfil the conditions of Rule 19 of the Rules are perverse and not tenable,” the court said.
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