DEPUTY COMMISSIONER OF SALES TAX(LAW) BOARD OF REVENUE(TAXES), ERNAKULAM versus ADVANI OORLIKON(P) LTD. TRIVANDRUM

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October 12, 1979

[N. L. UNTWALTA AND R. S. PATHAK, JJ.]

ADVAN£ OORLIKON (P) LTD. TRIVANDRUM

oE.PUTY COMMISSIONER OF SALES TAX (LAW) BOARD OF REVENUE (TAXES). ERNAKULAM . v.

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J.. 11, ~o!" selling agents for a- certain brand of Wclu.ng Ekctro<l.:s. l -catllogu9 price less tmuc discount from r<!tnil~rs for the g<><XJ.. suppli.'\1. The • e~taloguo price is the price which the retailer is cnlillcd to charge the con,umcr . . 1 The returns fiicd under the Central Sales Tax Act, 1956, showed a ta:\able turn- <lVtr of inter-~tatc !des amounting to R~. 8,71 ,624/- for the r.;>co.sm.:nt \car 1971-72. This figure was derived by th:ducting Rs. 1,06,708/- from tho! ~ata­ losue price paid as trnde discount by the assessee to the retailers. The S::t!o!S Ta:t ()fficcr, refused to allow the deduction nnd computed toe ta.~abl¢ tu:noYcr at Rs. 9,78,332/-. On appeal, the Appellate As.sbtant Commi:;sioner uphdd the au~~ce's claim that trauc di,count did not form part of the turn-owr and coijJd not, therefor .... ultruct sales tax. A. second appeal \\-:IS dismi,...:<J by the .Aprclbtc Tribu nal. A. revision npplication by the Revenue to tho: High Court "'lS also d ismi.s.sed.

It ch~r;;~d the

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It was contend.:d (i) that the High C ourt errcJ in ufiirming that an amount paid by \\\1}' of tr:ide discount, could not be incluu<d in the taxable turno\·cr E !or the purpos.: of as.~essment, (ii) that in effect the o.s.~e:;sec entered into two di, tinct contrncb w ith the ~tailer, the first contr~ct rcl~tc-d to the sale of goods ~t the l'.at:..logue price and the bCCond contract stipulated that the retailer could aelually P'IY the sale price less trnde discount and that since the sale was ef!'<!cted -:l'ld.:c the fint contract the entire umount treated as consideration for the s:Jc Wider that contract IJad to be inclwkd in the ta.~nble tum-o1·er.

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Dis~ine the otppeal,

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HELD: It is true that a deuuction on account of cu.sh

"'count IS won~ t~ci1icully conten1platcd from the &ale coruidcr~tion in the definition .of ">ale PI~~ by section 2(b) und that ca-b dhcount cannot be confused ~nth trnd_e ~'IICOu.1t. Titey me two bcpara~ und di>tinct concepts. Casb u c;count 1s "11~ed \\hen the pun.:h:~r make$ payment rromptly or withi~ ~he p<rio<l of ~tl.'CJt allo10.ed. It ill 11 di5count grnnta.l io con>idcrution of e.~p.:dtUous paym~nt. -~ trll(le di>.:ount is a deduction from the catalogue price of goods allowed .'~>Y toiu!l.~cr, to retailers engaged in the traOI). Tho allowance enables the re~cr "-ll the good, at the catalogue price emf yet malic a ~asonabl~ ru~rgm of t h' b,,.1•0 ·:.s exn.·nsc. The outward m votee sent t· il show~ tbo catuluguo pncc nn agamst I :It ~ . ~on o{ the tmdo discount is ~h.own. Tbe net amount IS t e ~a c pn~, "' It .. that net nmount wb.kh is entered in the booh of the respective parttes

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tbo tiJJIOUnt re~li:sable. !'~] G-H, ,34.\.CI

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932

SUPREME COURT REPORTS

[1980] 1 S.C.Lt

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Orient Ptlper Mills Ltd. v. State of Orissa (1975) 35 S.T.C. 34 referred to

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· Under the Sales Tax Act, the s:tle price which enters into the comptt . • I attO(l- Of the turnover is the c?nssdcratton• or w c c go ~ arQ ~old by the as~cs~ee Where trade d~scount ts allowe~ on the catal.oguc pncc, .th~ sale price · is th~ amount detcrrnmcd after dcductr~g· the trade diScount. It IS 1mmateria·l that the definition of "Sale Price" in sectson 2(h) of the Act .docs not expressly provid for the deduction of trade d~co~nt f~om the sale pnce . . Havin;; regard to th: circumstance t~at the sale pr.tcc IS arnvcd at aftc~ dcductmg the trade discount, no question ariSes of deductmg from the sale pnce any sum by way of trade discount. Nor is there any question here of two successive agreements between the parties, one proviuing for sale of the gO<XI$ at the cat:tlosue pr?cc and the other providing for an allownnce by way of trade discount. Having regard te> the nature of t.r.:de discount, there is only one- snlc price between the dealer and the retailer and thnt is the price payable by the retailer calculated at the difference between the catalogue price and the trade discount. There is only one contr.Jct between the parties, the contrnct being tbnt the goods v. ill be sold by the dealer to the retniler at the aforcs:Jill snle price. The sale price which enters into the computation o( the assessee's . tum over for the purpose or assess ment under the Sales Tnx Act, is obtained niter deducting the trade di.scount from the catalogue price. The trade discount allowed by the assessee cannot be included in tbe turnover. [934 CE, F. 935]

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Orient Papa M(lls Ltd • . v. State of Orissa (1975) 35 STC 8.l, Ambica ~mr~

Ltd. Y. Tl1e Stau of Gujarar and anotltu (1964) 15 STC 367, affirmed.

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lndid Pi.rtmu Ltd. v. Statll of Tamil Sadu ( 197~) 33 STC 472, distinguish·

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CIVIL APPELLATE JuRrsorcTJO~ : Civil Appeal No. 1897 of 1976. Appeal by Special Le<n•e from the Judgment and Order dated ~

24-10-1975 of the Kerala High Court in T.R.C. No. 86/7~ .

Dr. V. A. Seyid Muhammed and K. R. Nambiar for the Appellant Dr. Y. S. Chitale and Mrs. Sunanda Bhandare for the Respondent The Judgment of the Court was delivered by . PATHAK, J: This appeal by special leave raises

' whether for the· purpose of computing the turnover assessed to sal~s -----, ta~ under the Central Sales Tax Act, 1956 the sale price of goods IS · dc~crmined by including the amount paid by way of tr:tde discount.

the questiott

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The assessee is a private limited company carrying on busin6'> ns sole selling agent for a certain brand of welding ekctrcxles. Fcrr the pood~ Jupplied to retailers, it charged them the catalo~e price t~~ trade discount. 111e catalogue price is the price which the rctaikr ts entitled to char~e the c~n~umcr. For the "asse-ssment }'.!ar 1971-72. th~ returns filed un(kr the Central S:.1lcs Ta:'( Act, 1956 showed a ta:tlb e turnover or ·inter-State sales amounting to Rs. 8,71.624. This figut f wa~ derived by deducting from the c:J.talogue price tho amount 0 Rs. 1,06,708 paid as trade disconnt by the assessee to retailers. '{'be"

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•C;S.T. v. J.DVANI OORLIKON (Pathak, 1.)

933

Sales Tax Officer refused to allow the deduction and computed the taxable turnover at Rs. 9,78,332. The Sales Tax Officer was of the view that the amount paid by way of trade discount could not be excluded from the catalogue price. The assessee appealed, and the Appellate Assistant Commissioner upheld its claim t_hat trade dis count did not ·form part of the turnover, and it could not therefore attract sales tax. A second appeal filed by the Revenue was dismissed by the Appellate Tribunal. The Revenue applied in revision to the High Court of Kerala and the revision application has been dismissed . . The Revenue appeals.

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It is contended before us by the Revenue that the High Court has erred in affirming that an amount paid by way· of trade discount cannot be included in the taxable turnover for the purpose of assessment. It is pointed out that the definition of '"sale price" in section 2(h) of the Central Sales Tax Act permits the deduction of sums allowed as cash discount only and makes no reference to sums allowed by way of trade discount. It i:; contended that in effect the assessee enters into two distinct contracts with the retailer, the first contract relates to' the sale of goods at the catalogue price and the second contract stipulates that n<>!!Vithstanding the liability of the reta~ler under the first contract to pay the entire sale price, he may actually pay the sale price less trade discount. On that submission, it is sought to be urged that since the sale is effected under the first contract, the entire amount treated E as consideration for the sale under that contract has to be included in the taxable turnover.

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We. have considered the matter carefully and in our judgment the

appeal must fail.

At the 'outset, i;: is appropriate that we set forth the two relevant definitions contained in the Central Sales Tax Act. Section 2(j) defines "turnover" to mean "the aggregate of the sale prices received and receivable by him (the dealer) in respect of sales of any goods in the course of inler-State trade or commerce .......... ". And section 2(h) of the Act defines the expression "sale price'' to mean "the amount payable to a dealer as consideration for the sale of any goods, less any sum aliowed as cash discount according to the prac- tice normally prevailing in tbe trade ....... _ .. ". It is true that a deduction on account of cash discount is alone specifically contemp lated from the sale consideration in the definition of "sale price" by section 2 (h), and there is ·no· doubt that cash discount cannot be con~ fused with trade di~;count. The two concepts are wholly distinct and ·separate. Cash discount is allowed when the purchaser makes payment

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934

SUPREME COURT REPOltTS

[1980].1 S.C.R.

promptly or within the period of credit allowed. It is a discount granted in consideration of expeditious payment. A trade discount is a deduc tion from the catalogue price of goods allowed by wholesalers t~ retailers engaged in the trade. The allowance enables the retailer to sell the goods at the catalogue price and yet make a reasonable margin of profit after taking, into account his business expense. The outward' invoice sent by a wholesale dealer to a retailer shows the catalogue' price and against that a deduction of the trade discount is shown. The net amount is the sale pii.ce, and it is that net amount which is entered in the books of the respective parties as the amount realisable~ Orient Paper Mills Ltd. v. State of Orissa. C)

trade discount

Under the Central Sales Tax Act, the sale price which enters intO' the· the computation of the turnover is the consideration for which goods are sold by the assessee. In a case where is allowed on the catalogue price, the sale price is the amount determined' after deducting the trade discount. The trade discount does not enter into the composition of the sale price, but exists apart from and out side it and prior to it. It is immaterial that the definition of "sale price''" in &ection 2 (h) of the Act does not e:xpressly provide for the deduc tion of trade discount from the sale price. Indeed, having regard to the circumstance that the sale price is arrived ,at after dedufting the trade· discount, no q~estion arises of deducting from the sale price any sum by way of trade discount

Nor is there any question here of

two successive agreements between the parties, one providing for sale of the. goods at the· catalogue price and the other providing for an allowance by way of" trade discount. Having regard to the nature of a trade discount, there, 'is only one. sale price betwehn the· dealer and the retailer, and that is the price p_ayable by the retailer calculated as the difference between' the catalogue price· and the trade discount. There is only one contract between the parties, the contract being that the goods will be sold by the dealer to the retailer at the. aforesaid sale price.

We have been referred to Ambica Mills Ltd. & Ors. v. The State of Gujarat & Anr. (') Where the Gujarat High Court the claim of the manufacturer to a deduction of the remission allowed' from the sale price to the purchaser on account of a general fall in prices when delivery of the goods was effected. In our opinion, the case supports the vi~w we are taking. The sale price remained the stipulated price in the contract between the parties. The fail in prices-

rejected

(1) (1975) 35 S.T.C. 84. (2) (1964) 15 S.T.C. 367

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C.S.T . V. ADVA~I OORLIKON (Pathak, .J.)

935

occurred after the contract of sale had been finalised, ano with a view to relieving th~ purchaser to some extent of the loss which could have been occasioned thereby, the ma~ufacturcr sought to bear part of the loss by granting a rebate or remission to the purchaser. The Revenue relies on India Pistons Limited v. State of Tamil Nadtt. ( ') In that case, the bqnus of which deduction was sought by the assessee from the turnover was paid under a bonus discount scheme, not to all customers but only to distributors whose net purchases the assessee exceeded the target figure agreed to between the parties. The amount of rebate allowed was credited to the customer's account and treated as a reserve from which the distributors could make future pur chases. The rebate of bonus discount was not allowed as a deduc tion by tbe Mcldras High Court and, in our opinion, rightly so. It was in the Dature of an incentive· bonus paid to distributors whose. net pur chases exceeded the target figure~ It did not, and could not, affect the sale value of the goods sold by the assessee. The sale price remained undisturbed in the contract be.tween the parties.

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In our judgment, the sale price which enters into the computation of ~ assessee''s turnover for the purpose of assessment under the Central Sales Tax Act is obtained after deducting the trade discount from the catalc.gue price. The trade discount allowed by the assessee cannot be included in the turnover.

· - In the resulc, the appeal fails and is dismissed with. costs.

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Appeal dismissed.

(1) [1974] 33 S.T.C. 472