A full bench of the Kerala High Court has held that the discount received through credit notes is not part of the taxable turnover under the Kerala Value Added Tax Act,
The department initiated reassessment on the ground that a part of the sales turnover of the dealer has not undergone self–assessment and did not suffer value-added tax. The dealer responded that the cash credit or discount now proposed to be included in the turnover was on the purchases made by the dealer/petitioner.
As per the trade practice, the suppliers extend discounts to buyers based on the purchases made by the dealers from the suppliers in an accounting year. The deductions, namely, turnover discount, target discount, additional discount, special discount etc., are allowable deductions from the sales price or the purchase price, as the case may be, subject to the value of goods paid by buyers is the amount less such discount.
A full bench comprising Justices S.V.Bhatti, Bechu Kurian Thomas and Basant Balaji, after analysing the relevant provisions, observed that the amended provision does not deny such claim if, firstly, the amount covered by credit notes that do not affect the input tax credit already availed of; secondly, the amount covered by credit notes received by the dealer towards reimbursement of expenses incurred by the dealer. In the computation of input credit, the proviso envisages exclusion from the assessment these two eventualities.
While concluding, the High Court held that the deemed turnover subject to satisfying a condition stipulated in Explanation VII could arise if the context in which the demand allows such definition to operate.
“The Legislature incorporated the second limb to the Fifth proviso to Section 11(3) and by such amendment, the Legislature has taken out from the purview of assessment, credit notes received subsequent to invoice and payment of tax by the manufacturer/supplier and not claiming refund or adjustment of input tax. Further, in cases in which tax is paid at the time of invoice, and no adjustment of input tax is claimed by the manufacturer or the supplier, then, even if the dealer sells it at a lesser price and claims input credit proportionate to the sales price, and subsequently receives credit note from manufacturer/supplier, such credit notes, discount, loss on recoupment is not included for assessment, subject to manufacturer/supplier not claiming refund or adjustment of input tax already deposited. In other words, the credit notes not affecting input tax already deposited cannot be treated as taxable turnover by the extended meaning of Section 2 subsection (lii) Explanation VII of the Kerala Value Added Tax Act.,” the Court concluded.
Comments