(Per : HONOURABLE MR.JUSTICE AKIL KURESHI) 1) These appeals were admitted for consideration of following substantial question of law:
“Whether on the facts and in the circumstances of the case the Tribunal is correct in its interpretation of provision of Section 80HHC of the Act with special reference to the interpretation of the phrase “total turnover” as existing in the said statutory provisions?”
2) The question pertains to the inclusion or otherwise of trade discount offered by the assessee to its dealers for the purpose of computing deduction under section 80HCC of the Act. Counsel for the appellant drew our attention to the impugned common judgment of the Tribunal, wherein in order to decide this issue against the assessee, the Tribunal relied on its previous order dated 27.7.2000 in case of this very assessee for the earlier assessment year 1992-93. Counsel pointed out that such decision of the Tribunal was carried in appeal by the assessee before this Court in Tax Appeal No.259 of 2000. This Court had allowed such appeal by judgment dated 31.7.2012, making following observations:
“11)Having heard the learned counsel for the parties and having perused the material on record, we may first notice the discount scheme framed by the assessee. By Circular dated 01.04.1991, the assessee addressed the tender letter to all its dealers and conveyed that there will be modification of the previous turnover discount (TOD for short). Henceforth, the discount would be allowed in following manner:
Net value Excluding Taxes TOD% Dutron Kanafles Suction & Delivery House: Size 50 mm to 200 mm (Excluding Duct Hose) : Below Rs. 2.0 lacs NIL : Rs.2.0 lacs & above 2% : Rs.3.0 lacs & above 3% Rs.4.0 lacs & above 4% Rs.5.0 lacs & above 5% As regards DUCT Hoses TOD will be allowed as below for the current year.
DUCT HOSE size 20 MM to 200MM : Below Rs. 2.0 lacs NIL : Rs.2.0 lacs & above 3% : Rs.3.0 lacs & above 4% : Rs.4.0 lacs & above 5%
12) The scheme further provided that such discount will be allowed only on such bills which were paid strictly within 30 days from the date of the bill and further that outstanding bills including supplies made during March if not cleared within 31st March will not be considered for TOD.
13) In terms of such scheme therefore, the dealers of the assessee would receive a certain incentive calculated on the basis of the total turnover achieved by them. Such incentive was in the form of discount. Such discount would be directly proportionate to the sales affected by the concerned dealer. One of the conditions ofcourse was that on any bill outstanding beyond period of 30 days, no discount would be paid. Thus, the scheme framed by the assessee related the discount to two factors viz. the sales effected by the dealer and to the prompt payments of periodical bills.
14) Keeping the above background in mind, we may try to ascertain whether such discount should form part of the total turnover. The term turnover has not been defined under the Income Tax Act or for that matter under Section 80HHC of the Act. The Central Sales Tax Act, 1956 defines term “turnover” in Section 2 (j) of the Act as under:
Section 2(h) in turn defines term “sales price” as under:
(h) “sale price” mean the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charged:
(j) “turnover used in relation to any dealer liable to tax under this Act means the aggregate of the sale prices received and receivable by him in respect of sales of any goods in the course of inter-State trade or commerce made during any prescribed period [and determined in accordance with the provisions of this Act and the rules made thereunder]”
[Provided that in the case of a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract, the sale price of such goods shall be determined in the prescribed manner by making such deduction from the total consideration for the works contract as may be prescribed and such price shall be deemed to be the sale price for the purpose of this clause;]
15) From above definitions it can be seen that turnover for the purpose of the said Act is an aggregate of the sale prices received and receivable by dealer in respect of sales of goods in course of inter-State trade or commerce made during the prescribed period. In turn, the term “sale price” in Section 2(h) of the said Act means the amount payable to a dealer as consideration for sale of any goods as reduced by any sum allowed as cash discount according to the prevailing practice in the trade, but inclusive of certain specified items.
16) Before the Apex Court in case of The Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) Vs. M/s. Advani Coorlikon (P.) Ltd. reported in AIR 1980 SC 609 these definitions came up for interpretation. The question was whether a trade discount as opposed to a cash discount could form part of the turnover. The Apex Court noted that under clause 2(h) it was only the cash discount which would be excluded from the sale price. The Apex Court also noted that there was clear distinction between the trade discount and cash discount. Despite this, it was held that:
“It is true that no deduction on account of cash discount is alone specifically contemplated from the sale consideration in the definition of sale price by Section 2(h), and there is no doubt that cash discount cannot be confused with trade discount. The two concepts are wholly distinct and separate. Cash discount is allowed when the purchaser makes payment promptly or within the period of credit allowed. It is a discount granted in consideration of expeditious payment. A trade discount is a deduction from the catalogue price of goods allowed by wholesalers to 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 price, and it is that net amount which is entered in the books of the respective parties as the amount realisable. Orient Paper Mills Ltd. Vs. State of Orissa, (1975) 35 STC 84 (Orissa).”
17) It can thus be seen that as per the said decision, even in absence of any specific exclusion of trade discount from the sale price, it was held that the same cannot form part of the total turnover since the net amount that the dealer receives is the sale price and it is that net amount which is entered as amount realizable. It would thus appear that such amount which the dealer would never receive could not form part of the turnover.
18) In the decision in case of M/s. Advani Coorlikon (P.) Ltd. (supra) the Apex Court distinguished the facts in case of India Pistons Ltd. Vs. State of Tamil Nadu reported in 1974 33 STC page 472. We also perused the such decision. It was a case wherein the assessee had offered trade discount to its dealers on the sales effected. Such discount offered was in form of a credit to be reflected in the account of the dealer. Such credit could be used by the dealer only for the purpose of making laser purchases from the assessee. It was in this background the Division Bench of Madras High Court held that such discount cannot be excluded from the computation of turnover for the purpose of Central Sales Tax Act. Facts in our case are, however, different. The discount the assessee offered to its dealer was in cash but proportionate to the total sales effected by an individual dealer. The amount of discount depended on such total sales. In view of the decision of the Apex Court in case of M/s. Advani Coorlikon (P.) Ltd. (supra), such discount would not form part of the sale price that the assessee would receive. It is not in dispute that in the books of accounts also the assessee had shown the reduced amount as total sale price.
19) The Rajsthan High Court also in case of Commissioner of Income Tax Cs. Pesticides India Ltd. (supra) taken a similar view. In the said decision, while examining a very similar issue, the Division Bench observed as under:
“36. The expression “turnover” has reference to sale proceeds of sale of goods/services traded by the assessee. The expression “turnover” in relation to business conveys multiple meanings. In one sense, it is considered to be a volume of business, which in the case of a manufacturer may include total goods produced and disposed of in a given time or in another case may indicate turning over of capital involved in business or in yet another sense it may mean profits derived from a business in a given time. However, when turnover is used in relation to trading business, it refers to turnover of sales or volumes of sales of goods or services.
40. In the present case, the issue is about the turnover of sale of goods only. The turnover of sales for a period in the present case, the previous year relevant to the assessment year 1990-91, in its ordinary sense denotes the aggregate of price received or receivable by the company in respect of sale of goods transacted by it. No other specific meaning has been assigned to it. If sale of goods is to be understood as defined in the Sale of Goods Act, the price received/receivable becomes an integral part of the sale transaction.”
20) We also notice that in case of Union of India and ors. vs. Bombay Tyres International (P) Ltd. reported in (2005) 3 SCC 787 in context of valuation for the purpose of collection of excise, the Apex Court observed as under:
“3(1) Trade discounts:- Discounts allowed in the trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or be established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods.
Such trade discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price.”
21) In view of the above discussion, we are of the opinion that the Tribunal committed an error in holding that trade discount made to the assessee should form part of total turnover for the purpose of computing deduction under Section 80HHC of the Act.
In the result, we answer the question in the negative i.e. in favour of the assessee and against the revenue. To the above extent, judgement of the Tribunal stands reversed. Appeal is allowed and disposed of.”
3) The facts being identical, without separate discussion, adopting the reasoning in our judgment dated 31.07.2012, the present tax appeals are also allowed. Questions are answered in the negative, that is, in favour of the assessee and against the Department. The impugned judgment of the Tribunal stands reversed to that extent. Both the appeals are disposed off accordingly.
(AKIL KURESHI,J.)
(HARSHA DEVANI,J.)
Vahid