The Kerala High Court bench of Justice S.V. Bhatti, Bechu Kurian Thomas, and Justice Basant Balaji has held that credit notes not affecting input tax already deposited cannot be treated as taxable turnover by the extended meaning of Section 2 subsection (iii) Explanation VII of the Kerala Value Added Tax Act.
The writ petitioner/assessee is a registered dealer under the Kerala Value Added Tax Act 2003. The petitioner is a trader in cement. 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 subject to the value of goods paid by buyers.
The assessee has challenged the reassessment order for the return period of 2013–14. During the return period, the dealer received a cash discount from the suppliers based on the purchases the petitioner made from the respective suppliers. The returns filed by the dealer, of course, were accepted. Subsequently, the department issued a notice under Section 25 of the KVAT Act proposing to revise the returns and complete the assessment on best judgement for the year 2013–14.
The reason for reassessment was that a part of the sales turnover of the dealer had not undergone self-assessment and had not suffered value-added tax. The reply of the dealer was that the cash credit or discount now proposed to be included in the turnover was on the purchases made by the assessee.
The respective suppliers/manufacturers paid tax on the gross amount shown in the tax invoice. The discount received on purchases by the dealer from the supplier, firstly, suffered tax at the hands of the supplier, and secondly, there is no concealment of turnover. The dealer's reply was rejected, confirming the proposal to add the amount received by way of discount to the total turnover and tax was demanded.
The assessee contended that where a dealer sells any goods purchased by the dealer at a lower price than that at which they were purchased, upon receiving any amount from any person towards reimbursement of the balance of the price, such amount shall be deemed to be turnover of goods and added to the turnover.
The court observed that the State Legislature has jurisdiction to define and decide the taxable events, turnover, taxable turnover, total turnover, taxable persons, the measure of tax, and the rate of tax under the Act. As part of its policy of imposing compensatory taxes on the above-stated situations, the Legislature, in its wisdom and experience, defines what constitutes a sale price, purchase price, turnover, etc. The liability to pay or exemption from payment arises depending on the expression employed by the Legislature. The dealers on the value addition are liable to pay the difference in tax between the output tax and the input tax credit to the exchequer by the manufacturer or supplier.
"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 a credit note from the manufacturer or the supplier, such credit notes, discount, or loss on recoupment are not included for assessment, subject to the manufacturer or supplier not claiming a refund or adjustment of input tax already deposited," the court said.
Case Title: Saji Thomas Vs Assistant Commissioner
Citation: 2022 LiveLaw (Ker) 245
Counsel For Petitioner: Senior Advocate K.Srikumar
Counsel For Respondent: Special Government Pleader Mohammed Rafiq