# M/S. SOUTHERN MOTORS v. STATE OF KARNATAKA AND OTHERS

- **Citation:** [2017] 2 S.C.R. 434
- **Court:** Supreme Court of India
- **Decided:** 2017-01-18
- **Case number:** Civil Appeal Nos. 10955-10971 of2016
- **Bench:** Dipak Misra, Amitava Roy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-southern-motors-v-state-of-karnataka-and-others-31824
- **Pages:** 32

## Headnote

Karnataka Value Added Tax Act, 2003: s.2(34) - Post sale
discoums - Determination of taxable turnover - Issue of credit notes
to the customers granting discounts - Assessee retaining only the
net amount that is, the amount shown in the invoice less the sum of
discount disclosed in credit note - Claim for deduction towards
discount accorded by credit notes from the total turnover to quantify
the taxable turnover - Held: A plain reading of s.3(2){c) reveal
that all amounts allowed as discount qualify for deduction from the
total turnover to ascertain the taxable turnover - A trade discount
conceptually is a pre sale concurrence, the quantification whereof
depends on many factors in commerce - Such trade discounts ought
not to be disallowed only if they are not payable at the time of each
invoice or deducted from the invoice price -
The overall review of
the scheme of the Act and the Rules and the underlying objectives
in particular of ss.29 and 30 of the Act and r.3 of the Rules shows
that the requirement of reference of the discount in the tax invoice
or bill of sale to qualify it for deduction has to be construed in
relation to the transaction resulting in the final sale/purchase price
and not limited to the original sale sans the trade discount -
However, the transactions allowing discount have to be proved on
the basis of contemporaneous records and the final sale price after
deducting the trade discount must mandatorily be reflected in the
accounts as stipulated under r.3(2J(c) of the Rules - Karnataka
Value Added Tax Rules, 2005 - r. 3(2){c) and its proviso.
Interpretation of statutes: Literal interpretation - Held:
Though words in a statute must be extended their ordinary meanings,
but if the literal construction thereof results in anomaly or absurdity,
the courts must seek to find out the underlying intention of the
legislature and in the said pursuit, can within permissible limits strain
434
MIS. SOUTHERN MOTORS v. STATE OF KARNATAKA AND
435
OTHERS
the language so as to avoid such unintended mischief -
Karnataka
A
Value Added T(J)( Rules, 2005 - r.3(2)(c) and its proviso.
Allowing the appeals, the Court
HELD: 1. The Karnataka Value Added Tax Act, 2003 is a
legislation, as its pream hie suggests, to provide for further levy
of tax on the purchase or sale of goods in the State of Karnataka.
Under Section 29, it is incumbent on a registered dealer effecting
a sale of taxable goods or goods exempted from tax along with
any taxable goods in excess of the prescribed value, to issue at
the time of sale, a tax invoice marked as original for the sale and
containing the particulars prescribed. Thereunder, a registered
dealer in the eventualities mentioned therein has to issue a bill
of sale containing such particulars as may be prescribed. Section
30 mandates that where such a tax invoice has been issued for
any sale of goods and within six months from the date of such
sale, the amount shown as tax charged in that tax invoice is found
to exceed the tax payable in respect of the sale effected, or is not
payable on account of goods sold being returned within the
prescribed period, the registered dealer· effecting the sale, would
issue forthwith to the purchaser, a credit note contai&ing the
particulars as prescribed. The Section further stipulates that when
a tax invoice has been issued for sale of any goods and the tax
payable in respect of the sale exceeds the amount shown as tax
charged in such tax invoice, the registered dealer making the
sale would issue to the purchaser, a debit note containing the
particulars as prescribed. It is further ordained that any registered
dealer who receives or issues credit notes or debit note~, would
declare them in his return to be furnished for the tax period in
which the credit note is received or debit note is issued and claim
reduction in tax or pay tax due thereon. [Paras 11, 13] [444-C-D;
447-B-E)
2. A plain reading of section 3(2)(c) would reveal that all
amounts allowed as discount wou

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[2017] 2 S.C.R. 434
M/S. SOUTHERN MOTORS
v.
STATE OF KARNATAKA AND OTHERS
(Civil Appeal Nos. 10955-10971 of2016 Etc.)
JANUARY 18, 2017
[DIPAK MISRA AND AMITAVA ROY, JJ.]
Karnataka Value Added Tax Act, 2003: s.2(34) - Post sale
discoums - Determination of taxable turnover - Issue of credit notes
to the customers granting discounts - Assessee retaining only the
net amount that is, the amount shown in the invoice less the sum of
discount disclosed in credit note - Claim for deduction towards
discount accorded by credit notes from the total turnover to quantify
the taxable turnover - Held: A plain reading of s.3(2){c) reveal
that all amounts allowed as discount qualify for deduction from the
total turnover to ascertain the taxable turnover - A trade discount
conceptually is a pre sale concurrence, the quantification whereof
depends on many factors in commerce - Such trade discounts ought
not to be disallowed only if they are not payable at the time of each
invoice or deducted from the invoice price -
The overall review of
the scheme of the Act and the Rules and the underlying objectives
in particular of ss.29 and 30 of the Act and r.3 of the Rules shows
that the requirement of reference of the discount in the tax invoice
or bill of sale to qualify it for deduction has to be construed in
relation to the transaction resulting in the final sale/purchase price
and not limited to the original sale sans the trade discount -
However, the transactions allowing discount have to be proved on
the basis of contemporaneous records and the final sale price after
deducting the trade discount must mandatorily be reflected in the
accounts as stipulated under r.3(2J(c) of the Rules - Karnataka
Value Added Tax Rules, 2005 - r. 3(2){c) and its proviso.
Interpretation of statutes: Literal interpretation - Held:
Though words in a statute must be extended their ordinary meanings,
but if the literal construction thereof results in anomaly or absurdity,
the courts must seek to find out the underlying intention of the
legislature and in the said pursuit, can within permissible limits strain
434
MIS. SOUTHERN MOTORS v. STATE OF KARNATAKA AND
435
OTHERS
the language so as to avoid such unintended mischief -
Karnataka
A
Value Added T(J)( Rules, 2005 - r.3(2)(c) and its proviso.
Allowing the appeals, the Court
HELD: 1. The Karnataka Value Added Tax Act, 2003 is a
legislation, as its pream hie suggests, to provide for further levy
of tax on the purchase or sale of goods in the State of Karnataka.
Under Section 29, it is incumbent on a registered dealer effecting
a sale of taxable goods or goods exempted from tax along with
any taxable goods in excess of the prescribed value, to issue at
the time of sale, a tax invoice marked as original for the sale and
containing the particulars prescribed. Thereunder, a registered
dealer in the eventualities mentioned therein has to issue a bill
of sale containing such particulars as may be prescribed. Section
30 mandates that where such a tax invoice has been issued for
any sale of goods and within six months from the date of such
sale, the amount shown as tax charged in that tax invoice is found
to exceed the tax payable in respect of the sale effected, or is not
payable on account of goods sold being returned within the
prescribed period, the registered dealer· effecting the sale, would
issue forthwith to the purchaser, a credit note contai&ing the
particulars as prescribed. The Section further stipulates that when
a tax invoice has been issued for sale of any goods and the tax
payable in respect of the sale exceeds the amount shown as tax
charged in such tax invoice, the registered dealer making the
sale would issue to the purchaser, a debit note containing the
particulars as prescribed. It is further ordained that any registered
dealer who receives or issues credit notes or debit note~, would
declare them in his return to be furnished for the tax period in
which the credit note is received or debit note is issued and claim
reduction in tax or pay tax due thereon. [Paras 11, 13] [444-C-D;
447-B-E)
2. A plain reading of section 3(2)(c) would reveal that all
amounts allowed as discount would qualify for deduction from
the total turnover to ascertain the taxable turnover and thus the
extent of exigibility under this statute. The first proviso
prescribes that a discount to be eligible for deduction has to be
one which is allowed in accordance with the regular practice of
the dealer or is in accordance with the terms of any contract or
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[2017] 2 S.C.R.
agreement entered into in a particular case and the tax invoice
or bill of sale issued in respect of the sales relating to such
discount shows the amount allowed as discount. The second
proviso enjoins further, that the accounts should show that the
purchaser had paid only the sum originally charged less the
discount. [Para 15] [448-B-D]
3. Section 30 dilates on the contingencies witnessing
reduction or enhancement of tax liability subsequent to the sale/
purchase of goods. The tax liability would be contingent on the
sale/purchase price in the eventual sale/purchase price, to he
essentially reflected in th.e return of the assessee. Section 30
axiomatically thus deals only with the incidence of tax and not
the spectrum of situations or eventualities bearing on the tax
liability. Rule 3(2), in particular lists the array of deductions
conditioned on variety of situations as scheduled therein to
ascertain the taxable turnover. Allowance of discount is one of
the several other permissible deductions contingent on the
melange of determinants referred to therein. These deductions,
however contribute to the reduction of the total turnover to
quantify the taxable turnover and thus the tax liability. Neither
an assessee is liable to pay tax in excess of what is due in law nor
is the revenue authorized to exact the same. Any interpretation
of Rule 3(2)(c) though an integrant of a fiscal statute has to be in
accord with this fundamental mandatory postulation. [Para 26]
[454-D-G]
4. It is a matter of common experience that in the present
contemporary competitive market, trade discounts not only are
dependent on variable factors but also might be strategically not
disclosable at the time of the original sale/purchase so as to be
coevally reflected in the tax invoice or the bill of sale as the case
may be. The actual quantification of the trade discount, depending
on the nature of the trade and the related stipulations in any
contract with regard thereto, may be deferred till the happening
of a contemplated event, so much so that the benefit thereof is
extended at a point of time subsequent to that of the original
sale/purchase. That by itself, subject to proof of such regular
trade practice and the contract/agreement entered into between
the parties, would not render the trade discount otherwise legal
M/S. SOUTHERN MOTORS v. STATE OF KARNATAKA AND
437
OTHERS
and acceptable, either non est or fictitious for evading tax liability.
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[Para 27] [454-G-H; 455-A-B]
5. Sections 29, 30 and Rule 3 are the constituents of a
same scheme to determine the taxable turnover and thus the
extent of exigibility. Whereas Sections 29 and 30 deal with the
issuance of tax invoice and bill of sale, to start with and th·ereafter
credit and debit notes to be in accord with the tax actually payable,
Rule 3 in a way espouses the exercise of ascertaining the taxable
turnover by enumerating the permissible deductions from the
total turnover. There is no repugnance or conflict amongst these
three provisions so much so that Rule 3(2)(c) stands out in
isolation and is incompatible with either the scheme of the Act or
Sections 29 and 30 to be precise. The interplay of the::e three
provisions is directed to ensure correct computation of the
taxable turnover for an accurate computation of the tax iiability.
These provisions therefore for all practical purposes complement
each other and are by no means militative in orientation or impact.
Perceptionally, if taxable turnover is to be comprised of sale/
purchase price, it is beyond one's comprehension as to why the
trade discount should be disallowed, subject to the proof thereof,
only because it was effectuated subsequent to the original sale
but evidenced by contemporaneous documents and reflected in
the relevant accounts. [Para 28] [455-E-H; 456-A]
6. Though words in a statute must be extended their
ordinary meaning, but if the literal construction thereof results
in anomaly or absurdity, the courts must seek to find out the
underlying intention of the legislature and in the said pursuit,
can within permissible limits strain the language so as to avoid
such unintended mischief. [Para 34] [463-F-G]
K.P. Varghese v. Income Tax Officer, Ernakulam and
Anr. [1982] 1 SCR 629 : AIR 1981 SC 1922;
Commissioner of Income Tax, Bangalore v. J.H Got/a
Yadagiri [1985] 2 Suppl. SCR 711 : AIR 1985 SC
1698; State of Jharkhand and others v. Tata Steel Ltd.
and Ors. (2016) 11 SCC 147; Hansraj Gordhandas 1'.
RH Dave, Assistant Collector of Central Excise &
Customs, Surat and others [1969] (2) SCR 252;
Mis Doypack Systems Pvt. Ltd. v. Union of India and
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(2017] 2 S.C.R.
Ors. [1988] 2 SCR 962 : (1988) 2 SCC 299 - relied
on.
Seaford Court Estates Ltd. v. Asker [1949] 2 All ER
155 - referred to.
7. It would be incomprehensible that the legislature, while
occasioning the amendment to the first proviso to Rule 3(2)(c)
of the Rules, was either ignorant or unaware of the prevalent
practice of offering trade discount in the contemporary commercial
dispensations. This is more so, as trade discount continu~d to
be an accepted item of deduction. In such a premise, the intention
of the legislature could not have been to deny the benefit of
deduction of trade discount by insisting on the reflection of such
trade discount in the text invoice or the bill of sale at the point of
the sale as the only device to guard against possible avoidance of
tax under the cloak thereof. Axiomatically, therefore the
interpretation to be extended to the proviso involved has to be
essentially in accord with the legislative intention to su.stain
realistically the benefit of trade discount as envisaged. To !nsist
on the quantification of trade discount for deduction at the time
of sale itself, by incorporating the same in the tax invoice/bill of
sale, would be to demand the impossible for all practical purposes
and thus would be ill-logical, irrational and absurd. [Para 36] [464C-G]
8. The overall review of the scheme of the Act and the
Rules and the underlying objectives in particular of Sectiohs 29
and 30 of the Act and Rule 3 of the Rules shows that the
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requirement of reference of the discount in the tax invoice or bill
of sale to qualify it for deduction has to be construed in. relation
to the transaction resulting in the final sale/purchase. price and
not limited to the original sale sans the trade discount. However,
the transactions allowing discount have to be proved on the basis
of contemporaneous records and the final sale price after
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deducting the trade discount must mandatorily be reflected in
the accounts as stipulated under Rule 3(2)(c) of the Rules. The
sale/purchase price has to be adjudged on a combined
consideration of the tax invoice or bill of sale as the case may be
along with the accounts reflecting the trade discount and the actual
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price paid. The first proviso has thus to be so read down to be in
MIS. SOUTHERN MOTORS v. STATE OF KARNATAKA AND
OTHERS
consonance with the true iutendmeut of the legislature and to
achieve as well the avowed objective of correct determination of
the taxable turnover. [Para 37] [465-C-F]
State of Karnataka v. Mis Kitchen Appliances India
Ltd. 2011 (71) Karnataka Law Journal 234; Mis
Southern Motors v. State ~f Karna/aka and Ors.
2017(1) SCALE 604; Deputy Commissioner of Sales
Tax (Law) Board of Revenue (Taxes), Ernakulam v.
Mis. Advani Oor/ikon (P) Ltd. [19SO] 1 SCR 931 :
(19SO) 1 SCC 360; IFB Industries Ltd. v. State of
Kerala [2012] 4 SCR S02 : (2012) 4 SCC 61S;
Commissioner of Central Excise, Madras v. Mis.
Addison & Co. Ltd. (2016) 10 SCC 56; A. V. Fernandez
v. The State of Kera/a [1957] SCR S37; Jayam & Co.
v. Assistant Commissioner and Another (2016) S
SCALE 70; Union of India and others v. Bombay Tyres
International (P) Ltd. (2005) 3 SCC 7S7; Union of
India and others v. Bombay Tyre International Ltd. and
others [19S4] 1 SCR 347 : (19S4) 1 SCC 467 -
referred to.
Inland Revenue Commissioner v. Duke of Westminister
(1936) AC 1 24 ; Partington v. Attorney General
(1S69) 4 HL 100, 122 - referred to,
Case Law Reference
2011 (71) Kar Law Journal 234
referred to
Para4
2017(1) SCALE 604
referred to
Para4
[19SO] 1 SCR 931
referred to
Paras
[2012] 4 SCR S02
referred to
Paras
(2016) 10 sec 56
referred to
Paras
(2005) 3 sec 1s1
referred to
Paras
[1957] SCR S37
referred to
Para9
[2012] 4 SCR S02
referred to
Para 9
(2016) 8 SCALE 70
referred to
Para9
(1936) AC 1 24
referred to
Para 17
(2005) 3 sec 787
referred to
Para 23
[1984] 1 SCR 347
referred to
Para 25
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[1982] 1 SCR 629
relied on
Para 29
[1985] 2 Suppl. SCR 711
relied on
Para30
(2016) 11 sec 147
relied on
Para 31
[1969] 2 SCR 252
relied on
Para 31
[1988] 2 SCR 962
relied on
Para 32
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
10955-10971 of2016.
From the Judgment and Order dated 03.04.2013 of the High
Court of Karnataka at Bangalore in Writ Appeal Nos. 5769-5785 of
2012 (T-RES)
WITH
C. A. Nos. 10972-10978 of2016.
Dhruv Mehta, K. N. Bhat, Sr. Ad vs., Shanth Kumar V. Mahale,
G. K. Y. Murthy, Jamal, Pathak, Rajesh Mahale, Tarun Gulati, S!Jarsh
Bhargava, Shashi Mathews, Kishore Kunal, Rony 0. John, Vinayak
Mathur, Ms. Rachna Yadav, Y. N. Raghupathy, ParikshitP.Angadi,Advs.
for the appearing parties.
The Judgment of the Court was delivered by
AMITAVA ROY, J. 1. The instant adjudicative pursuit is to
disinter the statutory intendment lodged in Rule 3(2)(c) in particular of
the Karnataka Value Added Tax Rules, 2005 (for short, hereinafter to
be referred to as "the Rules") so as to facilitate the determinati9n of
taxable turnover as defined in Section 2(34) of the Karnataka Value
Added Tax Act, 2003 (for short, hereinafter to be referred to as "the
Act") in interface with Section 30 of the Act and Rule 31 of the Rules.
2. We have heard Mr. Dhruv Mehta, learned senior counsel for·
the appellant in Civil Appeal Nos. 10955-10971 of2016, Mr. Tarun Gulati,
learned counsel for the appellant in Civil Appeal Nos. l 0972- I 0978 of
2016 and Mr. K.N. Bhat, learned senior counsel for the respondentState.
3. The foundational facts, albeit not in dispute present the required
preface. The appellant is a dealer in the motor vehicles and registered
under the Act. Its version is that during the years in question i.e. 2007-
MIS. SOUTHERN MOTORS v. STATE OF KARNATAKA AND
OTHERS [AMITAVA ROY, J.]
2008 and 2008-2009, it raised tax invoices on the purchasers :\5 per the
policy of manufacturers of vehicles to maintain uniformity in the price
thereof. After the sales were completed, credit notes were issued to the
customers granting discounts, in order to meet the competition in the
market and for allied reasons. Consequentially, it received/retained only
the net amount, that is the amount shown in the invoice less the sum of
discount disclosed in the credit note. Accordingly, the net amount, so
received was reflected in his books of account and returns w.ere filed
under Income Tax Act, 1961 et al.
4. The Assistant Commissioner of Commercial Taxes, (Audit1.6), VAT Division No.1-1, Gandhi Nagar, Bangalore i.e. the respondent
No.3, as the Assessing Authority by his reassessment orders dated
21.06.2010 allowed deductions claimed by the appellant towards discount
accorded by the credit notes from the total tumoverto quantify the taxable
turnover. Subsequent thereto, in the face of the decision of !he High
Court in State of Karna/aka vs. Mis Kitclte11 Appliances llldia Ltd.,
2011 (71) Karnataka Law Journal 234, recognizing only discounts
mentioned in the tax invoices as eligible for deduction from the total
turnover in tenns of Rule 3(2)(c) of the Rules, the Assessing Authority
passed the rectification orders dated 2 I .05.2012 under Section 4 I ( 1) of
the Act, disallowing the deduction of post sale discounts earlier awarded
by the corresponding credit notes. The appellant having unsuc~essfully
challenged these rectification orders before the High Court, in both the
tiers, has invoked this Court's jurisdiction under Article 136 of the
Constitution of India for redress. The above facts pertain to the Civil
AppealNos.10955-10971 of2016.
5. The Civil Appeal 10971-10978 of2016, with Samsung India
Electronics Ltd. as the appellant, also present the same debate. The
appellant, the assessee is as well a registered dealer under the Act and
engaged in the business of electronic goods and l.T. products. Though
the assessment for the tax period April, 2006 to October, 2006 was
concluded by the Deputy Commissioner of Commercial Taxes (Audit4) LDU, Bangalore on 29.01.2007, the Assessing Authority disallowed
the claim of deduction towards discounts on the ground that the same
were not revealed at the time of issuance of tax invoices, though credit
notes were issued at the end of the month concerned. The apptals filed
by the appellant- assessee before the Commissioner of Commercial Taxes
(Appeals), DV0--1 & Ill, Bangalore though came to be dismissed, it
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succeeded before the jurisdictional Tribunal, whereafter the Revenue
took the challenge to the High Court. By the decision impugned herein,
the High Court relying on its earlier decision in Mis Southern Motors
vs. State of Karnataka and Ors. rendered in Writ Appeal Nos. ·57695785 of 2012 reiterated its view that once the sale invoice was issued
and the sale price was collected along with the tax, the aggregate of
such sales constituted the total turnover and the tax was payable c,n the
taxable turnover. It took note of the deductions permissible under Rule
3(2) of the Rules to determine the taxable turnover and held that though
the amounts allowed as discount did constitute permissible deduction to
compute the eventual taxable turnover, such discount was to be
necessarily reflected in the sale invoice to qualify for such deduction. It
thus concluded that by issuing a credit note after receiving the amounts
even before the filing of the returns, it could not be construed th'.lt the
discounts were not includible in the turnover. The claim of deduction of
the discount extended through credit notes after the completion of the
sale but not divulged in the tax invoice was negated. As the above
rendition was founded on the verdict under scrutiny in the previous batch
·of appeals where Mis Southern Motors figures as the appellant, and
the issue seeking adjudication is common, all these appeals with the
aforenoted marginal factual variations have been analogously hea.rd.
6. As the dissension stems from contrasting interpretations of
the underlying purport of Rule 3(2)(c) of the Rules in the context of the
scheme of the Act as a whole and Section 30 thereof and Rule 31 of the
Rules in particular, further reference to the factual details would be
inessential.
7. The emphatic insistence on behalf of the appellant is that the
combined reading of Section 30 and Rule 31 demonstrates in clear ierms
that the assesses are entitled to claim deduction of the discount allowed
to their customers by credit notes, from the total turnover to quantify
their taxable turnover. The learned counsel have urged that as some
discounts, especially those linked to targets to be achieved in a particular
period are not comprehendable at the time of sale, these logically cannot
be reflected in the tax invoices. They have maintained that such discounts
actualize through credit notes at the end of the prescribed period for
which the target is fixed and are thus governed by Section 30 of the Act
and Rule 31 of the Rules. They have asserted that in no view of the
matter, Rule 3(2)(c) can be conceded a primacy to curtail or abr0gate
M/S. SOU.THERN MOTORS v. STATE OF KARNATAKA AND
OTHERS [AMITAVA ROY, J.]
Section 30 or Rule 3 I of the Rules, lest the latter provisions are rendered
otiose. Such an explication would also be extinctive of the c0ncept of
the well ingrained concept of turnover/trade discount which is indefensible.
8. Referring to the definition of "total turnover" and "taxable
turnover" as defined in Sections 2(36) and 2(34) of the Act, it has been
urged that as the discount allowed by the credit notes is not payable to
the assessee by the customers and does not form a part of the sale
consideration, it is not exigible under the Act. According to the learned
counsel, it is no longer res integra that trade discount is not a constituent
of the sale price and therefore not taxable. It has been insistently pleaded
that a post sale discount through credit notes is revenue neutral in terms
of Section 30(3) of the Act, as a consequence whereof the selling and
the purchasing dealers accordingly remodel their returns and pay tax as
due. 'In endorsement of the above contentions, the following decisions
have been relied upon:
1. Deputy Commissioner of Sales Tax (Law) Board of
· Revenue (Taxes), Ernakulam vs. Mis. Advani Oorlikon (P)
Ltd.(1980) 1 sec 360,
2. IFB Industries Ltd. vs. State ofKerala (2012) 4 SCC 618,
3. Commissioner of Central Excise, Madras vs. Mis. Addiso11
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4. Unio11 of I11dia a11d others vs. Bombay Tyres International
(P) Ltd. (2005) 3 sec 787.
9. In refutation, the the learned counsel forthe respondents, has
argued that a discount to qualify for deduction to compute the total and
eventual taxable turnover, as contemplated in Rule 3(2)(c) of the Rules
has to be essentially reflected in the tax invoice or the bill of sale issued
in respect of the sales. According to them, Section 30 and Rule 3 l deal
with a situation where after a tax invoice is issued, it transpires that the
tax charged has either exceeded or has fallen short of the tax payable
for which a credit/debit note, as the case may be, would be issued. As
these two provisions do not regulate the computation of a taxable turnover,
there is no correlation thereof with Rule 3(2)(c) of the Rules which has
been assigned an independent role to determine the tax liability. In absence
of any specific provision .in the parent statute granting tax exemption
based on deduction founded on post sale trade discount, Section 30 and
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Rule 31 are ofno avail to the assesses, he urged. It is maintained that in
any view of the matter, a taxing statute has to be construed strictly and
any exemption is permissible only ifthe legislation permits the same.
Reliance in buttressal of the above has been placed on the decisions of
this Court in A. V. Fernandez vs. The State of Kera/a 1957 SCR 837,
lFB bu/ustries Ltd. vs. State of Kera/a (2012) 4 SCC 618 and Jayam
& Co. vs. Assistant Commissioner and Another (2016) 8 SCALE 70.
10. As the gravamen of the discord has its roots in the interplay
of Sections 29 and 30 of the Act with Rule 3(2)(c) in particular, apposite
it would be to refer to the same as well as the accompanying provisions
as are construed indispensable.
11. The Act is a legislation, as its preamble suggests to provide
for further levy of tax on the purchase or sale of goods in the State of
Karnataka. It defines amongst others "dealer" "tax invoice" "taxable
turnover" "total turnover" and "turnover" as contained in Sections 2( 12),
2(32), 2(34), 2(35), 2(36). For immediate reference the relevant excerpts
of these expressions are set out hereunder:
"2(12) 'Dealer' means any person who carries on the business
of buying, selling, supplying or distributing goods, direcay or
otherwise, whether for cash or for deferred payment, or for
commission, remuneration or other valuable consideration, and
includes-.........
2(32) 'Tax invoice' means a document specified under Section
29 listing goods sold with price, quantity and other information as
prescribed;
2(34) 'Taxable turnover' means the turnover on which a dealer
shall be liable to pay tax as determined after making such
deductions from his total turnover and in such manner as may
be prescribed, but shall not include the turnover of purchase or
sale in the course of interstate trade or commerce or in the course
of export of the goods out of the territory of India or in the course
ofimport of the goods into the territory of India and the value of
goods transferred or dispatched outside the State otherwise than
by way of sale.
2(35) 'Total turnover' means the aggregate turnover in all
M/S. SOUTHERN MOTORS v. STATE OF KARNATAKA AND
OTHERS [AMITAVA ROY, J.]
goods of a dealer at all places of business in the State, whether
ornot the whole or any portion of such turnover is liable to tax,
including the turnover of purchase or sale in the course of
interstate trade or commerce or in the course of export of the
goods out of the territory oflndia or in the course of import of
the goods into the territory of India and the value of goods
transferred or despatched outside the State otherwise than by
way of sale.
2(36) 'Turnover' means the aggregate amount for which goods
are sold or distributed or delivered or otherwise disposed of in
any of the ways referred to in clause (29) by a dealer, either
directly or through another, on his own account or on account of
others, whether for cash or for deferred payment or other
valuable consideration, and includes the aggregate amount for
which goods are purchased from a person not registered under
the Act and the value of goods transferred or despatched outside
the State otherwise than by way of sale, and subject to such
conditions and restrictions as may be prescribed the amount for
which goods are sold shall include any sums charged for anything
done by the dealer in respect of the goods sold at the time of or
before the delivery thereof.
Explanation.- The value of the goods transferred or despatched
outside the State otherwise than by way of sale, shall be the
amount for which the goods are ordinarily sold by the dealer or
the prevailing market price of such goods where the dealer does
not ordinarily sell the goods."
12. Section 3 is the charging provision and the modes of fixation
of rate and measure of tax exigible under the statute are enumerated in
Section 4. Having regard to the exigency of the adjudication, appropriate
it would be to extract Sections 29 and 30 of the Act as hereunJer:
"29. Tax invoices and bills of sale
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(1) A registered dealer effecting a sale of taxable goods or exempt
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goods along with any taxable goods, in excess of the prescribed
value, shall issue at the time of the sale, a tax invoice marked as
original for the sale, containing the particulars prescribed, and
shall retain a copy thereof.
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(2) A tax invoice marked as original shall not be issued to any
registered dealer in cir9umstances other than those specified in
sub-section(!), and in a case ofloss of the original, a duplicate
may be issued where such registered dealer so requests.
(3) A registered dealer,-
(a) selling non-taxable goods; or·
(b) opting to pay tax by way of composition under section 15
and selling any goods; or
(c) permitted to pay tax under section 16 and selling any
goods,
in excess of the prescribed value, shall issue a bill of sale
containing such particulars as may be prescribed.
(4) Notwithstanding anything contained in sub-section (I) or (3)
or sub-section (1) of Section 7, a registered dealer executing
civil works contracts shall issue a tax invoice or bill of sale at
such time and containing such particulars as may be prescribed
30. Credit and Debit Notes
(1) Where a tax invoice has been issued for any sale of goods
and within six months from the date of such sale the amount
shown as tax charged in that tax invoice is found to exceed the
tax payable in respect of the sale effected, or is not payable on
account of goods sold being returned within the prescribed period,
the registered dealer effecting the sale shall issue forthwith to
the purchaser a credit note containing particulars as prescribed.
· (2) Where a tax invoice has been issued for sale of any goods
and the tax payable in respect of the sale exceeds the amount
shown as tax charged in such tax invoice, the registered dealer
making the sale, shall issue to the purchaser a debit note containing
particulars as prescribed.
(3) Any registered dealer who receives or issues, credit notes or
debit notes shall declare them in his return to be furnished for
the tax period in which the credit note is received or debit note is
issued and claim reduction in tax or pay tax due thereon.
(4) Any document issued by the registered dealer as required
MIS. SOUTHERN MOTORS v. STATE OF KARNATAKA AND
OTHERS [AMITAVA ROY, J.]
under any other law containing particulars of credit note or debit
note as prescribed shall be deemed to be a credit or debit note
. for the purpose of this Section"
13. Under Section 29, it is incumbent on a registered dealer
effecting a sale of taxable goods or goods exempted from tax along with
any taxable goods in excess of the prescribed value, to issue at the time
of sale, a tax invoice marked as original for the sale and containing the
particulars prescribed. Thereunder a registered dealer in the eventualities
mentioned therein has to issue a bill of sale containing such particulars
as may be prescribed. Section 30 mandates that where such a tax invoice
has been issued for any sale of goods and withing six .months from the
date of such sale, the amount shown as tax charged in that tax invoice is
found to exceed the tax payable in respect of the sale effected, or is not
payable on account of goods sold being returned within the prescribed
·period, the registered dealer effecting the sale, would issue forthwith to
the purchaser, a credit note containing the particulars as prescribed. The
Section further stipulates that when a tax invoice has been issued for
· sale of any goods and the tax payable in respect of the sale exceeds the
amount shown as tax charged in such tax invoice, the registered dealer
making the sale would issue to the purchaser, a debit note containing the
particulars as prescribed. It is further ordained that any registered dealer
who receives or issues credit notes or debit notes would declare them in
his return to be furnished for the tax period in which the credit note is
received or debit note is issued and claim reduction in tax or pay tax due
thereon. Noticeably, the period of six months for the issuance of the
credit note on the eventuality of excess tax being paid is not a factor for
the contingency requiring issuance of a debit note.
14. Be that as it may, Rule 3 of the Rules framed under Section
88 of the Act, is lodged under Part Ildwelling on "Turnover, Registration
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and Payment Of Security". This provision in particular deals with the
determination of total and taxable turnover and predicates that the taxable
turnover would be determined. by allowing the deductions from the total
turnover as listed in sub-rule (2) thereof. Rule 3(2)(c) of the Rules;.
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indispensable for the present adjudication is quoted hereunder for ready ·
reference:
"3(2)(c): All.amounts allowed as discount:
PROVIDED that ~uch discount is allowed in accorda11ce with
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the regular practice of the dealer or is in accordance with the
terms of any contract or agreement entered into in a particular
case and the tax invoice or bill of sale issued in respect of the
sales relating to such discount shows the amount allowed as
discount.
PROVIDED FURTHER that the accounts show that the
purchaser has paid only the sum originally charged less discount."
15. Aplain reading of this quote would reveal that all am;iunts
allowed as discount would qualify for deduction from the total turnover
to ascertain the taxable turnover and thus the extent of exigibility under
this statute. The first proviso which occupies the center stage of the
debate prescribes that a discount to be eligible for deduction has to be
one which is allowed in accordance with the regular practice of the
dealer or is in accordance with the terms of any contract or agreement
entered into in a particular case and the tax invoice or bi 11 of sale i~sued
in respect of the sales relating to such discount shows the amount allowed
as discount. The second proviso enjoins further, that the accounts should
show that the purchaser had paid only the sum originally charged less
the discount. Whereas the Revenue insists in view of the first proviso in
particular, that a discount to be entitled for deduction to quantify the
taxable turnover should essentially·be mentioned in the tax invoice or bill
of sale issued in respect of the sales and further the purchaser has to
reflect in his accounts that he had paid only the sum originally charged
less the discount, the appellants contend that having regard to the uniform
canons regulating the trade practice, a trade discount though in
comprehension at the time of original sale is not always precisely
quantifiable at that point of time and is contingent on variable factors to
be computed only on the happening of a future event(s). In any case,
however as the discount eventually sanctioned is tangible and actu~l, the
literal interpretation sought to be given to the contents of first proviso to
Rule 3(2)(c) is expressly illogical and if accepted would lead to absurd
results rendering this provision redundant and unworkable.
16. Before embarking on analysis of the competing assertions,
expedient it would be to advert to the citations addressed at the Bar.
17. In A. V. Fermmdis (supra), a Constitution Bench of this Court
while dwelling on the interpretation of the relevant provisions of the
United State of Travancore and Cochin General Sales Tax Act, 1125
MIS. SOUTHERN MOTORS v. STATE OF KARNATAKA AND
OTHERS [AMITAVA ROY, J.]
and the Travancore Cochin General Sales Tax Rules, 1950 framed
thereunder ruled that in elucidating a fiscal statute, it is not the spirit
thereof but the letter of law that has to be looked into and that if a
particular tax cannot be brought within the letter of the law, the subject
could not be made liable for the same. That the emphasis has to be to
the strict letter of law and not merely on the spirit of the statute or the
substance of law was highlighted. In this context, the observations of
Lord Russel of Killowen in Inland Revenue Commissioner vs. Duke
of Westminister ( 1936) AC l 24 was extracted :
"I confess that I view with disfavour the doctrine that in taxation
cases the subject is to be taxed if in accordance with ? Court's
view of what it considers the substance of the transaction. the
Court thinks that the case falls within the contemplatior. or spirit
of the statute. The subject is not taxable by inference or by
analogy, but only by the plain words ofa statute applicable to the
facts and circumstances of his case"
18. The following passage as well from Partington vs. Attorney
Genera/(1869)4 HL 100, 122 was quoted with approval.
"As I understand the principle of all fiscal legislation it is this: jf
the person sought to be taxed, comes within the letter of the law
he must be taxed, however great the hardship may appear to
the judicial mind to be. On the other hand, ifthe Crown, seeking
to recover the tax, cannot bring the subject within the letter of
the law, the subject is free, however apparently within the spirit
of the law the case might otherwise appear to be.".
19. In the textual facts, in essence, the claim of the aμpellant449
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assessee to avoid deduction of an amount arising out of sales effected
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beyond the State concerned was negated as the same were not taxable
in terms of Section 26 of the Travancore-Cochin General Sales Tax
Amendment Act, 1951 in clear terms. Drawing a distinction between
the provisions contained in a statute with regard to the exemptions, refund
or rebate on one hand and non liability of tax ornon imposition of tax on
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the other, it was enunciated that in the former, the sales or p:irchases
would have to be included in the gross turnover of the dealer because
those were prima facie liable to tax and the dealer was only entitled to
deductions from the gross turnover so as to arrive at the net turnover on
which the tax could be imposed. In the latter case, the sales or the
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purchases were exempted from taxation altogether. It was thus ruled
that as the sales beyond the State, were not liable to tax, those were
liable to be excluded from the calculation of the gross turnover as well
as the net turnover on which the sales tax could be levied or imposed.
The attempt on the part of the appellant-assessee to include the turnover
of the sales beyond the State in the gross turnover and thereafter to
seek a deduction thereof was thus disapproved.
20. The distinction between "trade discount" and "cash disc.:iunt"
was elaborated upon by this Court in Mis. Advani Oorlikon (P) Ltd.
(supra), in re, the question whether for the purpose of computing the
turnover assessed to sales tax therein, under the Central Sales Tax Act
1956, the sale price of goods was to be determined by including the·
amount paid by way of trade discount. The facts as unfolded evinced
that the assessee was a private limited company, carrying on business
as sole selling agent for certain brand of welding electrodes and f0r the
goods supplied to the retailers, it charged them the catalogue price less
the trade discount. The concerned Revenue Authority, for the asses:sment
year in question, refused to allow the deduction and sans thereof,
computed the taxable turnover, being of the view that the trade discount
was not excludable from the catalogue price. It was contended on behalf
of the Revenue that in view of the definition of"sale price" in Section
2(h) of the Central Sales Tax Act which permitted the deduction of
E . sums alleged as cash discount only, the deduction by way of trade discount
was not contemplated or permissible.
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21. This Court referred to the definition of"sale price" in Section
2(h) of the Act and noted that it was defined to be the amount payable to
a dealer as a consideration for the sale of any goods, less any sum
allowed as cash discount, according to the practice normally prevailing
in the trade. While observing that cash discount conceptually was
distinctly different from a trade discount which was a deduction from
the catalogue price of goods allowable by whole-sellers to retailers
engaged in the trade, it was exposited that under the Central Sales Tax
Act, the sale price which enters into the computation of the turnover is
the consideration for which the goods are sold by the assessee. It was
held that in a case where trade discount was allowed on the catalogue
price, the sale price would be the amount determined after deductir.g the
trade discount. It was ruled that it was immaterial that the definition of
"sale price" under Section 2(h) of the Act did not expressly provide for
MIS. SOUTHERN MOTORS v. STATE OF KARNATAKAAND
.OTHERS [AMITAVA ROY, J.]
the deduction of trade discount from the sale price.