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2010 DIGILAW 361 (KER)

CEMENT HOUSE v. STATE OF KERALA

2010-05-18

C.N.RAMACHANDRAN NAIR, P.S.GOPINATHAN

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JUDGMENT C. N. Ramachandran Nair :- This revision is filed against the order of the VAT Appellate Tribunal upholding the addition of incentive received by the petitioner from the manufacturer in the form of credit notes as turnover under Explanation VII to section 2(lii) of the Kerala Value Added Tax Act, 2003. We have heard senior counsel Dr. Muhamed Kutty appearing for the revision petitioner and Sri Mohammed Rafiq, Government Pleader appearing for the respondent. The revision petitioner is a dealer in ceramic tiles, vitrified tiles, sanitary items, etc. During the year 2005-06, the revision petitioner received an amount of Rs. 21,65,301 in the form of credit notes from the manufacturer - company whose distributor the petitioner was. On examination of the returns and accounts, the assessing officer noticed that tiles purchased by the petitioner from outside the State were sold at less than the purchase price and the amount received through credit notes from the manufacturer was towards differential price assessable as turnover under Explanation VII to section 2(lii) of the Act. He therefore added the entire amount received by the petitioner from the manufacturer through credit notes to the taxable turnover. First appeal filed by the petitioner was unsuccessful and hence the second appeal was filed before the Tribunal, which rejected the appeal. It is against this order of the Tribunal, this revision is filed. Senior counsel appearing for the petitioner contended that the amount received by the petitioner from the manufacturer is in the form of discount on inter-State purchases which is not assessable under the Explanation above referred. He also raised a contention that the finding of the lower authorities including the Tribunal that the goods were sold at a price less than the purchase price is incorrect because according to him there is gross profit of 0.36 per cent disclosed in the account and so much so Explanation VII to section 2(lii) is not attracted. The Government Pleader on the other hand took us through the findings of the lower authorities wherein it is clearly stated that the purchase price is accounted by the petitioner without including freight charges and loading and unloading charges and so much so when the same is also reckoned the sale price is below the purchase cost attracting Explanation VII to section 2(lii) of the Act. It is also to be noticed from the finding of the Tribunal that in some cases, goods were sold at a price less than the price shown in the purchase bill itself. In any case we do not think there is any justification for us to interfere with the finding on facts recorded by the Tribunal wherein they have stated that the sale price is below the purchase price of the goods, namely, tiles. Explanation VII to section 2(lii) is as follows : "Where a dealer sells any goods purchased by him at a price lower than that at which it was purchased and subsequently receives any amount from any person towards reimbursement of the balance of the price, the amount so received shall be deemed to be turnover in respect of such goods." It is obvious from the above that the purpose of the Explanation is to levy tax on the actual sale price irrespective of whether it is received by the dealer at the time of sale of goods or from the purchaser itself. In other words, any amount received by a dealer by way of consideration for sale of goods whether it is received from the purchaser or not is assessable as turnover in respect of the goods sold. The question whether sale is at below the purchase price is a matter to be decided not based on purchase price accounted by the dealer or the amount shown in the invoice, but the actual purchase price which certainly involves freight and handling charges paid by the dealer for the goods purchased. In this case, the clear finding of the lower authorities including the Tribunal is that in some cases the sale price is below the purchase price seen in the purchase invoice. So far as other sale, in respect of which there is margin profit of 0.6 per cent, the finding of the lower authorities is that petitioner has not accounted freight charges and loading and unloading charges towards purchase cost and when the same is reckoned the sale price is less than the purchase price. In view of this finding, we have to hold that the main part of the condition in the Explanation that the sale is at below the purchase price stands established and therefore the contention of the petitioner is rejected. In view of this finding, we have to hold that the main part of the condition in the Explanation that the sale is at below the purchase price stands established and therefore the contention of the petitioner is rejected. For attracting the above provision, a dealer should subsequent to the sale receive any amount from any person towards reimbursement of the balance of the price. Even though senior counsel appearing for the petitioner contended that the amount received by the petitioner in the form of credit notes is not balance of the price for the goods sold by the petitioner, the authorities below gave a clear finding that the credit notes received is for the goods sold by the petitioner which were purchased from the same manufacturer who issued the credit notes. The senior counsel for the petitioner contended that the amount received is in the form of discount received for inter-State purchases and therefore they cannot be treated as balance of the sale price received for the sales effected. We are unable to uphold this contention. There is nothing to prove that the manufacturer claimed the credit amount as discount for the inter-State sales made to the petitioner, in which case they would have claimed tax rebate on the discount so allowed in the form of credit notes later. Obviously the payment made through credit notes by the manufacturer is to make up for the loss suffered by the petitioner for sale of the product at a lower price. It may so happen that depending upon the market conditions, goods have to be sold at lower price and in some cases even below the purchase price whereby dealers suffer loss. However, nothing stops the manufacturer from recouping the loss sustained by the distributor and besides recouping loss the manufacturer can even provide for margin also to dealer which is done subsequent to the sales by issuing credit notes as is done in this case. On facts found by the lower authorities, we have no doubt in our mind that credit notes issued by the manufacturer to the petitioner towards recoupment of additional sale price is for the goods sold by the petitioner. On facts found by the lower authorities, we have no doubt in our mind that credit notes issued by the manufacturer to the petitioner towards recoupment of additional sale price is for the goods sold by the petitioner. So much so Explanation VII is clearly attracted in this case and the Tribunal therefore rightly upheld the order of the first appellate authority sustaining the assessment of credit amount paid by the manufacturer to the petitioner who is the distributor of their products. The revision petition is therefore dismissed.