M/S IFB INDUSTRIES LTD.versusSTATE OF KERALA

                        (2012] 4 S.C.R. 802


A                    MIS IFB INDUSTRIES LTD.
                                 v.
                        STATE OF KERALA
              (Civil Appeal Nos. 2516-2517 of 2012)
                       FEBRUARY 27, 2012
B
             [AFTAB ALAM AND ANIL R. DAVE, JJ.]

        Sa/es Tax - Kera/a General Sales Tax Rules, 1963- r.9(a)
    - Trade discount - Eligibility for exemption - Held: Exemption
C is allowable subject to two conditions; first, the discount is
  given in accordance with the regular practice in the trade and
  secondly, the accounts should show that the purchaser had
  paid only the sum originally charged less the discount -
  Nothing in rule 9(a) to read it in the restrictive manner to mean
D that a discount in order to qualify for exemption under its
  provision must be shown in the invoice itself - Kera/a General
  Sales Tax Act, 1963 - s.2(xxvii).

       How far deductions are allowable under rule 9(a) of
E the Kerala General Sales Tax Rules, 1963 for trade
  discounts is the question which arose for consideration
  in the present appeal.

       The High Court had held that unless the discount was
  shown in the invoice itself, it would not qualify for
F deduction and further that any discount that was given
  by means of credit note issued subsequent to the sale
  of the article was in reality an incentive and not trade
  discount eligible for exemption under rule 9(a) of the
  Rules.
G
       Allowing the appeals, the Court
        HELD: 1.1. In order to clearly understand the kinds
    of discount that are exempted in terms of rule 9(a) one

H                                802
     IFB INDUSTRIES LTD. v. STATE OF KERALA             803


may usefully refer to the definition of 'turnover' under       A
Section 2(xxvii) of the Kerala General Sales Tax Act, 1963.
The main body of the definition is followed by several
explanations. It is seen that the very definition of
"turnover" recognises discounts other than cash
discount and provides that those other discounts too like      B
the cash discount shall not be included in the turnover.
[Paras 23, 24] [811-E-F; 812-C]

     1.2. Significantly, Rule 9(a) does not speak of
invoices but stipulates that the discount must be shown
in the accounts. On a plain reading of the provision it is     C
clear that the exemption is allowable subject to two
conditions; first, the discount is given in accordance with
the regular practice in the trade and secondly, the
accounts should show that the purchaser had paid only
the sum originally charged less the discount. There is         D
nothing in rule 9(a) to read it in the restrictive manner to
mean that a discount in order to qualify for exemption
under its provision must be shown in the invoice itself.
[Para 26] [812-F-H]
                                                               E
     Deputy Commissioner of Sales Tax (Law) Board of
Revenue (Taxes) v. Mis Advani Oorlikon (P) Ltd., (1980) 1
SCC 360 : 1980 (1) SCR 931; Deputy Commissioner of
Sales Tax(Law) Board of Revenue (Taxes), Ernaku/am v.
Motor Industries Co, Ernaku/am, (1983) 2 SCC 108 : 1983        F
(2) SCR 384 and Union of India and Others v. Bombay Tyres
International (P) Ltd., (2005) 3 SCC 787 - relied on.

    Godavari Fertilizers and Chemicals Ltd. v. Commissioner
of Commercial Taxes, (2004) 138 STC 133 and Ka/pana
Lamps and Components Ltd. v. State of Kera/a, (2006) 143       G
STC 666 - approved.
    3. The cases of the appellants for the respective
assessment periods are remitted to the Assessing
Authority with a direction to make assessments and pass        H
    804      SUPREME COURT REPORTS                 [2012] 4 S.C.R.


A fresh orders in accordance with law and in light of this
  judgment. The Assessing Authority shall not reject the
  appellants' claim for exemption of the amounts of trade
  discount solely on the ground that the discount amounts
  were not shown in the sale invoices. [Para 34] [818-0-F]
B                         Case Law Reference:

          1980 (1) SCR 931         relied on             Para 29

          1983 (2) SCR 384         relied on             Para 30

c         (2005) 3 sec 787         relied on             Para 31

          (2004) 138 STC 133       approved              Para 32

          (2006) 143 STC 666       approved              Para 33

D       CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    2516-2517 of 2012 etc.

       From the Judgment & Order dated 26.06.2009 of the High
  Court of Kerala at Ernakulam in Sales Tax Revision No. 396
  of 2008 and dated 15.06.2010 in Review Petition No. 148 of
E 2010.
                                    WITH
    C.A. Nos. 2521-2522 of 2012.

         A.K. Ganguly, R. Venkataramani, Ritin Rai, V.K. Monga,
F   K. Sreekumar, V. Vijaya Lakshmi, P.V. Dinesh, Aljo K. Joseph,
    T.P. Sindhu for the Appellant.

         V. Giri, M.T. George, Mohammed Sadique T.A., Kavitha
    K.T. for the Respondent.
G
          The Judgment of the Court was delivered by

        AFTAB ALAM, J. 1. Leave granted in both the Special
    Leave Petitions.

H         2. How far deductions are allowable under rule 9(a) of the
    IFB INDUSTRIES LTD. v. STATE OF KERALA                    805
               [AFTAB ALAM, J.]
Kerala General Sales Tax Rules, 1963 ("the Rules" hereinafter)        A
for trade discounts?

      3. A division bench of the Kerala High Court has held that
unless the discount was shown in the invoice itself, it would not
qualify for deduction and further that any discount that was given    8
by means of credit note issued subsequent to the sale of the
article was in reality an incentive and not trade discount eligible
for exemption under rule 9(a) of the Rules. The decision was
rendered somewhat gratuitously in the case of M/s IFB
Industries Ltd., (the appellant in the appeals arising from SLP       C
(Civil) Nos. 26102-03 of 2010) but it is the India Cements Ltd.,
the appellant in the other set of appeals (arising from SLP (Civil)
Nos. 6861-62 of 2011 ), that got badly hit by the decision and
its claim for deduction of many kinds of trade discounts was
rejected summarily and even without an opportunity of any
effective hearing to it right from the stage of assessment up to      D
the High Court. But to put the matter in order, we must see how
the issue developed before reaching this Court and for that we
need to first advert to the case of M/s IFB Industries Ltd.

      4. M/s IFB Industries Ltd. is a manufacturer of home            E
appliances. It has a scheme of trade discount for its dealers
under which the dealer, on achieving a pre-set sale target gets
certain discount on the price for which it purchased the articles
from the manufacturer, the appellant. As the discount is subject
to achieving the sale target the dealer would naturally qualify       F
for it in the later part of the financial year/assessment period,
that is to say, long after the sales took place between the
appellant and its dealer. For the sales taking place between
the appellant and its dealer after the sale target is achieved,
the dealer would of course get the articles on the discounted         G
price but for the sales that took place before the sale target was
achieved, the appellant would issue credit notes in favour of the
dealer. The Assessing Authority, in principle, accepted the
appellant's claim for deduction of the amount of discount given
by it to its dealers through credit notes under rule 9(a) of the      H
    806      SUPREME COURT REPORTS                  [2012) 4 S.C.R.

A   Rules and it was only a dispute over computation that took the
    matter to the High Court and the High Court held that the
    discount in question was not trade discount at all and it was
    not eligible for deduction in terms of rule 9(a).

        5. The case of the appellant (M/s IFB Industries ltd.) relates
8
  to assessment periods 2001-02 and 2002-03. Dealing with the
  assessment periods 2001-02, the Assistant Commissioner
  (Assessment), Commercial Taxes, (the Assessing Authority) in
  its order dated January 27, 2006 observed that the dealer had
  given discount to the tune of Rs.58, 15,485/- and as the discount
C was allowable in ordinary course of business, that turnover was
  allowed as exempted.

        6. In making the computation, however, the Assessing
  Authority started with the figure of 'Taxable turnover as per
D account (Home appliances) Vth Schedule Items' that was
  Rs.11,62,36,424.23. He then added to it the amounts of (i)
  Turnover under AMC, (ii) Sales return, (iii) Stock transfer, (iv)
  Second sale, (v) Tax collected and (vi) Scheme Discount
  amounting to Rs.58, 15,485/- and arrived at the figure of 'total
E turnover proposed' that came to Rs.14,27,69,607/-. From the
  total turnover, he then deducted the amounts of (i) AMC, (ii)
  Sales return, (iii) Second sales, (iv) Tax Collected and (v)
  Scheme Discount being the sum of Rs.58, 15,485/- and, thus,
  finally arrived at the figure of Rs.11,95,56,460/- as the 'taxable
F turnover proposed'.

        7. The Assessing Authority passed a similar order for the
    assessment period 2002-03 as well.

        8. The appellant had objection to the computation made
G by the Assessing Authority. It contended that though in principle
  allowing deduction for the trade discount the Assessing
  Authority actually denied any deduction by subtracting the
  amount of trade discount only after first adding it to the turnover.
  In the computation made by the Assessing Authority the amount
H of trade discount, thus, got neutralized and the appellant did not
     IFB INDUSTRIES LTD. v. STATE OF KERALA                    807
                [AFTAB ALAM, J.]
actually get any deduction of the trade discount from its turnover.   A

       9. Before proceeding further, it needs to be understood
that the appellant's objection would have any basis only in case
it is shown that the original figure of Rs.11,62,36,424.23 taken
by the Assessing Authority as 'Taxable turnover' was inclusive        B
of the amount of the scheme discount being the sum of
Rs.58, 15,485/-. For, unless the amount of scheme discount was
a factor of 'Taxable turnover' there would be no question of
deducting it from taxable turnover. Only in case the appellant
could show that the figure of Rs.11,62,36,424.23 also included        C
the amount of Rs.58, 15,485/- as the trade discount, there would
be any question of deducting it from the larger figure.

     10. Be that as it may, the appellant preferred appeals
against the Assessment Order (Sales Tax Appeal Nos. 219 &
220 of 2006) in which it also took the objection that the             D
computation made by the Assessing Authority by first adding
up the amount of trade discount and only then deducting it from
the turnover denied it the exemption of trade discount which the
Assessing Authority had himself allowed in the earlier part of
his order. It is significant to note, however, that in the appeal     E
also it was never stated that the figure of Rs.14,27,69,607/-
forming the basis of the computation included the amount of
trade discount of Rs.58, 15,485/-.

      11. The Deputy Commissioner (Appeals) Ill Ernakulam,
(the Appellate Authority) seems to have accepted the case of          F
the appellant and while disposing of its appeals by order dated
April 28, 2006 observed that in effect the appellant's claim was
disallowed even though it was allowed in the order of the
Assessing Authority. He, accordingly, directed the Assessing
Authority to verify whether it was a computation mistake and          G
to modify the order accordingly.

     12. Against the order passed by the Appellate Authority,
the Revenue preferred appeals (T.A. Nos. 429 & 430 of 2006/
C.O. 67 & 68 of 2006) before the Kerala Sales Tax Appellate           H
    808       SUPREME COURT REPORTS                  [2012] 4 S.C.R.


A   Tribunal and the Tribunal by its order dated February 28, 2007
    allowed the Revenue's appeals holding that since there was no
    assessment on trade discount, the direction of the Assessing
    Authority to verify whether there was a mistake in this
    computation was without any basis.
B
        13. The appellant made a Rectification application but it
    was rejected by the Tribunal by order dated August 29, 2008.

        14. Against the order passed by the Sales Tax Appellate
  Tribunal, the appellant went to the High Court in ST Revision
C Nos. 396 & 397/2008. The appellant, safe in the belief that the
  Assessing Authority had in principle accepted its claim for
  deduction of the trade discount from the taxable turnover,
  confined its revision to the computation made by the Assessing
  Authority. The High Court, nevertheless, went into the basic
D question whether the discount under the scheme of the appellant
  at all qualified for deduction under rule 9(a) of the Rules. In a
  brief order dated June 26, 2009 that does not refer to any
  earlier precedents of this Court or even of the Kerala High
  Court, the High Court observed that from a plain reading of rule
E 9(a) it appeared that what is allowable as discount in the
  computation of taxable turnover is the trade discount given in
  the bills. According to the High Court, what is insisted in the
  rule is that the purchaser should have paid the price charged,
  less the discount. And this certainly meant that the discount
F should be shown in the original invoice and tax should be
  charged only on the net amount exclusive of discount so that
  the buyer gets the deduction towards discount.

       15. On the appellant's claim of deduction of their trade
  discount from the taxable turnover, the High Court made the
G following observation: -

          "Petitioner is a manufacturer engaged in supply of goods
          in wholesale to distributors and dealers. Sales are
          therefore first sales and discount if any given can only be
H         trade margin to dealers. If tax is not to be charged on the
     IFS INDUSTRIES LTD. v. STATE OF KERALA                 809
                [AFTAB ALAM, J.]
    dealer margin, then discount should be given in the invoice     A
    itself. If the petitioner has made sales in this way, then
    necessarily deduction should have been claimed in the
    monthly return itself as the taxable turnover does not cover
    discount/trade margin given in the invoice. On the other
    hand, in the Tribunals order, what is referred to as scheme     B
    discount which is nothing but incentives given by
    manufacturers, and wholesalers to dealers, may be for
    seasonal sales or may be for annual sales. Such incentives
    are normally given by the credit note at the end of the
    season or at the end of the year. These incentives given        c
    through credit notes are outside the scope of discount
    covered by Rule 9(a) of the KGST Rules."

     16. Observing thus, the High Court found and held that the
assessment in the case of the appellant had not been properly
made. It, accordingly, set aside the orders passed by the           D
Revenue authorities and remitted the case to the Assessing
Authority for passing fresh assessment orders in light of its
order and after examining the quarterly returns and the annual
returns submitted by the appellant.
                                                                    E
      17. The appellant has brought the matter to this Court
making the grievance that though the order of the High Court
is an order of remand, for all intent and purposes it puts an end
to its claim of deduction of trade discount from its taxable
turnover.                                                           F
      18. Shortly after the case of M/s IFS Industries Ltd., came
the case of Godrej and Boyce Mfg. Co. Ltd. and in an equally
brief order dated November 4, 2009 a bench of the Kerala High
Court took the same view on the question of deductibility of
trade discounts as in the case of M/s IFB Industries Ltd. The       G
High Court observed that in order to be eligible for deduction
in terms of rule 9(a) of the Rules the discount must be granted
in the invoices itself. According to the High Court, the rule
stipulates that in order to qualify for deduction it should be
proved that the purchaser had paid the sale price less amount       H
    810     SUPREME COURT REPORTS                    [2012] 4 S.C.R.


A   of discount allowed. This presupposed that the deduction
    available is only trade discount allowed in invoices and not on
    credit notes given later.

       19. By the time the case of the India Cement Ltd.
B (appellant in the appeals arising from SLP(C) Nos. 6861-6862
  of 2011) came up for assessment for the assessment periods
  2003-04 and 2004-05 the decision of the High Court in M/s IFB
  Industries Ltd. was firmly before the Revenue authorities. The
  Assessing Authority, therefore, turned down the claim of the
  appellant, the India Cement Ltd., for exemption of different
C kinds of discount, namely, special discount, annual discount,
  turnover discount, target discount etc. given by means of credit
  notes and aggregating to the large sum of Rs.25,55,83, 751.82.
  The Assessing Authority referred to the High Court decision in
  M/s IFB Industries Ltd. and rejected the appellant's claim for
D deduction of the aforesaid amount from their taxable turnover
  holding that, discounts given through credit notes were nothing
  but incentives and did not come under rule 9(a) of the Rules.

        20. The appellant challenged the assessment orders
E before the High Court in Writ Petitions (WP(C) Nos. 34989 &
  38517 of 2010). A single judge of the High Court declined to
  entertain the writ petitions filed directly against the assessment
  orders and by order dated January 18, 2011 dismissed the writ
  petitions leaving it open to the appellant to seek their remedies
F before the statutory authorities.

       21. Against the order of the single judge the appellant filed
  intra-court appeals (W.A. Nos. 173 & 177 of 2011 ). The division
  bench agreed that since the appellant was confronted with an
  order of the division bench of the High Court, it would be
G pointless to relegate it to the statutory authorities. It referred to
  its orders passed in the cases of Mis IFB Industries Ltd. and
  Godrej and Boyce Mfg. Co. It also noted that against its
  decision in M/s IFB Industries Ltd. a SLP was filed which was
  admitted by this Court. It also referred to the decisions of this
H Court and of the Kerala High Court relied upon by the appellant
     IFB INDUSTRIES LTD. v. STATE OF KERALA                   811
                [AFTAB ALAM, J.]
in support of the contentions that a discount in order to qualify    A
for deduction under rule 9(a) need not necessarily be shown in
the invoice itself and may also be given by means of credit
notes. It, however, declined to reconsider its order in M/s IFB
Industries Ltd. and by order dated February 8, 2011 dismissed
the .appeals observing as follows: -                                 B

     "We feel that appellant's remedy is to challenge the
     decision of this Court relied on by the Assessing Officer
     in disallowing claim of deduction of discount before the
     Supreme Court. Consequently, following our above two
     decision, we uphold the assessment disallowing discount         C
     on credit notes. These Writ Appeals are, accordingly,
     dismissed on merit leaving it open to the appellant to
     approach the Supreme Court, if they have any grievance
     against this judgment."
                                                                     D
     22. In the aforesaid circumstances, the appellant is before
this Court making the grievance that its claim stands rejected
practically unheard and without any considerations of the earlier
precedents on the point relied upon by it in support of its claim.
                                                                     E
     23. In order to clearly understand the kinds of discount that
are exempted in terms of rule 9(a) we may usefully refer to the
definition of 'turnover' under Section 2(xxvii) of the Kerala
General Sales Tax Act, 1963. The main body of the definition
is as follows: -
                                                                     F
    "(xxvii) "turnover" means the aggregate amount for which
    goods are either bought or sold, supplied or distributed 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."               G

It is followed by several explanations. Explanation 2(ii) is as
follows: -

    "Explanation 2 - Subject to such conditions and
    restrictions, if any, as may be prescribed in this behalf,-      H
    812         SUPREME COURT REPORTS               [2012] 4 S.C.R.


A         (i)    xxx
          (ii) any cash or other discount on the price allowed in
          respect of any sale and any amount refunded in respect
          of articles returned by customers shall not be included
          in the turnover."
B
                                                  (emphasis added)

         24. It is, thus, to be seen that the very definition of
    "turnover" recognises discounts other than cash discount and
c   provides that those other discounts too like the cash discount
    shall not be included in the turn over.

          25. Rule 9(a) provides as follows -

          "9. Determination of taxable turnover - In determining the
D         taxable turnover, the amounts specified in the following
          clauses shall subject to the conditions specified therein,
          be deducted from the total turnover of the dealer: -

          (a) All amounts allowed as discount, provided that such
E         discount is allowed in accordance with the regular practice
          in the trade and provided also that the accounts show that
          the purchaser has paid only the sum originally charged less
          the discount."

                                                  (emphasis added)
F
       26. It is significant to note that the rule does not speak of
  invoices but stipulates that the discount must be shown in the
  accounts. On a plain reading of the provision it is clear that
  the exemption is allowable subject to two conditions; first, the
G discount is given in accordance with the regular practice in the
  trade and secondly, the accounts should show that the
  purchaser had paid only the sum originally charged less the
  discount. We find nothing in rule 9(a) to read it in the restrictive
  manner to mean that a discount in order to qualify for exemption
H under its provision must be shown in the invoice itself.
     IFB INDUSTRIES LTD. v. STATE OF KERALA                      813
                [AFTAB ALAM, J.]
     27. We, therefore, find it difficult to sustain the view taken      A
by the Kerala High Court in the orders impugned before us.

    28. We are fortified in our view on the basis of some earlier
decisions of this Court and some High Courts, including the
Kerala High Court.                                                       B

     29. In Deputy Commissioner of Sa/es Tax (Law) Board
of Revenue (Taxes) v. Mis Advani Oorlikon (P) Ltd., (1980) 1
SCC 360, this Court pointed out that cash discounts and trade
discounts are wholly distinct and separate concepts and are
not to be confused with one another. Advani Oorlikon was a               C
case under the Central Sales Tax Act and section 2(h) of the
Act defined the expression 'sale price' to mean 'the amount
payable to a dealer as consideration for the sale of any goods,
less any sum allowed as cash discount...'. It is to be noted
that though the Central Sales Tax Act mentioned only cash                D
discount as being deductible from sale price, this Court
nevertheless held that any trade discount must also be similarly
deducted for determining sale price of goods. In paragraphs 5
and 6 of the judgment the Court observed and held as follows:
                                                                         E

    "5. At the outset, it is appropriate that we set forth the two
    relevant definitions contained in the Central Sales Tax Act.
    Section 20) defines "turnover" to mean "the aggregate of
    the sale prices received and receivable by him (the dealer)
                                                                         F
    in respect of sales of any goods in the course of inter-State
    trade or commerce ... ". And Section 2(h) of the Act defines
    the expression "sale price" to 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 ... ". It is true that a   G
    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                  H
    814       SUPREME COURT REPORTS                    [2012] 4 S.C.R.


A         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
B         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
c         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
          reliable. Orient paper Mills Ltd. v. State of Orissa, (1975)
          35 STC 84: 1974 Tax LR 2224 (Ori. HC)
D         6. 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. In a case where trade discount is allowed on
          the catalogue price, the sale price is the amount
E         determined after deducting the trade discount. The trade
          discount does not enter into the composition of the sale
          price, but exists apart from and outside it and prior to it. It
          is immaterial that the definition of "sale price" in Section
          2(h) of the Act does not expressly provide for the deduction
F         of trade discount from the sale price. Indeed, having regard
          to the circumstance that the sale price is arrived at after
          deducting the trade discount, no question arises of
          deducting from the sale price any sum by way of trade
          discount."
G
       30. The decision of this Court in Deputy Commissioner
  of Sales Tax(Law) Board of Revenue (Taxes), Emakulam v.
  Motor Industries Co, Emakulam, (1983) 2 SCC 108, is on rule
  9(a) of the Kerala General Sales Tax Rules and the discount
H admissible to exemption under that provision. It may, however,
    IFB INDUSTRIES LTD. v. STATE OF KERALA                   815
               [AFTAB ALAM, J.]
be clarified that in terms of the rule, as it stood at that time,   A
exemption was allowable on trade discount given not only in
accordance with the regular practice in the trade but also in
accordance with the terms of the contract or agreement entered
into a particular case. In Motor Industries Co. the claim for
exemption was on the basis of the agreement entered into            B
between the dealer and its purchaser, the retailer. But that is
of no significance as the issue in the case was in regard to the
nature of discount admissible to exemption under rule 9(a). This
Court, upholding the decision of the Kerala High Court allowing
exemption to the dealer, held and observed as follows:-             c
    "We shall first deal with the claim made in respect of
    "service discount". Under clause (a) of Rule 9 of the Rules
    all amounts allowed as discount where such discount is
    allowed in accordance with the regular practice of the
    dealer or is in accordance with the terms of contract or        D
    agreement entered into in a particular case have to be
    deducted from the total turnover in determining the taxable
    turnover provided the accounts of the assessee show that
    the purchaser has paid only the sum originally charged less
    the discount. In the instant case the "service discount" in     E
    respect of which the deduction was claimed by the
    assessee was the additional trade discount allowed by it
    to its main distributors (purchasers) namely the T.V.S.
    group of companies which constitute a prestigious group
    of commercial concerns over and above the normal trade          F
    discount in consideration of the extra benefit derived by
    the assessee ·by reason of the marketing of its goods
    through them. This additional trade discount is allowed in
    accordance with the trade agreement subject to periodical
    variation depending upon the cost structure and changes         G
    in market conditions. It is not disputed that there were such
    agreements between the assessee and the purchasers
    and the accounts of the assessee truly reflected the actual
    discount allowed to the purchasers. What is however urged
    by the department is that the said additional discount          H
    816       SUPREME COURT REPORTS                  [2012) 4 S.C.R.


A         allowed by the assessee could not strictly be termed as
          discount as it was in lieu of services rendered by its main
          distributors by way of popularisation of the sales and
          consumption of the products sold by the assessee. We
          find it difficult to accept the submission made on behalf of
B         the department. Rule 9(a) says that all amounts allowed
          as discount either in accordance with regular practice or
          in accordance with agreement would be deductible from
          the total turnover provided they are duly supported by the
          entries in the accounts of the assessee. Ordinarily any
c         concession shown in the price of goods for any
          commercial reason would be a trade discount which can
          legitimately be claimed as a deduction under clause (a)
          of Rule 9 of the Rules. Such a concession is usually
          allowed by a manufacturer or a wholesale dealer in favour
          of another dealer with the object of improving prospects
D
          of his own business. It is common experience that when
          goods are marketed through reputed companies, firms or
          other individual dealers the demand for such goods
          increases and correspondingly the business of the
          manufacturer or the wholesaler would become more and
E         more prosperous and its capacity to withstand competition
          from other manufacturers or other dealers dealing in
          similar goods would also improve. Hence any concession
          in price shown in such circumstances by way of an
          additional incentive with a view to promote one's own trade
F         does qualify for deduction as a trade discount. It cannot
          be termed as a service charge as is attempted to be
          termed in this case. In fact in this case apart from buying
          the products of the assessee, no other service is being
          rendered by the T.V.S. group of companies to the
G         assessee. In the circumstances the additional discount or
          "service discount" as it is called in this case is no other
          than the discount referred to in Rule 9(a) of the Rules."

       31. In Union of India and Others v. Bombay Tyres
H International (P) Ltd., (2005) 3 SCC 787, in a very brief order
    IFB INDUSTRIES LTD. v. STATE OF KERALA                    817
               [AFTAB ALAM, J.]
this Court very succinctly described 'trade discount' and held it    A
to be deductible from the sale price:

    "(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         8
    to the nature of the goods, if established under agreements
    or under terms of sale or by 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         C
    price."

                                             (emphasis added)

     32. A bench of the Andhra Pradesh High Court in Godavari        D
Fertilizers and Chemicals Ltd. v. Commissioner of
Commercial Taxes, (2004) 138 STC 133, examined a number
of earlier decisions on this point and came to the conclusion
that a discount given by means of credit notes issued
subsequent to the sale is as much a trade discount admissible        E
to deduction in determining the turnover of a dealer.

     33. A bench of the Kerala High Court in Kalpana Lamps
and Components Ltd. v. State of Kera/a, (2006) 143 STC 666,
in paragraphs 4 and 5 of the judgment observed and held as
follows: -                                                           F

    "4. According to us, in the present case, the Appellate
    Tribunal dismissed the appeal merely on the ground that
    the circumstances under which the special discount has
    been granted to the customer (sic). Learned counsel for          G
    the petitioner submits that the petitioner was not able to
    convince the Tribunal because no opportunity was given
    by both the authorities, viz., the assessing authority and the
    appellate authority. They rejected the case of the petitioner
    merely on the ground that the books of accounts were not         H
    818       SUPREME COURT REPORTS                    [2012] 4 S.C.R.

A         produced. Hence, the petitioner prayed for an opportunity
          to explain the circumstances under which the special
          discount was granted.

          5. Before parting with the case, we may state that so far
          as the special discount is concerned, all that the authorities
B
          have to look into whether as a matter of fact, the petitioner
          received only the sum originally charged less the discount.
          It is the look out of the traders to see that the trade increase
          and it is for that purpose the trade discount is given. Hence,
          a person may not be able to clearly prove as to why the
c         special discount was given. But if there has been a
          consistent practice of giving special discount, that has to
          be accepted by the assessing authority."

       34. On the basis of the discussions made above and in
D light of the earlier decisions of the Court, we are unable to
  sustain the orders of the Kerala High Court coming under
  appeal. The impugned orders in both the appeals are set
  aside. The cases of the appellants for the respective
  assessment periods are remitted to the Assessing Authority
E with a direction to make assessments and pass fresh orders
  in accordance with law and in light of this judgment. The
  Assessing Authority shall not reject the appellants' claim for
  exemption of the amounts of trade discount solely on the
  ground that the discount amounts were not shown in the sale
F invoices.

         35. In the result the appeals are allowed but with no orders
    as to cost.

    B.B.B.                                            Appeals allowed.