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PETITIONER: DEPUTY COMMISSIONER OF SALES TAX (LAW) BOARD OF A REVENUE(TA

       Vs.

RESPONDENT: ADVANI OORLIKON (P) LTD. TRIVANDRUM

DATE OF JUDGMENT12/10/1979

BENCH: PATHAK, R.S. BENCH: PATHAK, R.S. UNTWALIA, N.L.

CITATION:  1980 AIR  609            1980 SCR  (1) 931  1980 SCC  (1) 360  CITATOR INFO :  F          1980 SC 839  (2)

ACT:      Central Sales  Tax Act.  1956 Section  2(j) and  2(11)- Scope of.

HEADNOTE:      The respondent  assessee is  a private  limited company carrying on  business as  sole selling  agents for a certain brand of  Welding Electrodes. It charged the catalogue price less trade  discount from  retailers for the goods supplied. The catalogue  price is  the price  which  the  retailer  is entitled to charge the consumer. The returns field under the Central Sales  Tax Act,  1956, showed  a taxable turnover of inter-state  sales  amounting  to  Rs.  8,71,624/-  for  the assessment  year   1971-72.  This   figure  was  derived  by deducting Rs.  1,06,708/- from  the catalogue  price paid as trade discount  by the assessee to the- retailers. The Sales Tax officer, refused to allow the deduction and computed the taxable turnover at Rs. 9,78,332/-. On appeal, the Appellate Assistant Commissioner  upheld  the  assessee’s  claim  that trade discount  did not form part of the turn-over and could not, therefore,  attract sales  tax.  A  second  appeal  was dismissed by  the Appellate Tribunal. A revision application by the Revenue to the High Court was also dismissed.      It was  contended (i)  that the  High  Court  erred  in affirming that  an amount  paid by  way of  trade  discount, could not  be included  in  the  taxable  turnover  for  the purpose of  assessment, (ii)  that in  effect  the  assessee entered into  two distinct  contracts with the retailer, the first contract related to the sale of goods at the catalogue price and  the second  contract stipulated that the retailer could actually  pay the  sale price  less trade discount and that since  the sale  was effected  under the first contract the entire  amount treated  as consideration  for  the  sale under that  contract had to be included in the taxable turn- over.      Dismissing the appeal, ^      HELD: It  is true  that a  deduction on account of cash discount is  alone specifically  contemplated from  the sale consideration in  the definition  of "Sale price" by section

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2(h) and  that cash  discount cannot  be confused with trade discount. They  are two separate and distinct concepts. Cash discount  is   allowed  when  the  purchaser  makes  payment promptly or  within the  period of  credit allowed.  It is a discount granted  in consideration of expeditious payment. A trade discount  is a  deduction from  the catalogue price of goods allowed  by wholesalers  to retailers  engaged in  the trade. The  allowance enables the retailer to sell the goods at the  catalogue price  and yet make a reasonable margin of profit after  taking into  account his business expense. The outward invoice  sent by  a wholesale  dealer to  a retailer shows the  catalogue price  and against  that a deduction of the trade  discount is  shown. The  net amount  is the  sale price, and  it is  that net  amount which  is entered in the book’s of  the respective  parties as the amount realisable. [933 G-H,934A-C] 932      Orient Paper  Mills Ltd.  v. State  of Orissa (1975) 35 S.T.C. 34 referred to.      Under the  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 Where trade discount if  allowed on  the catalogue price, the sale price is the amount determined after deducting the trade discount. It is  immaterial that  the definition  of "Sale  Price"  in section 2(h)  of the  Act does not expressly provide for the deduction of  trade discount  from the  sale  price.  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. Nor  is there  any question here of two successive agreements between  the parties,  one providing  for sale of the goods at the catalogue price and the other providing for an allowance  by way of trade discount. Having regard to the nature of  trade discount,  there is  only  one  sale  price between the  dealer and  the retailer  and that is the price payable by the retailer calculated at the difference between the catalogue  price and  the trade  Discount. There is only one contract  between the  parties, the  contract being that the goods  will be sold by the dealer to the retailer at the aforesaid sale  price. The  sale price which enters into the computation of  the assessee’s  turnover for  the purpose of assessment under  the  Sales  Tax  Act,  is  obtained  after deducting the  trade discount  from the catalogue price. The trade discount allowed by the assessee cannot be included in the turnover. [934 C-E, F, 935]      Orient Paper  Mills Ltd.  v. State  of Orissa (1975) 35 STC 84,  Ambica Mills  Ltd. v.  The  State  of  Gujarat  and another (1964) 15 STC 367, affirmed.      India Pistons Ltd. v. State of Tamil Nadu (1974) 33 STC 472, distinguished.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 1897 of 1976 .      Appeal by  Special Leave  from the  Judgment and  order dated 24-10-1975  of the  Kerala High  Court in  T.R.C.  No. 86/74.      Dr. V.  A. Seyid  Muhammed and  K. R.  Nambiar for  the      Appellant.      Dr. Y.  S. Chitale  and Mrs.  Sunanda Bhandare  for the      Respondent.      The Judgment of the Court was delivered by

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    PATHAK, J:  This appeal  by special  leave  raises  the question whether  for the  purpose of computing the turnover assessed to  sales tax under the Central Sales Tax Act. 1956 the sale  price of  goods is  determined  by  including  the amount paid by way of trade discount.      The assessee  is a  private limited company carrying on business as  sole selling  agent  for  a  certain  brand  of welding electrodes.  For the goods supplied to retailers, it charged them  the catalogue  price less  trade discount. The catalogue price  is the price which the retailer is entitled to charge the consumer. For the assessment year 1971-72, the returns filed under the Central Sales Tax Act, 1956 showed a taxable turnover  of  inter-State  sales  amounting  to  Rs. 8,71,624. This  figure was  derived by  deducting  from  the catalogue price  the amount  of Rs.  1,06,708 paid  as trade discount by the assessee to retailers. The 933 Sales  Tax  Officer  refused  to  allow  the  deduction  and computed the taxable turnover at Rs. 9,78,332. The Sales Tax Officer was of the view that the amount paid by way of trade discount could not be excluded from the catalogue price. The assessee appealed,  and the Appellate Assistant Commissioner upheld its  claim that  trade discount  did not form part of the turnover,  and it could not therefore attract sales tax. A second  appeal filed  by the  Revenue was dismissed by the Appellate Tribunal.  The Revenue  applied in revision to the High Court  of Kerala  and the revision application has been dismissed. The Revenue appeals.      It is  contended before us by the Revenue that the High Court has  erred in  affirming that an amount paid by way of trade discount  cannot be  included in  the taxable turnover for the  purpose of  assessment. It  is pointed out that the definition of  "sale price"  in section  2(h) of the Central Sales Tax  Act permits the deduction of sums allowed as cash discount only  and makes no reference to sums allowed by way of trade  discount. It  is  contended  that  in  effect  the assessee  enters   into  two  distinct  contracts  with  the retailer, the first contract relates to the sale of goods at the catalogue  price and the second contract stipulates that notwithstanding the  liability of  the  retailer  under  the first contract to pay the entire sale price, he may actually pay the  sale price less trade discount. On that submission, it is  sought to  be urged  that since  the sale is effected under the  first contract,  the  entire  amount  treated  as consideration for  the sale  under that  contract has  to be included in the taxable turnover.      We have  considered the  matter carefully  and  in  our judgment the appeal must fail.      At the  outset, it is appropriate that we set forth the two relevant  definitions contained in the Central Sales Tax Act. Section  2(j) defines "turnover" to mean "the aggregate of the  sale prices  received and  receivable  by  him  (the dealer) 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 deduction  on account of cash discount  is alone  specifically contemplated  from the sale consideration  in the  definition of  "sale  price"  by section 2(h),  and there  is no  doubt  that  cash  discount cannot be confused with trade discount. The two concepts are wholly distinct  and separate. Cash discount is allowed when the purchaser makes payment

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934 promptly or  within the  period of  credit allowed.  It is a discount granted  in consideration of expeditious payment. A trade discount  is a  deduction from  the catalogue price of goods allowed  by wholesalers  to retailers  engaged in  the trade. The  allowance enables the retailer to sell the goods at the  catalogue price  and yet make a reasonable margin of profit after  taking into  account his business expense. The outward invoice  sent by  a wholesale  dealer to  a retailer shows the  catalogue price  and against  that a deduction of the trade  discount is  shown. The  net amount  is the  sale price, and  it is  that net  amount which  is entered in the books of  the respective  parties as  the amount realisable. Orient Paper Mills Ltd. v. State of Orissa.      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  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 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.      Nor is  there  any  question  here  of  two  successive agreements between  the parties,  one providing  for sale of the goods at the catalogue price and the other providing for an allowance  by way of trade discount. Having regard to the nature of  a trade  discount, there  is only  one sale price between the  dealer and  the retailer, and that is the price payable by the retailer calculated as the difference between the catalogue  price and  the trade  discount. There is only one contract  between the  parties, the  contract being that the goods  will be sold by the dealer to the retailer at the aforesaid sale price.      We have  been referred  to Ambica  Mills Ltd. & Ors. v. The State  of Gujarat  & Anr.  Where the  Gujarat High Court rejected the claim of the manufacturer to a deduction of the remission allowed  from the  sale price  to the purchaser on account of  a general  fall in  prices when  delivery of the goods was  effected. In  our opinion,  the case supports the view we  are taking.  The sale price remained the stipulated price in  the contract  between the  parties.  The  fail  in prices 935 occurred after  the contract of sale had been finalised, and with a view to relieving the purchaser to some extent of the loss  which   could  have   been  occasioned   thereby,  the manufacturer sought  to bear  part of the loss by granting a rebate or  remission to the purchaser. The Revenue relies on India Pistons  Limited v. State of Tamil Nadu. In that case, the bonus of which deduction was sought by the assessee from the turnover  was paid under a bonus discount scheme, not to all customers  but only  to distributors whose net purchases from the  assessee exceeded  the  target  figure  agreed  to between the  parties.  The  amount  of  rebate  allowed  was credited to  the customer’s account and treated as a reserve from which the distributors could make future purchases. The rebate of  bonus discount  was not allowed as a deduction by the Madras  High Court  and, in  our opinion, rightly so. It

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was in the nature of an incentive bonus paid to distributors whose net  purchases exceeded the target figure. It did not, and could  not, affect  the sale  value of the goods sold by the assessee.  The sale  price remained  undisturbed in  the contract between the parties.      In our  judgment, the  sale price which enters into the computation of  the assessee’s  turnover for  the purpose of assessment under the Central Sales Tax Act is obtained after deducting the  trade discount  from the catalogue price. The trade discount allowed by the assessee cannot be included in the turnover.      In the  result, the  appeal fails and is dismissed with costs. N.K.A                                      Appeal dismissed. 936