S.B. Audio and Video vs Additional Commissioner of Commercial Taxes and Others

G. Narendra, J.—The appellant (assessee henceforth) is before this court being aggrieved by the order of the first respondent in proceeding No. SMR/KVAT/GLB/CR173/09-10 dated 11.1.2012 and for a further prayer to restore the rectification order passed by respondent No. 2 in appeal No. KVAT/AP-125/07-08/April 2006 to March 2007 and to grant such other orders, reliefs in the facts and circumstances of the case.

The facts of the case in a nutshell is as follows :

"The appellant is a dealer in electronic goods carrying on business under the name and style M/s. S.B. Audio and Video. It has been assigned TIN No. 29130258009. The appellant files the return in form VAT -100 before the Assessing Authority i.e. the 3rd respondent herein. On assessment the 3rd respondent arrived at a conclusion that the appellant has claimed exemption in respect of discounts granted subsequent to the issuance of tax invoice and concluded that the same is not in consonance with the provisions of Rule 3(2)(c) of the KVAT Rules 2005 (hereinafter referred to as ''the Rules 2005'' for brevity and convenience). As a consequence of the above conclusion, the Assessing Authority passed an order under Section 39(1) of the KVAT Act (hereinafter referred to as ''the Act'' for brevity and convenience) disallowing the discount paid subsequent to the issue of tax invoices and levied tax and penalty amounting to Rs. 45,128/- by order dated 20.10.2007."

The appellant being aggrieved, unsuccessfully appealed to the First Appellate Authority which dismissed the appeal by its order dated 22.4.2008. It is contended that thereafter the appellant once again filed a rectification appeal before the very same First Appellate Authority and the said rectification application came to be allowed by order dt. 13.3.2009.

The first respondent exercising suo motu powers appears to have reopened the case and treating it as a revision issued notices to the appellant calling for objections and after detailed hearing restored the order of the Original Authority i.e. the Assessing Authority by the impugned order 11.1.2012.

A perusal of the records reveals the follows :

"The third respondent on the direction of the Commissioner of Commercial taxes appears to have got issued a notice dt. 4.9.2007 in Form 275 calling upon the appellant herein to submit the books of accounts. In response to the same the appellant is stated to have sought two months time to submit the details, on the ground, that the books of accounts have been sent for auditing and thereafter the appellant/assessee submitted the requisite information in Form-100. After re-assessment the Assessing Authority levied a sum of Rs. 45,128/- as additional tax and penalty for the Assessment Year ending March 2007. Aggrieved by the same the assessee preferred an appeal under Section 62 of the Act impugning the assessment order under Section 39(i)(a) of the Act."

In the first appeal it is contended that the Assessing Authority has erred in disallowing the discount allowed by the assessee and failed to see that the discounts allowed is as per the KVAT Act. It was contended that their sellers had given them discount of Rs. 2,22,942/- and according to their regular practice prevailing in the business they had in turn given discounts to the tune Rs. 5,33,445/- as permitted under the provisions of Sub Rule (2)(C) of Rule 3 of the Rules 2005 and that there is no bar to allow more discount to the customers; that the disallowance of the discount over and above the discounts received by them is illegal. It is contended that they have given discounts to the sub dealers and retailers at the end of the year and had issued credit notes and recorded the same in their books of accounts. While issuing credit notes they had bifurcated the value into discount and VAT element and they had also filed their returns and declared it in their income tax statement also. The above contention prima facie appears to be illogical as it borders on bad business practices.

The first appellate authority while concluding the appeal was pleased to arrive at the finding that discounts are allowable, but such discounts are to be in consonance with the regular trade practice or regular business practice of the assessee or ought to be evidenced by the terms of any contract of agreement and it must also be demonstrated by the assessee that the purchaser had paid the originally charged sum less the discount. It is the finding of the First Appellate Authority, that in the case of the assessee, the buyers have originally paid tax on the entire amount including the tax component, and at the end of the year refunds, in the form of additional discounts, cash discounts, incentives etc. has been given by the assessee in the form of credit notes and this methodology/practice adopted by the assessee is not in consonance with law and the said ground the appeal came to be rejected by order 22.4.2008.

After the lapse of nearly 6 months from the passing of the order it is stated that the counsel for the assessee is said to have appeared and pleaded that the tax has to be levied on the real and actual value of sale and not on the notional value. Apart from that it has been additionally argued for the first time that whenever their sellers allow certain discounts, additional discount, incentives etc., the same were passed on to their local retailers by issue of credit notes and that too within a period of 6 months. This plea that they were in receipt of "discounts, additional discount, incentives etc." is a new plea. On a casual examination, prima facie this plea appears to go against the assessee''s own declaration wherein he had only declared a total discount Rs. 2,22,942 as discount received from his sellers. If this new plea is to be accepted then prima facie it appears that the assessee has suppressed the so called ''discounts, additional discount, incentives etc." in the original returns filed by him. Be that as it may, this court due to the lack of records cannot delve into the same. Further, it being an issue in the factual context, the same has to be gone into and determined by the authorities.

In the above rectification proceedings it has been further argued that the provisions of Section 3 (3) makes it mandatory to declare such credit notes and that the order in appeal has been passed ignoring the import of the provisions of Section 30(1) r/w. Rule 31 of the Rules and they being substantive provisions which provide for allowance of discounts by the dealer and such discounts having been given by the assessee, the assessment ought to have been on the lesser or actual value after giving credit to the discounts. It is further alleged in the ''rectification of mistake apparent petition'' that though the books of accounts and relevant documents (no details of the same are forthcoming) were placed before the first appellate authority, the order was passed ignoring the same.

Thereafter the assessee having made a statement about the scheme of the Act, provisions of law and the broad principles of settled Law which governs the subject matter, has contended that the earlier order in appeal suffers from an error apparent on the face of the records. Thereafter the assessee has listed several citations and has also extracted several provisions but has nowhere pleaded or placed on record the actual facts and details of the case to which the broad principles or settled principles of law could be applied nor is there any pleading which factually contradicts the original assessment by the assessing authority. In effect the rectification application appears to be rehearing of the first appeal and is not an application for rectification of any mistake apparent on the face of the records. In fact it is acknowledged by the first appellate authority in his own words as follows:--

"In view of the new dimensions that emerges now the appeal order dt. 22.4.2008 appears to be an order passed with mistaken notion and resultant decision a mistake appearing on records"

The first appellate authority has virtually admitted that he has reviewed his own order. The issue whether it is permissible in law and the Appellate Authority is competent to review is a matter that does not fall for consideration by this Court and this court need not dwell upon the same. The First Appellate Authority after reviewing was pleased to set aside the discount disallowed and invoking the provisions of Sub Section (2) of Section 72 ordered penalty of Rs. 3,881/- to be deleted exercising his powers of rectification under Section 69 of the Act.

The First Appellate Authority while passing the rectification order has no where referred to the factual material placed before the Authority. What were the documents examined by him? Whether the tax invoices as mandated under Rules 27 and 29 of the Rules were looked into by him? Whether credit and debit notes as mandated under Rule 31 of the Rules were looked into by him. It is also not forthcoming as to whether the rectification order is passed after adverting to the contents of the credit and debit notes and tax invoices or after a comparative assessment of the same.

The revision is heard by the Revisional Authority i.e. the Additional Commissioner of Commercial taxes, Zone-1, Bengaluru. The Revisional Authority after hearing the parties has been pleased to hold that the rectification order by the First Appellate Authority is not sustainable in the eye of law and it deserves to be set aside as it is erroneous and prejudicial to the interest of Revenue. While so doing he adverts to certain provisions of law. But yet again the Revisional Authority has fallen into the same error as committed by the First Appellate Authority. He has not adverted to any material particulars or factual aspects of the case and has approached the matter in a perfunctory manner.

The Original Authority, the First Appellate Authority and the Revisional Authority are to be faulted for the only reason that they have not adverted to the factual materials and particulars of the case which was their bounden duty. The Authorities have ventured into the exercise of interpretation of the provisions and application of broad principles as laid down by the Hon''ble Apex Court. It is an undisputed fact that the law as laid down by the Hon''ble Apex Court and by this Court, the interpretation placed on the statute or a principle of law enunciated are precedents and binding on the authorities but it is also an undisputed fact and declared law that the same are evolved in a particular set of facts and the said precedent is applicable in similar set of facts. The broad principles of law as laid down by the Hon''ble Apex Court or by this Court has to be applied in full force but after adverting to the material facts of each case, which exercise the authorities have failed to adhere to. In these facts this Court has been pleased to formulate the following questions of law:--

"(A) Whether it was within the competence and authority of the Additional Commissioner of Commercial Taxes, Zone-I to have treated rightly the judgment dated 16.02.2010 passed by the Division Bench of this Hon''ble Court in STRP No. 117 to 121/2008 in the case of the State of Karnataka V/s M/s. Reliance Industries Ltd., (2010 (68) KAR LJ 602) as a mere order without following the said judgment?

(B) Whether it is permissible for the assessee to show the discount given by a separate credit not subsequently and claim deduction even though the said discount is not shown in the tax invoice or sale bill?"

After hearing, the additional substantial question of law has been framed i.e.

"Whether it is permissible for the Appellate Authority or the Tribunal to render a finding merely on the broad principles of law and precedents without adverting to the factual aspects and material particulars of a case?"

The counsel for the petitioner has relied on catena of judgments rendered by this Court in STRP No. 119/2008 in the case of State of Karnataka - v. -Reliance Industries Ltd.; In STA No. 71/2010 between M/s. Pratham Motors Pvt. Ltd. - v. - Addl. Commissioner of Commercial Taxes; STRP No. 51/2009 and Civil Appeal Nos. 2516-17/2012 rendered by the Hon''ble Apex Court in M/s. IFB Industries case.

The respondents also placed reliance on the judgment of this Hon''ble Court in STRP No. 84/2009 & 71-76/2010.

Adverting to the first substantial question of law there cannot be any dispute that any judgment rendered by this Court cannot be treated lightly by the Subordinate Authorities, be it the Tribunal or the Revisional Authority or the First Appellate Authority or the Revisional Authority. Every judgment and order emanating from the Hon''ble Apex Court and this Court is binding on the above authorities and the authorities are required to follow the precedents in the event they are applicable to the facts of the said case. Accordingly, the first substantial question of law is answered accordingly.

As regards the second question of law, the issue has been settled by the Apex Court in the above referred case of IFB Industries Ltd. Though the Apex Court was dealing with the case arising out of General Sales Tax Rules of Kerala but the provisions being in pari materia, the principle laid down by the Apex Court is applicable in the facts of the case. That apart, the provisions of the Sales Tax Rules particularly Rule 31 empowers the dealer to give further discounts in the form of credit notes and debit notes. The provisions enabling the issuance of credit and debit notes is made subject to the provisions of Rule 30 of the Rules.

It is seen that Rule 3 deals with determination of total and taxable turn over. Clause (c) of Sub Rule (2) refers to all amounts allowed as discounts. Hence there can be no dispute that the taxable turnover is the net amount after allowing discounts permissible under law and the discounts ought to be given in the manner prescribed in law.

In the instant case as noted above, there has been no exercise undertaken by the authorities to verify the material particulars of the returns submitted by the assessee. It is also not demonstrated by the assessee as to what is the material he has placed before the authorities and this Court is constrained to observe that both the parties have failed to place on record the material particulars that ought to have been considered and nothing is forthcoming as to what has been appreciated in the instant case.

The Rules specify, particularly Rule 27, that the dealer must issue a tax invoice in respect of every sale, be it taxable goods or exempted goods along with taxable goods where the value of goods is in excess of Rs. 100/-. Rules 28 stipulates that the tax invoice ought to be in duplicate. Thereafter Rule 29 mandates the particulars that a tax invoice must reveal or disclose. Rule 30 stipulates the particulars to be furnished in a bill of sale and Rule 31 stipulates the particulars that ought to be revealed in a debit and credit note. Thus we conclude that the dealer is entitled to give further discounts even after the sale has been completed provided the discounts are the customary practice in the trade or otherwise known as trade discounts. It has to be demonstrated by the assessee that the further discounts, apart from the discounts in the tax invoice or sale bill already given, is pursuant to the terms and conditions of an agreement or contract between the seller and the registered dealer. For Eg. a contract may be entered into for providing further discounts in the event if the dealer achieved a particular target or exceeds a particular target. Thus to concise the same this Court is of the opinion that a discount is allowable under the tax invoice or sale bill. A further discount is also permissible by way of credit note and debit note subject to the condition it is demonstrated that the discounts are trade discounts or pursuant to a contract or agreement entered into between the seller and the dealer. The onus of proving the said fact is on the assessee and he ought to demonstrate that the discount given by him is in accordance with the provisions of the Act and Rules. Thus the second substantial question of law is answered accordingly.

As regards the third substantial question of law (as framed now), the same has been framed in the facts and circumstances as noted by the Court in the case on hand. The authorities must primarily embark upon a detailed discussion of the factual aspects and material facts of the case. In the instant case the authorities have not endeavored to state as to what is the documents inspected by them, whether they have made a comparative assessment of the tax invoice and sale bills with the credit and debit notes under which the appellant is claiming to have given the discounts to his purchasers. It is also not forthcoming whether the monthly returns as mandated under Rule 38 of the Rules have been verified before arriving at the conclusion.

We conclude that the authorities are required to state the facts and the material particulars and thereafter apply the precedents to the said facts and circumstances before rendering a finding.

In view of the above discussion the following order.

Having heard the learned counsel for the parties and after perusing the records before this Court, it is not in dispute that the impugned orders do not reveal as to what are the details that were placed by the assessee before the Authorities and what are the details that the authorities verified before concluding the assessment. The records do not reveal if the assessee has formulated any incentive scheme or that he has entered into any contract or agreement with the purchasers and that the credit notes issued by him are in pursuance of the incentive scheme or the contract or agreement. The proceedings also do not reveal as to whether the assessee has placed before the authorities the tax invoices, sale bill and monthly returns along with the credit and debit notes. It is incumbent upon the assessee to place the aforesaid records before the authorities and the authorities ought to consider the same and thereafter render a finding. This Court after perusal of the records is convinced that such an exercise is not forthcoming from the records. Under the circumstance, this Court is of the considered opinion that it is a fit case to be remanded to the Assessing Authority with a direction to the appellant/assessee to furnish all details as discussed above and thereafter the Assessing Authority shall reconsider the entire matter in the light of the said provisions and pass fresh orders in accordance with law. To enable the same the order dated 13.03.2009 and 11.01.2012 are set aside.

For the aforesaid reasons the above appeal is disposed of.