M/S INTAS PHARMACEUTICALS LTD v. THE ASSISTANT COMMISSIONER, DEPARTMENT OF COMMERCIAL TAXES, SPECIAL CIRCLE-III, ERNAKULAM

# **`IN THE HIGH COURT OF KERALA AT ERNAKULAM`** ## **`PRESENT`** ``` THE HONOURABLE MR. JUSTICE SHAJI P.CHALY ``` ``` FRIDAY, THE 15[TH] DAY OF JULY 2022 / 24TH ASHADHA, 1944 ``` ## **`WP(C) NO. 11467 OF 2017`** ## **`PETITIONER:`** ``` M/S. INTAS PHARMACEUTICALS LTD RC ESTATE, 33/3381, K&M, THALIKKAV JUNCTION, VENNALA PO, ERNAKULAM-682 028, REPRESENTED BY ITS AUTHORIZED SIGNATORY MR.ANTHONY M.GONSALVES. ``` ``` BY ADVS.SRI.A.KUMAR SRI.P.J.ANILKUMAR SMT.G. MINI SRI.P.S.SREEPRASAD ``` ## **`RESPONDENT:`** ``` THE ASSISTANT COMMISSIONER DEPARTMENT OF COMMERCIAL TAXES, SPECIAL CIRCLE-III, ERNAKULAM-682016. ``` ## **`BY SMT.RESMITHA R CHANDRAN,GOVERNMENT PLEADER`** ``` THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 15.07.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` W.P.(C.) No. 11467/2017 2 ## JUDGMENT This writ petition is filed by a company incorporated under the Companies Act engaged in the sale of medicines and other health drinks and a registered dealer under the rolls of the Assistant Commissioner, Department of Commercial Taxes, Special Circle – III, Ernakulam – the respondent; seeking to quash Ext.P9 order of assessment dated 14.03.2017 levying tax and interest, of Rs. 1,49,69,557/- and raising a statutory demand for recovery of the same. 2. The paramount contention advanced by the petitioner is that during the Assessment Year 2012-13, the petitioner purchased from its sister concern Bio Pharmaceuticals Limited under invoice medicines. The medicines were invoiced at a price of Rs. 25,71,817.96, with the seller collecting tax on the MRP amount at Rs.5,88,754/- which was having total invoice value of Rs. 31,66,574/-. For the sale of medicines, petitioner W.P.(C.) No. 11467/2017 3 has opted for compounding under Section 8(e) of the KVAT Act for payment of tax on MRP basis and according to the petitioner consistent with the provisions, petitioner filed its annual returns and audit statements in Forms 13 and 13A. According to the petitioner, the bulk sale was on account of the seller closing its operation in the State and the petitioner duly declared the prices and VAT amount in the monthly return for the month of April, 2012. It is also pointed out that since the petitioner is charging taxes on MRP basis, it was necessary to record MRP in its books and audit statements. It is also submitted that the goods are received on stock transfer under cover of stock transfer invoices or stock transfer notes giving the values in the maximum retail price declared on the packages. However, the petitioner makes sales at discounted rates to the dealers and also offers discounts under schemes at various points of time towards promotion and for other commercial reasons. That apart, the W.P.(C.) No. 11467/2017 4 discounts are worked out on the stock transfer values which is to enable the dealer to appropriately capture their margins in their sale and enable them to have their fair share of profits. That apart, it is stated that the petitioner also offers a quantity discount based on off take. In order to substantiate the contentions an example is cited to the effect that ‘if dealer lifts 500 units and 50 units are given as free issues, the petitioner indicates the free issues in the invoices and quantity of free issues appropriate taxes are collected and paid, though no consideration for the goods are realized’. Therefore, in so far as the scheme discounts and sale at discounted prices are concerned, the petitioner indicates the discount allowed in the statutory invoice raised in Form-8H and realises the consideration net of the discounted price and therefore, the discount goes towards abatement of the sale price. The sum and substance of the contention of the petitioner is that in the case of quantity discount W.P.(C.) No. 11467/2017 5 covered under Section 7, though on the free issues, there is no liability to tax at all, Petitioner collects tax on free issues and remits it to the Department along with the returns. Matters being so for the assessment year 2012-13, petitioner has filed its returns and audit statement in Forms 13 and 13A declaring its total and taxable turnover at Rs. 18,98,66,326.50. It is the case of the petitioner that under the statutory provisions discount shall not form part of the turnover and need not be included in the turnover. However, the respondent issued notice proposing best judgment assessment under Section 25(1) evident from Ext.P5 pointing out two defects namely; (i) incorrect availing of input tax with a proposal to disallow excess input tax claimed of Rs. 4,59,864/- and (ii) a difference in total and taxable turnover as per annual return and audit report submitted in the Forms prescribed. 3. According to the petitioner, the first defect pointed out is not an issue urged in this writ petition W.P.(C.) No. 11467/2017 6 since the petitioner would take it up before the appellate authority or in alternative would yield to the authorities. However, in regard to the defect alleging difference in the annual return and audit report, petitioner has submitted Exts.P6 to P8 reply giving a complete statement of reconciliation on turnover as per annual return vis-à-vis audit report and completely match the return with the audit report to establish that there is no discrepancy as alleged. According to the petitioner, though a detailed reply was given at the time of hearing none of the said aspects were considered taking into account Section 7 of the KVAT Act and therefore, the assessment itself is bad. That apart, it is contended that there is no reference to the invoices produced evidencing collection of tax on the free issues, though there is absolutely no obligation in law to subject free issue/quantity discount for tax. Other contentions are also raised. Therefore, it is submitted that the assessment made by the respondent without W.P.(C.) No. 11467/2017 7 adhering to the trade discount provided under Section 7 is arbitrary and illegal liable to be interfered with by this Court. 4. I have heard the learned counsel for the petitioner, Sri. A Kumar and Smt. G.Mini, the learned Government Pleader, Smt. Rasmita R. Chandran and perused the pleadings and materials on record. 5. The learned counsel for the petitioner has addressed arguments relying upon the contentions raised above. According to the petitioner, there is no clause under the KVAT Act which enables adding of quantity discount to the sales turnover and the purpose of Section 7 is only to bring accountability of the quantity into the books so that as and when the dealers are in receipt of free issues, effect sale in respect of the same without making that quantity itself free issues, the said turn over could be brought to tax; and that is to say that a purchasing dealer in receipt of quantity as free issues is bound to collect tax and remit the same W.P.(C.) No. 11467/2017 8 when sale of the said quantity is effected by him. That apart, it was submitted that a reference to Circular No. 5/2005 issued by the Commissioner of Commercial Taxes, Thiruvananthapuram dated 04.04.2005 is relevant in order to allow trade discount in terms of quantity good in relation to any sale effected by a dealer. 6. Even though various contentions are raised by the learned Government Pleader, supporting Ext.P9 order of assessment, the learned Government Pleader submitted that in the assessment order, the contentions advanced by the petitioner and the requirements of Circular No. 5/2005 are not reflected. 7. I have considered the rival submissions. Paragraph 5 of the Circular No. 5/2005 provided with an illustration in respect of trade discount reads thus:- - _“5. Section 7 provides that if a dealer allows any trade discount in terms of quantity in goods in relation to any sale effected by him, the quantity so allowed as trade discount shall be deemed to be a sale by_ W.P.(C.) No. 11467/2017 9 _the dealer who allow such discount or incentive and a purchase by the dealer who receives such trade discount or incentive and that such sale shall form part of the sale in relation to which such trade discount or incentive is allowed. Illustration: Dealer A sells 100 television sets to another dealer B for Rs.15 lakhs and allows a trade discount of five television sets without charging any amount additionally. The five television sets given as trade discount will also be deemed to be a sale by A to B. But since A has not charged any amount additionally for these 5 television sets, the turnover of A in respect of this transaction will be only Rs.15 lakhs. But if it is proved subsequently that the dealer had realized any amount from B towards the price of these five television sets either through debit notes or in any other form, that amount will be added to the turnover in respect of the above sale by A. But as far as B is concerned, the quantity purchased will be 105 units and not 100 units. When B effects sales he will have to account for the sales of all these 105 units, unless he allow quantity discount in the above manner.”_ Therefore, on an analysis of the manner in which trade discount is to be treated is specifically recited to by the Commissioner apparently for the purpose of considering the cases of trade discounts claimed. Now on a reading W.P.(C.) No. 11467/2017 10 of Ext.P9 order of assessment, I am of the considered opinion that the issue with respect to the trade discount contemplated as per Section 7 of the KVAT Act, 2003 was not taken into account by the assessing authority. In that view of the matter, I think it is only appropriate that Ext.P9 order of assessment is interfered with to the extent dealing with the trade discount. 8. In fact, this question was considered by the learned Single Judge of this Court in M/s. Gulf Oil Lubricants India Limited v. Commissioner of Commercial Taxes, Thiruvananthapuram and Another in the judgment in W.P.(C.) No.28594/2016 dated 25.11.2016 and held that the assessment made without adverting to Circular No. 5/2005 issued by the Commissioner of Commercial Taxes was not correct and accordingly, the assessment was set aside to that extent and directed to reconsider afresh. 9. Accordingly, I set aside Ext.P9 order of assessment made in regard to the issue of non- W.P.(C.) No. 11467/2017 11 consideration of trade discount and direct the respondent to re-consider the said matter in accordance with law and also taking into account the Circular No. 5/2005 issued by the Commissioner of Commercial Taxes, Thiruvananthapuram dated 04.04.2005 at the earliest. In order to enable the assessing authority to proceed with the matter, the petitioner is granted two weeks time to produce any documents in support of the case put forth by the petitioner and a decision shall be taken by the Commissioner, at the earliest possible, after providing an opportunity of hearing and participation to the petitioner. The writ petition is disposed of accordingly. Sd/- **SHAJI P. CHALY JUDGE** DCS/16.07.2022 W.P.(C.) No. 11467/2017 12 ## **`APPENDIX`** ## **`PETITIONER EXHIBITS`** ``` EXHIBIT P1 : ``` ``` TRUE COPY OF SPECIMEN INVOICE EVIDENCING THE TAX COLLECTS ON FREE ISSUES AND REMIT TO THE DEPT. ``` ``` EXHIBIT P2 : ``` ``` TRUE COPY OF THE INVOICE SHOWING THE DISCOUNT. ``` - **`EXHIBIT P3 : TRUE COPY OF THE ANNUAL RETURNS FOR THE ASSESSMENT YEAR 2012-13.`** - **`EXHIBIT P4 : TRUE COPY OF THE AUDIT REPORT FOR THE ASSESSMENT YEAR 2012-13.`** - **`EXHIBIT P5 : TRUE COPY OF THE NOTICE DATED 17-82015.`** - **`EXHIBIT P6 : TRUE COPY OF THE REPLY DATED 19-9-2015.`** - **`EXHIBIT P7 : TRUE COPY OF THE REPLY DATED 27-122016.`** - **`EXHIBIT P8 : TRUE COPY OF THE REPLY DATED 13-3-2017.`** - **`EXHIBIT P9 : A TRUE COPY OF THE ASSESSMENT ORDER DATED 14-3-2017.`**