P.R. Enterprises v. State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **FRIDAY, THE 04TH DAY OF JANUARY 2019 / 14TH POUSHA, 1940** ## **O.T.(Rev.) No.106 of 2018** **AGAINST THE ORDER IN TA(VAT) NO.515/2014 OF THE KERALA VALUE ADDED TAX/ AGRICULTURAL INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, KOZHIKODE DATED 23-07-2018** ## **REVISION PETITIONER/APPELLANT:** **P.R.ENTERPRISES, 20/265A 20, KALLAI ROAD, KOZHIKODE.** **BY ADVS. SRI.C.S.ARUN SHANKAR SMT.REVATHY P.NAIR SRI.S.SHYAM KUMAR SRI.T.G.MADHAVANUNNI** ## **RESPONDENT/RESPONDENT:** **STATE OF KERALA REPRESENTED BY DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, KOZHIKODE.** **SR. GOVERNMENT PLEADER SRI.V.K. SHAMSUDHEEN** **THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 04.01.2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** O.T.(Rev.) No.106 of 2018 2 ## **JUDGMENT** ## **K. Vinod Chandran, J.** **The question raised in the above appeal is reframed as follows:** “ _**Whether the Tribunal was correct in having applied Explanation VII to Section 2(lii) and added on the discount for the purpose of computing the turnover?”**_ **2. An ancillary question arises, which is framed as follows:** _**“Whether the lower authorities were correct in having estimated the sales turnover at 3.12% gross profit and added on the discount for the purpose of computing the taxable turnover?**_ **3. The assessee had filed its return declaring its purchase price, as also the taxable turnover. The purchase price did not include duty wages and loading and unloading charges respectively of Rs.37,370/- and Rs.2,31,176/-. The Assessing Officer found that these are direct expenses forming part of production/purchase. The purchase price of the** O.T.(Rev.) No.106 of 2018 3 **assessee hence stood enhanced to Rs.1,14,88,348/-. To this, an addition was made with Gross Profit [G.P.] @ 3.13%. The taxable turnover of sale so estimated came to Rs.1,18,46,786/-. The Assessing Officer also found that the assessee had received a discount of Rs.4,88,354/-, which have to be added back under Explanation VII to Section 2(lii) of the Act. The Assessing Officer having found the returned taxable turnover to be Rs.1,13,32,792/-, it was lower than the sales turnover and hence applied Explanation VII to Section 2(lii) and computed the total turnover as Rs.1,18,46,786/plus Rs.4,88,354/-.** **4. As far as the Explanation VII to Section 2(lii) of the Act, the issue stands covered by a judgment of a Division Bench of this Court in** _**State of Kerala v. Syed Muhammed [2016 (4) KLY 462]**_ **. Therein also the assessee having suffered loss received some amounts from the suppliers for the** O.T.(Rev.) No.106 of 2018 4 **purpose of recouping the loss suffered by it. Based on Explanation VII to Section 2(1ii) the amount transferred to recoup the loss was included in the turnover. The learned Counsel for the assessee then refers to a decision of the Hon'ble Supreme Court reported in** _**M/s.Southern Motors v. State of Karnataka [2017 (98) VST (207) SC]**_ **, wherein under the Karnataka enactment, it is found that the discount by the supplier cannot be added to the sales turnover of the purchaser. Yet another Division Bench of this Court in** _**C. Mohanan v. State of Kerala [OT (Rev.) No.142 of 2013]**_ **by judgment dated 12.04.2017 found that there was no provision similar to Explanation VII of Section 2(lii) of the KVAT Act, in the Karnataka enactment. The said decision was found to be inapplicable insofar as the provisions of KVAT Act.** **5. The learned Counsel for the assessee would also refer to another three Judge Bench decision of** O.T.(Rev.) No.106 of 2018 5 **the Hon’ble Supreme Court reported in** _**Maya Appliances (P) Ltd. V. Addl. Commissioner of Commercial Taxes [(2018) 2 SCC 756]**_ **. We notice that the said decision also was on the Karnataka Value Added Taxes Act, which did not contain the provision in the Kerala VAT enactment. We hence answer the first question in favour of the Revenue and against the assessee.** **6. Despite our answering the question in favour of the Revenue, in so far as the addition made on the discount, we framed an additional question of law, since we notice that there has been double taxation effected by application of Explanation VII to Section 2(lii). The actual purchase price by adding on the duty wages and loading and unloading charges was found to be Rs.1,14,88,348/-. An estimate was made of the total taxable turnover @ 3.12% G.P. and the figure arrived at was Rs.1,18,46,786/-. Hence the sale price was in excess** O.T.(Rev.) No.106 of 2018 6 **of the purchase price. In that context, there was no requirement for an addition of the discount applying Explanation VII to Section 2(lii). Either the Assessing Officer could have added on the discount to the returned turnover or taxed the estimated turnover adding G.P. When the sales turnover is estimated after computing the G.P then necessarily the entire turnover is taxed. We also notice that even taking into account the actual purchase price as found by the Assessing Officer, if the discount is added, the total taxable turnover will be almost as estimated with G.P. of 3.12%. There cannot be an exercise made of applying gross profit and then addition of the discount amounts; in which event there would be double taxation on the estimated component. We hence sustain the estimation made with G.P. @3.12% and direct the Assessing Officer to adopt the taxable turnover at Rs.1,18,36,786/- after including the estimation with respect to the other** O.T.(Rev.) No.106 of 2018 7 **suppression. In the context of our agreeing with the estimation @3.12% G.P., we direct the Assessing Officer not to make any addition with respect to the discount, since it is already reflected in the estimated turnover. We hence answer the second question in favour of the assessee and against the Revenue.** **We hence partly allowed the above O.T. Revision. Parties to suffer their respective costs.** **Sd/-** **K.VINOD CHANDRAN JUDGE** **Sd/-** **ASHOK MENON JUDGE** sp/10/01/19 //True Copy// P.A. To Judge O.T.(Rev.) No.106 of 2018 8 ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** ## **ANNEXURE A** **THE TRUE COPY OF THE ORDER DATED 28.03.2012 OF THE COMMERCIAL TAX OFFICER, 3RD CIRCLE, COMMERCIAL TAXES, KOZHIKODE FOR THE YEAR 2009-10.** ## **ANNEXURE B** **THE TRUE COPY OF THE ORDER DATED 17.05.2013 PASSED BY THE DEPUTY COMMISSIONER (APPEALS), COMMERCIAL TAXES, KOZHIKODE IN KVAT APPEAL NO.431A/2012.** ## **ANNEXURE C** **THE TRUE COPY OF THE ORDER DATED 23.07.2018 PASSED BY THE KERALA VALUE ADDED TAX/AGRL. INCOME TAX AND SALES TAX APPELLATE TRIBUNAL ADDL. BENCH, KOZHIKODE IN TA (VAT) NO.515/ 2014.** **ANNEXURE D1** - **THE TRUE COPY OF THE CERTIFICATE/ DECLARATION DATED 31.03.2010 ISSUED BY THE SELLER CERTIFYING THAT THE TAX ON THE AMOUNT OF DISCOUNT HAD BEEN PAID BY THEM.** **ANNEXURE D2 THE TRUE COPY OF THE COVERING LETTER AND CHEQUE EVIDENCING PAYMENT TOWARDS THE DEMAND.** ## **RESPONDENT'S EXHIBITS:- NIL** **//TRUE COPY//** **P.A. TO JUDGE**