Messrs TREAT CORPORATION VS COLLECTOR OF SALES TAX AND CENTRAL EXCISE, LAHORE
2007 P T D 27
[Lahore High Court]
Before Nasim Sikandar and Jawwad S. Khawaja, JJ
Messrs TREAT CORPORATION
Versus
COLLECTOR OF SALES TAX AND CENTRAL EXCISE, LAHORE
Civil Appeal No.494 of 2002, decided on 16/11/2002.
Sales Tax Act (VII of 1990)---
----Ss. 2(46), 3, 7, 33, 34 & 47---Determination of tax liability---Supplies made under Consumers Promotion Scheme---Trade discount---Appeal to High Court---Appellant Corporation which was engaged in manufacturing and marketing of shaving blades, was supplying blades in packets containing 10 blades, but in the relevant year appellant supplied in special packing in which one blade was added extra in the packet and one packet containing 11 blades was sold at the price of 10 blades as discount under Consumers Promotion Scheme---Appellant was served with a show-cause notice by Authorities observing that appellant had made taxable supplies of shaving blades without payment of Sales Tax amounting to Rs.14,02,356 for relevant year leviable thereon---Claim of Department was that there was no provision in Sales Tax Act, 1990 to allow a registered person to give any discount in a 'quantitative form' in 'money terms'---Appellant was found to be liable not only for amount to Sales Tax, but also to additional tax under S.34 and a penalty under S.33 of Sales Tax Act, 1990---Validity---Extra blade was a taxable supply made by appellant in the course of taxable activity carried out by it---Selling of 11 blades for the price of 10, though amounted to discount as far the market practice of similar sales promotion schemes was concerned; but said discount was made in quantitative terms which was not countenanced by the definition of "value of supply"---Proviso to S.2(46)(d) of Sales Tax Act, 1990 had clearly stated the modes in which a discounted price had to be mentioned in the invoice---Invoices issued in the case did not show price of one blade which stood excluded from computation of "value of supply"---Department had not disputed offer of a discount in the form of making supply of more quantity at the price of lesser quantity, but such discount could be claimed and allowed only where value of quantity offered more than the normal supply was expressly indicated in the invoices as a "trade discount", but it was not shown in that manner---Claim of appellant could not be allowed in circumstances.
Mian Sultan Tanvir for Appellant.
A. Karim Malik for the Respondent.
ORDER
NASIM SIKANDAR, J.---In this further appeal under section 47 [Appeal to High Court] of the Sales Tax Act, 1990 the appellant, a person registered with the Collectorate of Sales Tax and Central Excise, Lahore claims that following questions of law arise out of the impugned order of the Customs, Excise and Sales Tax Appellate Tribunal, Lahore dated 12-9-2002:---
"(i) That whether the learned respondent has correctly interpreted the charging section (section 3 of the Act)?
(ii) That whether the learned respondent has correctly interpreted the definition of "value of supply" as given in section 2(46)(b) of the Act?"
2. The appellant, amongst other is engaged in manufacturing and marketing of shaving blades. On 30-6-2000 it was served with a show-cause notice by the Additional Collector Sales Tax and Central Excise Lahore inter alia observing that "the unit has made taxable supplies of shaving blades without payment of sales tax amounting to Rs.14,02,356 for the period 1998-99 leviable thereon." The appellant denied the allegation. In the reply it was alleged that the supplies of shaving blades were made under consumers promotion scheme in which special packing material was designed and one blade was added in the packet. In other words, one packet containing 11 blades was sold at the price of 10 blades as discount. The department, however, did not feel satisfied and therefore, the matter was referred to the Collector (Adjudication), Lahore. By way of his order dated 27-2-2002 he agreed with the department/detecting agency that there was no provision in the Sales Tax Act, 1990 to allow a registered person to give any discount in a quantitative form "in money terms" as contemplated in section 2(46)(b) of the Act. The conditions required for allowing of such discount, in the view of the department, being that the discounted price and the related tax was stated in money terms; that it was a normal business practice and that benefit of such discount was to reach the end use. The department posed and the Collector (Adjudication) addressed the following two questions:---
"(i) What is price of 11 Blades? If it is supplied without receiving any consideration in money, however, furtherance of their business then the supply of 11th Blade is taxable?
(ii) The benefit of discount in case of supply of Single Blade not a packet made by the retailer (may or may not be registered), the 11th Blade does fetch its price. What if price of 11th Blade is paid by the end users then why the Government should be loser of its legitimate sales tax is leviable thereon? On the basis of foregoing there is no hesitation to charge, collect and pay sales tax on 11th Blade."
3. Having considered them he found the plea of the department to be correct. It was observed that no discount in quantitative form was allowable under the Act. Therefore, he found the present appellant to be liable not only for the amount of sales tax confronted but also to additional tax under section 34 [Additional Tax] and a penalty at the rate of 3% of the tax involved under section 33 [General Penalties] of the Act.
4. On appeal before the Customs, Excise and Sales Tax Appellate Tribunal, Lahore filed under section 46 [Appeals to Appellate Tribunal] of the Act, the appellant again failed. The learned Members of the Tribunal by way of the impugned order dated 12-9-2002 observed that the tax invoices were to show the value of the supplies, the discounted price and the amount of tax leviable thereon. It was found that the tax invoices issued by the appellant did not show the value of the supplies and the discounted price separately as the discount was not in the form of value. In the view of the learned Members it was rather offering of more quantity of blades (10+1) as shown on each packet. It was also observed that the learned counsel for the appellant, manufacturer/registered person, did not contest the contention that while input on 11 blades was claimed but output tax was charged only on 10 blades. That was found by the learned Members of the Tribunal to be against the basic sense of VAT mode of sales tax system. While maintaining the demand raised as earlier confronted to the appellant/manufacturer, the learned Members of the Tribunal however found the levy of additional tax and penalty to be unjust. Therefore, both amounts of additional tax and penalty were remitted altogether.
5. For the appellant, it is stated that during the period in question viz. the year 1998-99 it was decided to lower the price per packet of 10 blades as a mode of sales promotion. It was done by adding one extra blade to the packet of 10 blades already being marketed. Also that the departmental contention based upon claim of input and the tax paid on output was not relevant as the input tax was relevant to the period and not to quantity of the item marketed. It is also stated that the charging provision of section 3 [Scope of Tax] read with the definition of "value of supply" as given in section 2(46)(b) contemplates stating of tax on the value only and that such condition was adequately fulfilled by the appellant to enjoy the concession. Lastly that in real terms the Revenue did not suffer any loss as the price of one blade could always be taken to have been discounted while selling eleven blades for the price of ten. In other words according to the appellant there is no difference between a "quantity discount" and a "discount in price".
6. Learned counsel for the Revenue, on the other hand, states that the aforesaid provision of the Act, particularly the definition of the words "value of supply" contemplates that the price of the item as well as the discount claimed should be mentioned expressly and separately. According to him in the case in hand the appellant even after addition of one blade to the packet of 10 earlier being marketed kept on mentioning the same price. Therefore the addition of one blade to the packet of 10 remained unaccounted for as far the payment of sales tax was concerned.
7. Having heard the learned counsel for the parties we will readily agree with the departmental interpretation of the provisions of section 3 read with the definition of the words "value of supply" as contained in section 2(46)(b), which reads as under:---
"(b) in case of trade discounts, the discounted price excluding the amount of tax; provided that the tax invoice shows the discounted price and the related tax and the discount allowed is in conformity with the normal business practices."
8. There is no dispute that the extra blade was a taxable supply made by the registered person in the course of taxable activity carried out by him. It is also correct that selling of 11 blades for the price of 10 amounted to discount as far the market practice of similar sales promotion schemes is concerned. However, there is absolutely no doubt that the discount was made in quantitative terms which is not countenanced by the definition of "value of supply". The proviso to section 2(46)(b) clearly states the mode in which a discounted price has to be mentioned in the invoice. The definition in other words expressly excludes a quantitative discount when it mandates that the tax invoice must show discounted price and the related tax. It is an admitted fact that the invoices issued in the case in hand did not show the price of one blade which accordingly stood excluded from computation of "value of supply". It needs to be noted that the department has not disputed the offer of a discount in the form of making supply of more quantity at the price of lessor quantity. However, such discount could be claimed and allowed only where the value of the quantity offered more than the normal supply was expressly indicated in the invoices as a `trade discount'. It also appears admitted on the part of the appellant that the price of one blade was never mentioned as a discount nor the amount of related tax was stated in the invoice. The application of the charging provision of section 3 [scope of tax] having not been disputed the department appears correct in bringing the extra one blade into the ambit of taxable supply and charging the sales tax thereupon. In final analysis it is held that the appellant may very well have intended and actually made a trade discount but since it was not shown, indicated and claimed in the manner contemplated by section 2(46)(b) of the Act it could not be allowed.
9. Accordingly our answer to first two questions is in the affirmative. As far question No.3 is concerned the interpretation of section 7 [Determination of tax liability] of the Act is not required to be made in the perspective of the facts in hand. The learned Members of the Tribunal while maintaining the sales tax liability on the extra blade merely made a reference to the provisions of section 7 of the Act. Even if that reference is found to be irrelevant as claimed by the appellant our answer to the above two questions, which is the real controversy between the parties, will remain unaffected. Question No.3 therefore need not be answered.
10. Appeal rejected.
H.B.T./T-23/LAppeal rejected.