A. Narasimha Rao, Member (D) -
(1.) THIS is an appeal filed by M/s. A.P. Paper Mills Ltd., Rajahmundry, against the orders of the Appellate Deputy Commissioner (CT), Kakinada, dated 18.8.1993 in Appeal No. E. 74/93 -94, filed against the assessment orders of the Commercial Tax Officer, Aryapuram Circle, Rajahmundry in G.I. No. 5172/88 -89, dated 22.3.1993. The disputed turnover is Rs. 48,90,863 -00. The disputed turnover related to the following items: -
The appellant purchased hard wood from unregistered dealers through agents. The appellant appointed certain agents who have opened depots for buying hard wood and transporting the same to the factory premises of the appellant. The agents were paid a total amount which included the cost of raw material, transport charges and commission. The assessing authority levied tax on the total amount paid to the agents for purchasing hard wood from unregistered dealers. The appellant claimed exemption on transportation charges and commission on the ground that they would not form part of the turnover under Section 6A of the APGST Act. The assessing authority rejected the contention on the ground that the appellant was liable to pay tax on the total amount of the purchase price of hard wood. As per the definition of total turnover under Section 2(s) of the APGST Act, the expenses for procuring hard wood would become part of the total turnover. The appellate authority dismissed the appeal on the ground that the appellant did not transport hard wood after purchase; that the agent was made responsible for transportation etc., and that therefore the total consideration paid for the purchase of the goods would form the turnover.
The Authorised Representative, reiterating the contention urged before the lower authorities has stated that transport charges and commission paid to the agent would not form part of the turnover under Section 6A of the APGST Act. The State Representative on the other hand has relied on the statement of the agent extracted at page - 2 of the assessment order as follows: -
"I am willing to supply casurina - billets from local cultivators and transport the same to your depots as per your approved rate and conditions. Further in the application the rate of raw material supply was split up into three components namely - (1) cost of raw material, (2) Transport charges, (3) Commission".
The State Representative has stated that purchase was completed only when the goods reached the appellant's premises.
We have gone through the assessment order. Neither the assessing authority nor the appellate authority disproved the agency transaction. It is evident that agent purchased hard wood on behalf of the appellant at the premises of the unregistered dealers. When the purchase was complete the goods were transported by the agent to the sellers premises. Purchase by the agent is purchase by the appellant. Any charges incurred thereafter would not be a consideration flowing from the buyer to the seller. It is flowing to the third party i.e., the transporter. It is interesting to note that even the commission paid to the agent was assessed to tax.
(2.) AT the time of hearing the Authorised representative has cited the decision of this Tribunal in the case of P.V. Raghavulu, and Company, Sullurupet vs. The State of Andhra Pradesh, (1994) 18 APSTJ 33 where the appellant incurred expenditure towards commission, freight, kata coolie , loading, unloading charges incidental to the purchase of groundnut. The said amounts were not included in the invoice issued by the seller. Since the charges were incurred by the appellant independently of the seller, this Tribunal has held that the same would not form part of the price paid to seller and therefore would not form part of the turnover.
This Tribunal had an occasion to consider identical issue earlier in the case of Tirupathi Re -Rolling Industries, Hyderabad vs. State of Andhra Pradesh, (1992) 15 APSTJ 180 wherein this Tribunal has held that freight charges incurred on purchase of re -rollable scrap cannot be included in the purchase turnover for purpose of computing rebate of tax as it would not form part of the purchase turnover.
Therefore the charges incurred subsequent to purchase and consideration not being flown from the purchaser to the seller cannot be part of the purchase turnover. This item of disputed turnover i.e., Rs. 48,50,735 -00 would not form part of the turnover of the appellant. This is entitled to be deducted from gross and net turnovers in the assessment.
Extra Discount: Rs. 40,128/ -:
This item of disputed turnover related to extra discount allowed by the appellant over and above the normal discounts allowed to the customers. The claim was disallowed by the assessing authority on the ground that the extra discount was not allowed in the regular course of business. Only such of the discount which was made in the regular trade practice would become eligible for exemption and since the extra discount claim was made only occasionally by the appellant it was not eligible for exemption. The appellate authority dismissed the appeal on the ground that as per the definition of 'sale price' under Section 2(h) of the CST Act, any sum allowed as cash discount according to the practice normally prevailing in the trade would be deducted from the sale price; that the appellant had allowed extra discount over and above the discount allowed in the regular trade practice; and that therefore the extra discount would not come under the normal discount allowed in regular trade practice. The appellant contended that extra discount was allowed to all the buyers whenever there was need to give more thrust to particular varieties of paper in the market.
At the time of hearing the Authorised Representative cited the following decisions in support of its contention:
In the case of Deputy Commissioner of Sales Tax (Law) Board of Revenue (Taxes), Ernakulam vs. Motor Industries Company, (1983) 53 STC 48, the Apex Court has held that an additional trade discount called service discount allowed by the assessee in accordance with the trade agreement to its main distributors over and above the normal trade discount in consideration of the extra benefit derived by the assessee by reason of the marketing of its goods through them and reflected truly by the accounts of the assessee was deductible as a discount from its turnover.
In the case of The State of Andhra Pradesh vs. T.V. Sundaram Iyengar and Sons Limited, (1987) 65 STC 41, their Lordships of the A.P. High Court following the judgment of the Apex Court referred to above, here held that even where the discount was allowed at the end of the year when the accounts were settled, according to the normal trade practice, it was a permissible deduction from the turnover of the dealer.
On the other hand, the State Representative has cited the following judgments in support of the orders of the lower authorities in rejecting the claim:
In the case of Sirpur Paper Mills Limited vs. The State of Andhra Pradesh, (1979) 43 STC 126, when the customer placed an order for supply of paper through a distributor, the assessee, a manufacturer of paper, directly despatched the paper to the customer and prepared the bill in the name of the customer after allowing discount to the customer in the bill itself. The assessee thereafter deducted an amount called balance discount from out of the sale amount shown in the bill and credited the same to the account of the distributor at regular intervals. Their Lordships have held that the sum allowed by the assessee as balance discount was not cash discount and therefore deduction cannot be allowed.
In the case of Krishi Engines Limited, vs. The State of Andhra Pradesh, (1985) 1 APSTJ 199, the appellant allowed discount called additional discount over and above the normal discount. This Tribunal has held that additional discount did not result in any reduction of the sale price and therefore the appellant's claim of deduction was not tenable.
In the case of Bhanu Enterprises, Vijayawada vs. The State of Andhra Pradesh, (1990) 10 APSTJ 244, the appellant recorded higher amounts of discount to reduce the turnover liable to tax. This Tribunal has held that it was a case of under invoicing and not a cost of selling the goods at a lower price.
The decisions rendered in all the above cases would show that discount can be allowed if it reduces the sale consideration whether the discount is given regularly in the bills or even at the end of the year if such is the trade practice. In Krishi Engines case it is observed that the discount did not reduce the sale consideration. Even in Sirpur Paper Mills case, the discount flowed to the distributor, a third party and did not reduce the sale consideration payable by the customer to the seller.
As seen from the assessment file the appellant has been claiming deduction of extra discount whenever, as contended by the appellant, there was sales of a particular varieties of paper. The extra discount reduced the sale consideration as in the Motor Industries case (53 STC 48) and T.V. Sundaram Iyengar case ( : 65 STC 41). The decisions in those two cases would apply to the extra discount allowed by the appellant in this case. Therefore the appellant is entitled to deduction of extra discount covering the disputed turnover.
In the result, the appeal is allowed. The amount of Rs. 48,50,735 -00 is directed to be deleted from the gross and net turnovers and the amount of Rs. 40,128 -00 is directed to be deducted from the gross turnover to arrive at the net turnover.
Dictated to the Stenographer, transcribed by him, pronounced in the Open Court on this the 13th day of May, 1998.;