Facts: The appellant is a manufacturer. The appellant offers a quantity discount to its distributors depending on their performance during the previous quarter. This is part of a marketing/sales strategy. The discount is given by the appellant to its dealers in the sales invoices raised in the subsequent quarter. The amount of the discount is deducted from the gross sale price and VAT is collected and remitted on the net sale price. The Deputy Commissioner of Commercial Taxes, Bengaluru disallowed the quantity discount accorded by the appellant to its distributors on the ground that the discount was not relatable to the sales effected by the relevant tax invoices. On appeal, the Joint Commissioner of Commercial Taxes set aside the order of the assessing authority. However, above order was revised on the ground that the quarterly discount given by the appellant was in respect of the performance of the previous quarter and not in respect of the sales offered under the same invoices. The appellant filed appeal before High Court of Karnataka. By a judgment dated 19 March 2014, a Division Bench of the Karnataka High Court dismissed the appeals. Hence, appeal before the Supreme Court.

Issue: Inter alia the following issues were considered:

(a) Whether, to arrive at taxable turnover, it is necessary to deduct trade discount from total turnover, even if they were not shown on the fact of the invoice? 

(b) Whether one part of the proviso to a statute can be interpreted separately, to override the other part of such provision, rather than being construed together?

View: The court followed the judgment of Southern Motors v State of Karnataka (2017) 3 SCC 467 and held that deductions on account of trade discounts are given under agreement; or under terms of sale or by established practice and should not be disallowed only because they are not payable at the time of each invoice or deducted, from the invoice price. In the first part of the proviso, Rule 3(2)(c) recognizes trade practice or, as the case may be, the contract or agreement of the dealer. The latter part which provides a methodology for ascertainment does not override the earlier part. Both must be construed together. Above all, it must be remembered that taxable turnover is turnover net of deductions. All trade discounts are allowable as permissible deductions.

Held: The assessee must establish from its accounts that the discount relates specifically to the sales with reference to which it is allowed. However, it does not mean that if it is not specifically shown on the face of the invoice, deduction will not be permitted.  (  CA Nos. 357 -367 of 2008 ( Arising SLP (C ) Nos . 24249 -24259 of 2014 dt 6 -2 2018)   

Editorial: Section 15(3) allows deduction for discounts, if recorded in the invoice at the time of supply or after the supply has been affected, it was known at the  time of supply and is specifically linked to the relevant invoices. According to    me, discounts cannot, even otherwise, for part of value. Value under section 15(1) would be transaction value as agreed between parties. If the discount is known to the recipient at the time of supply, only the quantification to be undertaken later, the same would not form part of value. Hence, the above ruling, which reinforces that net taxable turnover would be the value of supply, would apply in the GST regime as well. 

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