Provision including Trade Discounts / Incentives in Sale and Determination of Taxable Turnover is Ultra Vires: Jharkhand HC

Case Covered:

Tata Motors Ltd.

Versus

 The State of Jharkhand

Read the full text of the case here.

Facts of the case:

In the present writ application, the challenge is to the vires of Section 9 (5) of the Jharkhand Value Added Tax Act, 2005, (hereinafter referred to as ‘JVAT Act’), which was subsequently brought, by way of amendment, made in the year 2011. The retrospective effect given to this provision with effect from 1.4.2010, is also under challenge in the present writ application.  

The petitioner Company is the manufacturer and seller of heavy and medium commercial vehicles and its spare parts and accessories. The Company is registered, under the provisions of the ‘JVAT Act’ and is, admittedly, liable to pay VAT on its turnover. The Company, in the normal course of its business, allowed trade discounts, both in form of free supply of goods as well as providing cash incentives, or reduction in price to its purchasers, which is a target based discount, i.e., such discounts and incentives are allowed only upon achieving a particular target of sale and, accordingly, such incentives and discounts are normally accounted for at the end of the financial year. Similarly, the petitioner Company also received trade discounts and incentives in respect of the raw materials, purchased by it, in a similar manner. 

Observations of the court:

We are of the considered view that by bringing Section 9(5) in the JVAT Act into the Statute Book, the dealers have been put to a disadvantageous position, which was not there, prior to the amendment made in the year 2011, and this putting the dealers into a disadvantageous position was not within the legislative competence of the State Legislature. No doubt had this amendment in the JVAT Act been within the legislative competence of the State Legislature, there was no scope of any interference therein by this Court. But this is a clear case where the State Legislature was not having the legislative competence to give the expression “sale of goods” an extended meaning and to enlarge its legislative field to cover those transactions for taxing, which did not properly conform to the elements of the sale of goods within the Sales of Goods Act, or under Article 366(29A) of the Constitution of India, and were not satisfying the four conditions of sale, as given in Gannon Dunkerley’s case (supra).   

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