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[REPORTABLE]  IN THE SUPREME COURT OF INDIA

       CIVIL  APPELLATE JURISDICTION CIVIL  APPEAL NOS.10955-10971  OF 2016

(ARISING OUT OF SPECIAL LEAVE PETITION (C) Nos.28309-28325/2013)

M/S. SOUTHERN MOTORS             .…APPELLANT

Versus

STATE OF KARNATAKA AND OTHERS       ...RESPONDENT

WITH

Civil Appeal Nos. 10972-10978 of 2016

(Arising out of SLP (C)  Nos. 27752-27758 of 2014)

J U D G M E N T  

AMITAVA ROY, J.

The instant adjudicative pursuit is to disinter the statutory

intendment lodged in Rule 3(2)(c) in particular of the Karnataka

Value  Added  Tax  Rules,  2005  (for  short,  hereinafter   to  be

referred to as “the Rules”) so as to facilitate the determination of

taxable turnover as defined in Section 2(34) of the  Karnataka

Value Added Tax Act, 2003 (for short, hereinafter   to be referred

to as “the Act”)   in interface with Section 30 of the Act  and Rule

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31 of the Rules.

2. We have heard Mr. Dhruv Mehta, learned senior counsel

for the appellant in Civil Appeal Nos. 10955-10971 of 2016, Mr.

Tarun Gulati, learned counsel for the appellant in Civil Appeal

Nos. 10972-10978 of 2016 and Mr. K.N. Bhat,  learned senior

counsel for the respondent-State.  

3. The foundational facts,  albeit not in dispute present the

required preface. The appellant is a dealer in the motor vehicles

and registered under the Act. Its version is that during the years

in question i.e. 2007-2008 and 2008-2009, it raised tax invoices

on the purchasers as per the policy of manufacturers of vehicles

to maintain uniformity in the price thereof.  After the sales were

completed, credit notes were issued to the customers granting

discounts, in order to meet the competition in the market and for

allied reasons.  Consequentially, it received/retained only the net

amount, that is the amount shown in the invoice less the sum of

discount  disclosed  in  the  credit  note.  Accordingly,  the  net

amount, so received was reflected in his books of account and

returns were filed under Income Tax Act, 1961 et al.  

4. The  Assistant  Commissioner  of  Commercial  Taxes,

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(Audit-1.6), VAT Division No.1-1, Gandhi Nagar, Bangalore i.e.

the  respondent  No.3,  as  the  Assessing  Authority  by  his

reassessment  orders  dated  21.06.2010  allowed  deductions

claimed by the appellant towards discount accorded by the credit

notes from the total turnover to quantify the taxable turnover.

Subsequent thereto, in the face of the decision of the High Court

in  State  of  Karnataka  vs.  M/s  Kitchen  Appliances  India

Ltd.,  2011 (71)  Karnataka Law Journal  234,  recognizing only

discounts mentioned in the tax invoices as eligible for deduction

from the total turnover in terms of Rule 3(2)(c) of the Rules, the

Assessing  Authority  passed  the  rectification  orders  dated

21.05.2012  under  Section  41(1)  of  the  Act,  disallowing  the

deduction  of  post  sale  discounts  earlier  awarded  by  the

corresponding credit notes.  The appellant having unsuccessfully

challenged these rectification orders before the High Court,  in

both  the  tiers,   has  invoked  this  Court's  jurisdiction  under

Article 136 of the Constitution of India for redress. The above

facts pertain to the Civil Appeal Nos. 10955-10971 of 2016.

5.  The  Civil  Appeal  10971-10978 of  2016,  with  Samsung

India Electronics Ltd.  as the appellant,  also present the same

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debate. The appellant, the assessee is as well a registered dealer

under the Act and engaged in the business of electronic goods

and  I.T.  products.  Though  the  assessment  for  the  tax  period

April,  2006  to  October,  2006  was  concluded  by  the  Deputy

Commissioner of Commercial Taxes (Audit-4) LDU, Bangalore on

29.01.2007,  the  Assessing  Authority  disallowed  the  claim  of

deduction towards discounts on the ground that the same were

not revealed at the time of issuance of tax invoices, though credit

notes  were  issued  at  the  end  of  the  month  concerned.   The

appeals filed by the appellant- assessee before the Commissioner

of Commercial Taxes (Appeals),  DVO–I & III,  Bangalore though

came  to  be  dismissed,  it  succeeded  before  the  jurisdictional

Tribunal, whereafter the Revenue took the challenge to the High

Court.  By the decision impugned herein, the High Court relying

on  its  earlier  decision  in  M/s  Southern Motors  vs.  State  of

Karnataka and Ors. rendered in Writ Appeal Nos. 5769-5785 of

2012 reiterated its view that once the sale invoice was issued and

the sale price was collected along with the tax, the aggregate of

such  sales  constituted  the  total  turnover  and  the  tax  was

payable on the taxable turnover.  It took note of the deductions

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permissible under Rule 3(2) of the Rules to determine the taxable

turnover and held that though the amounts allowed as discount

did  constitute  permissible  deduction  to  compute  the  eventual

taxable turnover, such discount was to be necessarily reflected in

the sale invoice to qualify for such deduction.  It thus concluded

that by issuing a credit note after receiving the amounts even

before the filing of the returns, it could not be construed that the

discounts  were  not  includible  in  the  turnover.   The  claim  of

deduction of the discount extended through credit notes after the

completion of the sale but not divulged  in the tax invoice was

negated.   As  the  above  rendition  was  founded  on  the  verdict

under  scrutiny  in  the  previous  batch  of  appeals  where  M/s

Southern Motors figures as the appellant, and the issue seeking

adjudication is common, all  these appeals with the aforenoted

marginal factual variations have been analogously heard.   

6. As the dissension stems from contrasting interpretations of

the underlying purport of Rule 3(2)(c) of the Rules in the context

of the scheme of the Act as a whole and Section 30 thereof and

Rule  31   of  the  Rules  in  particular,  further  reference  to  the

factual details would be inessential.  

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7. The emphatic insistence on behalf of the appellant is that

the combined reading of Section 30 and Rule 31 demonstrates in

clear terms that the assesses are entitled to claim deduction of

the discount allowed to their customers by credit notes, from the

total  turnover to quantify their taxable turnover.   The learned

counsel  have  urged  that  as  some  discounts,  especially  those

linked to targets to be achieved in a particular period are not

comprehendable  at  the  time of  sale,  these  logically  cannot  be

reflected in the tax invoices.  They have maintained that such

discounts  actualize  through  credit  notes  at  the  end  of  the

prescribed  period  for  which  the  target  is  fixed  and  are  thus

governed by Section 30 of the Act and Rule 31 of the Rules.  They

have asserted that in no view of the matter, Rule 3(2)(c) can be

conceded a primacy to curtail or abrogate Section 30 or Rule 31

of the Rules, lest the latter provisions are rendered otiose.  Such

an explication would also be extinctive of the concept of the well

ingrained  concept  of  turnover/trade  discount  which  is

indefensible.

8. Referring to the definition of “total turnover” and “taxable

turnover” as defined in Sections 2(36) and  2(34) of the Act, it has

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been urged that as the discount allowed by the credit notes is not

payable to the assessee by the customers and does not form a

part of the sale consideration, it is not exigible under the Act.

According to the learned counsel, it is no longer res integra that

trade discount is not a constituent of the sale price and therefore

not  taxable.   It  has  been insistently  pleaded  that  a  post  sale

discount  through  credit  notes  is  revenue  neutral  in  terms  of

Section 30(3) of  the Act, as a consequence whereof the selling

and  the  purchasing  dealers  accordingly  remodel  their  returns

and pay tax as due.  In endorsement of the above contentions,

the following decisions have been relied upon:  

1. Deputy Commissioner of Sales Tax (Law) Board

of  Revenue  (Taxes),  Ernakulam  vs.  M/s.  Advani

Oorlikon (P) Ltd.(1980) 1 SCC 360,

2. IFB Industries Ltd. vs. State of Kerala (2012) 4

SCC 618,

3.Commissioner of Central Excise, Madras vs. M/s.

Addison & Co. Ltd. (2016) 10 SCC 56,

4.Union  of  India  and  others  vs.  Bombay  Tyres

International (P) Ltd. (2005) 3 SCC 787.

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9. In refutation, the  the learned counsel for the respondents,

has argued that a discount to qualify for deduction to compute

the total and eventual taxable turnover, as contemplated in Rule

3(2)(c)  of  the  Rules  has  to  be  essentially  reflected  in  the  tax

invoice  or  the  bill  of  sale  issued  in  respect  of  the  sales.

According to them, Section 30 and Rule 31 deal with a situation

where  after  a  tax  invoice  is  issued,  it  transpires  that  the  tax

charged  has  either  exceeded  or  has  fallen  short  of  the  tax

payable for which a credit/debit note, as the case may be, would

be  issued.   As  these  two  provisions  do  not  regulate  the

computation of a taxable turnover, there is no correlation thereof

with  Rule  3(2)(c)  of  the  Rules  which  has  been  assigned  an

independent role to determine the tax liability.  In absence of any

specific provision in the parent statute granting tax exemption

based on deduction founded on post sale trade discount, Section

30 and Rule 31 are of no avail to the assesses, he urged.  It is

maintained that in any view of the matter, a taxing statute has to

be construed strictly and any exemption is permissible only if the

legislation permits the same.  Reliance in buttressal of the above

has  been  placed  on  the  decisions  of  this  Court  in  A.V.

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Fernandez  vs.  The  State  of  Kerala 1957  SCR  837,  IFB

Industries  Ltd.  vs.  State  of  Kerala (2012)  4  SCC 618  and

Jayam & Co. vs. Assistant Commissioner and Another (2016)

8 SCALE 70.  

10. As  the  gravamen  of  the  discord  has  its  roots  in  the

interplay of Sections 29 and 30 of the Act with Rule 3(2)(c) in

particular, apposite it would be to refer to the same as well as

the accompanying provisions as are construed indispensable.  

11. The Act is a legislation, as its preamble suggests to provide

for further levy of tax on the purchase or sale of goods in the

State  of  Karnataka.  It  defines  amongst  others  “dealer”  “tax

invoice”  “taxable  turnover”  “total  turnover”  and  “turnover”  as

contained  in  Sections  2(12),  2(32),  2(34),  2(35),  2(36).  For

immediate reference the relevant excerpts of  these expressions

are set out hereunder:      

“2(12)  ‘Dealer’ means any person who carries on the business  of  buying,  selling,  supplying  or  distributing goods,  directly  or  otherwise,  whether  for  cash  or  for deferred  payment,  or  for  commission,  remuneration or other valuable consideration, and includes-.........

2(32) ‘Tax invoice’  means a document specified under Section  29  listing  goods  sold  with  price,  quantity  and other information as prescribed;

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2(34) ‘Taxable turnover’ means the turnover on which a dealer  shall  be  liable  to  pay  tax  as  determined  after making such deductions from his total turnover and in such   manner  as  may  be  prescribed,  but  shall  not include the turnover of purchase or sale in the course of  interstate trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of  the goods into the territory of  India and the value   of  goods  transferred  or  dispatched  outside  the State otherwise than by way of sale.  

2(35) ‘Total turnover’ means the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax, including the turnover of purchase or sale in the course of interstate trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of  India  and  the  value  of  goods  transferred  or   despatched outside the State otherwise than by way of sale.  

2(36) ‘Turnover’ means the aggregate amount for which goods are sold or  distributed or  delivered or  otherwise disposed of in any of the ways referred to in clause (29) by a dealer,  either  directly  or  through another,  on his own  account  or  on  account  of  others, whether  for  cash  or  for  deferred  payment  or  other valuable  consideration,  and  includes  the  aggregate amount for which goods are purchased from a person not registered  under  the  Act  and  the  value  of  goods transferred  or  despatched  outside  the  State  otherwise than by way of sale, and subject to such conditions and restrictions as may be prescribed the amount for which

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goods  are  sold  shall  include  any  sums  charged  for anything done by the dealer in respect of the goods sold at the time of or before the delivery thereof.  

Explanation.-  The  value  of  the  goods  transferred  or despatched outside the State  otherwise than by way of sale,  shall  be  the  amount  for  which  the  goods  are ordinarily  sold by the  dealer  or  the prevailing market price of such goods where the dealer does not ordinarily sell the  goods.”

12. Section  3  is  the  charging  provision  and  the  modes  of

fixation of rate and  measure of tax exigible under the statute are

enumerated in Section 4. Having regard to the exigency of the

adjudication, appropriate it would be to extract Sections 29 and

30 of the Act as hereunder:

“29. Tax invoices and bills of sale  

(1) A registered dealer effecting a sale of taxable goods or  exempt  goods  along  with  any  taxable  goods,  in excess of the prescribed value, shall issue at the time of the sale, a  tax invoice marked as original for the sale, containing the particulars prescribed, and shall retain a copy thereof.

(2) A tax invoice marked as original shall not be issued to any registered dealer in circumstances other than those specified in sub-section (1), and in a case of loss of the original, a duplicate may be issued where such registered dealer so requests.

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(3) A registered dealer,-

(a) selling non-taxable goods; or  

(b) opting to pay tax by way of composition under section 15 and selling  any goods; or  

(c)   permitted  to  pay   tax  under  section  16  and selling any goods,

in excess of the prescribed value, shall issue a bill of sale containing such particulars as may be prescribed.

(4) Notwithstanding anything contained in sub-section (1) or (3) or sub-section (1) of Section 7, a registered dealer executing civil works contracts shall issue a tax invoice or bill of sale at such time and containing such particulars as may be prescribed

  30. Credit and Debit Notes

(1) Where a tax invoice has been issued for any sale of goods and within six months from the date of  such sale  the  amount  shown as  tax  charged  in  that  tax invoice is found to exceed the tax payable in respect of the sale effected, or is not payable on account of goods sold being returned within the prescribed period, the registered dealer effecting the sale shall issue forthwith to the purchaser a credit note containing particulars as prescribed.  

(2) Where a tax invoice has been issued for sale of any goods  and  the  tax  payable  in  respect  of  the  sale exceeds the amount shown as tax charged in such tax invoice, the   registered dealer making the sale, shall issue  to  the  purchaser  a  debit  note  containing particulars as prescribed.

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(3) Any registered dealer who receives or issues, credit notes or debit notes shall declare them in his return to be furnished for the tax period in which the credit note is received or debit note is issued and claim reduction in tax or pay tax due thereon. (4)  Any document issued by the registered dealer as required under any other law containing particulars  of credit note or debit note as prescribed shall be deemed to  be  a  credit  or  debit  note  for  the  purpose  of  this Section”

13. Under Section 29, it is incumbent on a registered dealer

effecting  a  sale  of  taxable  goods  or  goods  exempted  from tax

along with any taxable goods in excess of the prescribed value, to

issue at the time of sale, a tax invoice marked as original for the

sale  and  containing  the  particulars  prescribed.  Thereunder  a

registered dealer in the eventualities mentioned therein has to

issue  a  bill  of  sale  containing  such  particulars  as  may  be

prescribed. Section 30 mandates that where such a tax invoice

has been issued for any sale of goods and withing six months

from the date of such sale, the amount shown as tax charged in

that tax invoice is found to exceed the tax payable in respect of

the sale effected, or is not payable on account of goods sold being

returned  within  the  prescribed  period,  the  registered  dealer

effecting  the  sale,  would  issue  forthwith  to  the  purchaser,  a

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credit note containing the particulars as prescribed. The Section

further stipulates that when a tax invoice has been issued for

sale  of  any  goods  and  the  tax  payable  in  respect  of  the  sale

exceeds the amount shown as tax charged in such tax invoice,

the  registered  dealer  making  the  sale  would  issue  to  the

purchaser, a debit note containing the particulars as prescribed.

It is further ordained that any registered dealer who receives or

issues  credit  notes  or  debit  notes  would  declare  them in  his

return to be furnished for the tax period in which the credit note

is received or debit note is issued and claim reduction in tax or

pay tax due thereon. Noticeably, the period of six months for the

issuance of the credit note on the eventuality of excess tax being

paid is not a factor for the contingency requiring issuance of a

debit note.  

14. Be  that  as  it  may,  Rule  3  of  the  Rules   framed  under

Section  88  of  the  Act,  is  lodged  under  Part  II  dwelling  on

“Turnover, Registration and Payment Of Security”. This provision

in particular deals with the determination of total and taxable

turnover  and  predicates  that  the  taxable  turnover  would  be

determined by allowing the deductions from the total turnover as

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listed  in  sub-rule  (2)  thereof.  Rule  3(2)(c)  of  the  Rules,

indispensable for the present adjudication is quoted hereunder

for ready reference:

“3(2)(c):  All amounts allowed as discount:

PROVIDED  that  such  discount  is  allowed  in accordance with the regular practice of the dealer or is in  accordance  with  the  terms  of  any  contract  or agreement entered into in a particular case and the tax invoice  or  bill  of  sale  issued  in  respect  of  the  sales relating to such discount shows the amount allowed as discount.

PROVIDED FURTHER that the accounts show that the purchaser  has  paid  only  the  sum originally  charged less discount.”

15. A plain reading of this quote would reveal that all amounts

allowed as discount would qualify for deduction from the total

turnover to ascertain the taxable turnover and thus the extent of

exigibility under this statute. The first proviso which occupies the

center stage of the debate prescribes that a discount to be eligible

for deduction has to be one which is allowed in accordance with

the regular practice of  the dealer or is in accordance with the

terms of any contract or agreement entered into in a particular

case  and the tax invoice or bill of sale issued in respect of the

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sales  relating  to  such discount  shows the  amount  allowed as

discount. The second proviso enjoins further, that the accounts

should show that the purchaser had paid only the sum originally

charged less the discount. Whereas the Revenue insists in view of

the first proviso in particular, that a discount to be entitled for

deduction to quantify the taxable turnover should essentially be

mentioned in the tax invoice or bill of sale issued in respect of the

sales and further the purchaser has to reflect in his accounts

that  he  had  paid  only  the  sum  originally  charged  less  the

discount,  the  appellants  contend  that  having  regard  to  the

uniform canons regulating the trade practice, a trade discount

though  in  comprehension  at  the  time  of  original  sale  is  not

always  precisely  quantifiable  at  that  point  of  time  and  is

contingent  on  variable  factors  to  be  computed  only  on  the

happening  of  a  future  event(s).  In  any  case,  however  as  the

discount eventually sanctioned is tangible and actual, the literal

interpretation sought to be given to the contents of  first proviso

to Rule 3(2)(c) is expressly illogical and if accepted would lead to

absurd  results  rendering  this  provision  redundant  and

unworkable.

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16. Before embarking on analysis of the competing assertions,

expedient it would be to advert to the citations addressed at the

Bar.   

17. In  A.V. Fernandis (supra),  a Constitution Bench of this

Court  while  dwelling  on  the  interpretation  of  the  relevant

provisions of the United State of Travancore and Cochin General

Sales Tax Act, 1125 and the Travancore Cochin General Sales

Tax Rules, 1950 framed thereunder ruled that in elucidating a

fiscal statute, it is not the spirit  thereof but the letter of law that

has  to  be  looked  into  and  that  if  a  particular  tax  cannot  be

brought within the letter  of  the law, the subject  could not be

made liable for the same.  That the emphasis has to be to the

strict letter of law and not merely on the spirit of the statute or

the  substance  of  law  was  highlighted.   In  this  context,  the

observations  of  Lord  Russel  of   Killowen  in  Inland  Revenue

Commissioner vs. Duke of Westminister  (1936) AC 1 24 was

extracted :        

“I confess that I view with disfavour the doctrine that in taxation cases the subject is to be taxed if in  accordance   with  a  Court's  view  of  what  it considers the substance of  the transaction,  the Court  thinks  that  the  case  falls  within  the

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contemplation  or  spirit  of  the  statute.   The subject is not taxable by inference or by analogy, but  only  by  the  plain  words  of  a  statute applicable to the facts and circumstances of his case”

18. The  following  passage  as  well  from  Partington  vs.

Attorney  General (1869)4  HL  100,  122  was  quoted  with

approval.

“As  I  understand  the  principle  of  all  fiscal legislation it is this: if  the person sought to be taxed,  comes  within  the  letter  of  the  law  he must be taxed, however great the hardship may appear to  the judicial mind to be.  On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject  within the letter of the law,  the  subject  is  free,  however apparently within  the  spirit   of  the  law  the  case  might otherwise appear to be.”.

19. In  the  textual  facts,  in  essence,  the  claim  of  the

appellant-assessee to avoid deduction of an amount arising out

of sales effected beyond the State concerned was negated as the

same  were  not  taxable  in  terms  of  Section  26  of  the

Travancore-Cochin General Sales Tax Amendment Act, 1951 in

clear  terms.   Drawing  a  distinction  between  the  provisions

contained in a statute with regard to the exemptions, refund or

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rebate on one hand and non liability of tax or non imposition of

tax on the other, it was enunciated that in the former, the sales

or purchases would have to be included in the gross turnover of

the dealer because those were prima facie liable to tax and the

dealer was only entitled to deductions from the gross turnover so

as  to  arrive  at  the  net  turnover  on  which  the  tax  could  be

imposed.   In the latter  case,  the sales  or  the purchases were

exempted from taxation altogether.  It was thus ruled that as the

sales beyond the State, were not liable to tax, those were liable to

be excluded from the calculation of the gross turnover as well as

the  net  turnover  on  which  the  sales  tax  could  be  levied  or

imposed.  The attempt on the part of the appellant-assessee to

include the turnover of the sales beyond the State in the gross

turnover  and thereafter  to  seek a  deduction thereof  was thus

disapproved.    

20. The  distinction  between  “trade  discount”  and  “cash

discount”  was  elaborated upon by  this  Court  in  M/s.  Advani

Oorlikon (P) Ltd. (supra),  in re,  the question whether for the

purpose of computing the turnover assessed to sales tax therein,

under the Central Sales Tax Act 1956, the sale price of goods

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was to be determined by including the amount paid by way of

trade discount.  The facts as unfolded evinced that the assessee

was  a  private  limited  company,  carrying  on  business  as  sole

selling agent for certain brand of welding electrodes and for the

goods supplied to the retailers,  it  charged them the catalogue

price less the trade discount.  The concerned Revenue Authority,

for  the  assessment  year  in  question,  refused  to  allow  the

deduction  and  sans  thereof,  computed  the  taxable  turnover,

being of the view that the trade discount was not excludable from

the catalogue price. It was contended on behalf of the Revenue

that in view of the definition of “sale price” in Section 2(h) of the

Central  Sales Tax Act which permitted the deduction of  sums

alleged as  cash discount  only,  the  deduction by way of  trade

discount was not contemplated or permissible.   

21. This  Court  referred  to  the  definition  of  “sale  price”  in

Section 2(h) of the Act and noted that it was defined to be the

amount payable to a dealer as a consideration for the sale of any

goods, less any sum allowed as cash discount, according to the

practice normally prevailing in the trade.  While observing that

cash discount conceptually was distinctly different from a trade

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discount  which was  a  deduction from the  catalogue   price  of

goods allowable by whole-sellers to retailers engaged in the trade,

it was exposited that  under the Central Sales Tax Act, the sale

price which enters into the computation of the turnover is the

consideration for which the goods are sold by the assessee.  It

was held that in a case where trade discount was allowed on the

catalogue price, the sale price would be the amount determined

after  deducting  the  trade  discount.   It  was  ruled  that  it  was

immaterial that the definition of “sale price” under Section 2(h) of

the  Act  did  not  expressly  provide  for  the  deduction  of  trade

discount  from the  sale  price.  It  also  held  a  view  that  having

regard to the nature of a trade discount, there is only one sale

price between the dealer and the retailer and that is the price

payable by the retailer calculated as the difference between the

catalogue  price  and  the  trade  discount.   Significantly  it  was

propounded  that,  in  such  a  situation,  there  was  only  one

contract between the parties that is the contract that the goods

would be sold by the dealer to the retailer at the aforesaid sale

price  and  that  there  was  no  question  of  two  successive

agreements between the parties, one providing for the sale of the

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goods  at  the  catalogue  price  and  the  other  providing  for  an

allowance by way of trade discount. While recognizing that the

sale price remained the stipulated price in the contract between

the parties, this Court concluded that the sale price which enters

into the computation of the assessee's turnover for the purpose

of assessment under the Sales Tax Act would be determined after

deducting the trade discount from the catalogue price.

22. The decision in Jayam and Company (supra) cited by the

Revenue  was  to  underline  the  postulation  that  whenever

concession is given by a statute, notification etc., the conditions

thereof  are  to  be strictly  complied with in order  to  avail  the

same.  Section 19(20) of the Tamil Nadu Value Added Tax Act,

2006,  which  in  clear  terms,  denied  the  benefit  of  Input  Tax

Credit, where any registered dealer sold goods at a price lesser

than  the  price  at  which  the  same  had  been  purchased,  was

adverted  to  consolidate   this  proposition. Noticeably,  this

provision of the statute involved, which fell for scrutiny, did by

unequivocal  mandate  deny  the  availment  of  the  income  tax

credit, in case the registered dealer/assessee had sold goods at a

price  lesser  than  the  price  at  which  the  same  had  been

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purchased by him.   

23. In IFB Industries Ltd. (supra), this Court was seized with

the query as to how far deductions were allowable under Rule 9

(a)  of  the  Kerala  General  Sales  Tax  Rules,  1963  for  trade

discounts.  The  jurisdictional  High  Court  returned  the  finding

that unless the discount was shown in the invoice evidencing the

sale,  it  would not  qualify  for  such deduction and further any

discount  that  was  given  by  means  of  credit  note  issued

subsequent to the sale,  in reality was an incentive and not a

trade  discount  eligible  for  exemption  under  Rule  9  (a)  of  the

Rules.  The appellant was a manufacturer of home appliances

having a scheme of trade discount for its  dealers under which

the latter on achieving a pre set sale target would earn certain

discount on the price for which they had purchased the articles

from it.  As the discount was subject to achieving the sale target,

the dealer would naturally be qualified for it in the later part of

the Financial years/assessment period  i.e.  long after the sales

had taken place.  It was noted that for the sales taking place

between the appellant and its dealer after the sale target was

achieved,  the  dealer  would get  the  articles  on the  discounted

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price but for the sales that had taken place before the sale target

was  achieved,  the  manufacturer  would  issue  credit  notes  in

favour  of  the  dealer.   Under  the  statute  involved,  in  the

computation  of  the  turnover  as  defined,  amongst  others,  any

cash or other discount on the price allowed in respect of any sale

and any amount refunded in respect of articles returned by the

customers,  was  deductible.  Rule  9  (a)  provided  that  in

determining  the  taxable  turnover,  all  amounts  allowed  as

discount,  provided such discount was accorded in accordance

with the regular practice would stand deducted, if the accounts

show  that  the  purchaser  had  paid  only  the  sum  originally

charged less the discount. Rule 9(a) therefore did stipulate, as

the conditions precedent for deduction of any amount allowed as

discount, two prescriptions i.e. the discount had been given in

accordance  with  the  regular  practice  in  trade  and  that  the

accounts maintained by the purchaser would disclose that it had

paid  only  the  sum originally  charged  less  the  discount.  This

Court  thus  expounded  that  in  absence  of  any  prescript  of

reference  of  such  discount  availed  in  the  sale  invoices,  the

negation of the benefit of deduction of the trade discount in the

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quantification of the taxable turnover was erroneous. It was held,

that there was nothing in Rule 9 (a) to read it in a restrictive

manner  to  mean  that  the  discount  in  order  to  eligible  for

exemption  thereunder  must  be  reflected  in  the  invoice  itself.

While dilating on the notion of “trade discount” to be a deduction

from the catalogue price of goods allowed by wholesalers to the

retailers  engaged  in  the  trade  to  enable  the  latter  to  sell  the

goods at the catalogue price and yet make a reasonable margin

of  profit  after  taking  into  account  his  business  expense,  the

following  observations  of  this  Court  in  Union  of  India  and

others vs. Bombay Tyres International (P) Ltd. (2005) 3 SCC

787,  describing  “trade  discount”  and  countenancing  its

deductibility from the sale price were alluded to:   

“(1) Trade discounts –  Discounts allowed in the trade  (by  whatever  name  such  discount  is described) should be allowed to be deducted from the sale price having regard to the nature of  the goods,  if  established under  agreements  or  under terms  of  sale  or  by  established  practice,  the allowance  and  the  nature  of  the  discount  being known  at  or  prior  to  the  removal  of  the  goods. Such trade discounts shall not be disallowed only because they are not payable at the time of each invoice  or  deducted  from  the  invoice  price.” (emphasis supplied)

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24. This rendering presumably had been cited on behalf of the

respondents  in order  to  underscore that  the appellant's  claim

therein  for  the  deduction  of  the  trade  discount  had  been

approved as both the prerequisites stipulated by Rule 9(a) had

been  complied  with.   This  is  to  reinforce  the  plea  that  the

appellant in the case in hand thus by analogy of reasonings can

avail the benefit of deduction of trade discount only if the same is

reflected in the tax invoice as statutorily prescribed by Rule 3(2)

(c) of the Rules.   

25.     This Court in M/s Addison and Co. Ltd. (supra) was

chiefly  seized  with  the  issue  of  refund  of  excise  duty  under

Section 11B of the Central Excise Act, 1944.  The respondent, a

manufacturer  of  cutting  tools,  filed  a  refund claim which,  on

being eventually allowed after persuading through the different

tiers, culminated in a reference before the High Court of Madras

which was also answered in favour of the respondent/assessee.

It was held by the High Court that the refund towards deduction

of  turnover  discount could not  be denied on the  ground that

there was no evidence to show who was the ultimate consumer

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of the product and as to whether the ultimate consumer had

borne the burden of duty.  The word “buyer” used in Section 12B

of the Act, as construed by the High Court did not refer to the

ultimate  consumer  and was confined only  to  the  person who

bought the goods from the manufacturer.  This Court accepted

the postulation in Union of India and others vs. Bombay Tyre

International  Ltd.  and  others   (1984)  1  SCC  467  and

Bombay Tyres International (P) Ltd. (supra) to the extent that

discounts  allowed  in  the  trade  should  be  permitted  to  be

deducted from the sale price having regard to the nature of the

goods, if it established under agreements or in terms of sale or

by established practice and that such trade discounts ought not

to be disallowed only because those were not payable at the time

of each invoice or deducted from the invoice price, but declined

the relief of refund to the respondent on the consideration that

the  burden  of  duty  had  meanwhile  been  passed  on  to  the

ultimate  buyer.  It  was  explicated  that  the  word  “buyer”

appearing in Clause (e) to the proviso of Section 11B(2) of the

Central Excise Act could not be restricted to the first buyer from

the  manufacturer.   The  prevalence  of  trade  discounts  was

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recognized so much so that deductions on the basis thereof were

also approved so as to determine the eventual tax liability.  

26. The parties noticeably are not in issue over the prevalence

of  trade  discount  contemplated  in  regular  practice  and  that

wherever warranted, the dealing parties in accord therewith do

enter  into  a  contract  or  agreement  to  apply  the  same  for

reduction  of  the  sale/purchase  price.  Understandably,  the

taxable turnover is the summation of the actual sale/purchase

price exigible to tax under the Act and the Rules.  Depending on

the  eventualities  as  comprehended  in  Section  30,  credit  and

debit  notes  are  issued,  as  a  consequence  whereof,  the  tax

liability is reduced or enhanced correspondingly and the same is

determined  on  the  basis  of  the  declarations  made  by  the

assessees  in  their  returns.   That  there  is  an  inseverable

co-relation between the taxable turn over and the tax payable

need not be over emphasized.  Noticeably, Section 30 dilates on

the contingencies witnessing reduction or  enhancement of  tax

liability  subsequent  to  the  sale/purchase  of  goods.  The  tax

liability, to reiterate would be contingent on the sale/purchase

price  in  the  eventual  sale/purchase  price,  to  be  essentially

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reflected in the return of the assessee.  Section 30 axiomatically

thus deals only with the incidence of tax and not the spectrum of

situations or eventualities bearing on the tax liability.  Rule 3(2),

in particular lists the array of deductions conditioned on variety

of  situations  as  scheduled  therein  to  ascertain  the  taxable

turnover.   Allowance  of  discount  is  one  of  the  several  other

permissible  deductions  contingent  on  the  melange  of

determinants  referred  to  therein.  These  deductions,  however

contribute to the reduction of the total turnover to quantify the

taxable turnover and thus the tax liability. It is too  trite to state

that neither an assessee is liable to pay tax in excess of what is

due in law nor is the revenue authorized to exact the same.  Any

interpretation  of  Rule  3(2)(c)  though  an  integrant  of  a  fiscal

statute  has  to  be  in  accord,  in  our  estimate  unite  this

fundamental mandatory postulation.

27. It is a matter of common experience that in the present

contemporary competitive market, trade discounts not only are

dependent on variable factors but also might be strategically not

disclosable at the time of the original sale/purchase so as to be

coevally reflected in the tax invoice or the bill of sale as the case

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may  be.  The  actual  quantification  of  the  trade  discount,

depending on the nature of the trade and the related stipulations

in  any  contract  with  regard  thereto,  may  be  deferred  till  the

happening of a contemplated event, so much so that the benefit

thereof is extended at a point of time subsequent to that of the

original sale/purchase.  That by itself, subject to proof of such

regular trade practice and the contract/agreement entered into

between  the  parties,  would  not  render  the  trade  discount

otherwise legal  and acceptable,  either  non est or  fictitious for

evading  tax  liability.   In  the  above  factual  premise,  the

interpretation as sought to be provided by the Revenue would

evidently reduce Section 3(2)(c) to a dead letter, ineffective and

unworkable  and  would  defeat  the  objective  of  permitting

deductions from the total turnover on account of trade discount.

28. A trade discount conceptually is a pre sale concurrence,

the  quantification  whereof  depends  on  many  many  factors  in

commerce  regulating  the  scale  of  sale/purchase  depending,

amongst  others  on  goodwill,  quality,  marketable  skills,

discounts,  etc.  contributing  to  the  ultimate  performance  to

qualify  for  such discounts.  Such trade discounts,  to  reiterate,

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have already been recognized by this Court with the emphatic

rider that the same ought not to be disallowed only as they are

not  payable  at  the time of  each invoice or  deducted from the

invoice price. In our comprehension, Sections 29, 30 and Rule 3

are the constituents of a same scheme to determine the taxable

turnover and thus the extent of exigibility.  Whereas Sections 29

and 30,  to repeat, deal with the issuance of tax invoice and bill

of sale to start with and thereafter credit and debit notes to be in

accord with the tax actually payable,  Rule 3 in a way espouses

the exercise of ascertaining the taxable turnover by enumerating

the permissible deductions from the total turnover. We are thus

of the considered view that there is no repugnance or conflict

amongst  these  three  provisions  so  much  so  that  Rule  3(2)(c)

stands  out  in  isolation  and  is  incompatible  with  either  the

scheme  of  the  Act  or  Sections  29  and  30  to  be  precise.  The

interplay of these three provisions is directed to ensure correct

computation of the taxable turnover for an accurate computation

of  the  tax liability.  These  provisions therefore  for  all  practical

purposes complement each other and  are by no means militative

in orientation or impact.  Perceptionally, if taxable turnover is to

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be  comprised  of  sale/purchase  price,  it  is  beyond  one's

comprehension  as  to  why  the  trade  discount  should  be

disallowed,  subject  to  the  proof  thereof,  only  because  it  was

effectuated  subsequent  to  the  original  sale  but  evidenced  by

contemporaneous  documents  and  reflected  in  the  relevant

accounts.   

29. This  Court  in  K.P.  Varghese  vs.  Income Tax Officer,

Ernakulam and  Anr. AIR  1981  SC  1922,  while  interpreting

Section 52 of the Income Tax Act 1961 favoured an interpretation

in  departure  from  a  strict  literal  reading  thereof.  For  ready

reference, Section 52, as interpreted, is extracted hereinbelow.  

“Section 52 (1) Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the Income-tax  Officer  has  reason  to  believe  that the  transfer  was  effected  with  the  object  of avoidance  or  reduction  of  the  liability  of  the assessee under Section 45, the full value of the consideration  for  the  transfer  shall,  with  the previous  approval  of  the  Inspecting  Assistant Commissioner, be taken to be the fair market value  of  the  capital  asset  on  the  date  of  the transfer.

(2)  without  prejudice  to  the  provisions  of Sub-section  (1),  if  in  the  opinion  of  the Income-tax  Officer  the  fair  market  value  of  a capital asset transferred by an assessee as on

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the date of the transfer exceeds the full value of the  consideration declared by the  assessee in respect of the transfer of such capital assets by an amount of not less than fifteen per cent of the  value  declared,  the  full  value  of  the consideration for such capital asset shall, with the  previous  approval  of  the  Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer.”

It was proclaimed thus:

“5. Now on these provisions the question arises what is  the true interpretation of  Section 52, Sub-section (2). The argument of the Revenue was and this argument found favour with the majority  Judges  of  the  Full  Bench that  on a plain natural  construction of  the  language of Section 52, Sub-section (2), the only condition for attracting the applicability of that provision is that the fair market value of the capital asset transferred by the assessee as on the date of the  transfer  exceeds  the  full  value  of  the consideration  declared  by  the  assessee  in respect of the transfer by an amount of not less than 15% of  the value so declared. Once the Income-tax Officer is satisfied that this condition exists, he can proceed to invoke the provision in Section 52 Sub-section (2) and take the fair market value of the capital asset transferred by the assessee as on the date of the transfer as representing the full value of the consideration for  the  transfer  of  the  capital  asset  and compute  the  capital  gains  on  that  basis.  No more is necessary to be proved, contended the Revenue.  To  introduce  any  further  condition such  as  understatement  of  consideration  in

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respect of the transfer would be to read into the statutory  provision  something  which  is  not there: indeed it would amount to rewriting the section.  This argument was based on a strictly literal reading of Section 52 Sub-section (2) but we do not  think  such a  construction can be accepted. It ignores several vital considerations which must always be borne in mind when we are interpreting a statutory provision. The task of interpretation of a statutory enactment is not a  mechanical  task.  It  is  more  than  a  mere reading of mathematical formulae because few words  possess  the  precision  of  mathematical symbols. It is an attempt to discover the intent of the legislature from the language used by it and  it  must  always  be  remembered  that language is at best an imperfect instrument for the  expression  of  human  thought  and  as pointed out by Lord Denning, it would be idle to  expect  every  statutory  provision  to  be "drafted  with  divine  prescience  and  perfect clarity."  We can do no better than repeat the famous words of Judge Learned Hand when he said:  

“….it is true that the words used, even in their  literal  sense,  are  the  primary and ordinarily the most reliable, source of  interpreting  the  meaning  of  any writing:  be  it  a  statute,  a  contract  or anything  else.  But  it  is  one  of  the surest  indexes  of  a  mature  and developed jurisprudence not to make a fortress  out  of  the  dictionary;  but  to remember  that  statutes  always  have some purpose or object to accomplish, whose  sympathetic  and  imaginative discovery  is  the  surest  guide  to  their meaning”

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We  must  not  adopt  a  strictly  literal interpretation of Section 52 Sub-section (2) but we must construe its language having regard to the  object  and  purpose  which  the  legislature had in view in enacting that provision and in the context of the setting in which it occurs. We cannot ignore the context and the collocation of the provisions in which Section 52 Sub-section (2) appears, because, as pointed out by Judge Learned Hand in most felicitous language:-

“….the meaning of a sentence may be more than that of  the separate words as a melody is more than the notes,  and  no  degree  of particularity  can  ever  obviate recourse to the setting in which all appear,  and  which  all  collectively create”  

Keeping these observations in mind we may now approach the construction of Section 52 Sub-section (2).  

6.  The  primary  objection  against  the  literal construction of Section 52 Sub-section (2) is that it  leads to manifestly  unreasonable  and absurd consequences. It is true that the consequences of a  suggested  construction  cannot  alter  the meaning  of  a  statutory  provision  but  they  can certainly  help  to  fix  its  meaning.  It  is  a  well recognised rule of  construction that  a statutory provision must be so construed, if possible that absurdity and mischief may be avoided. There are many  situations  where  the  construction suggested on behalf of the Revenue would lead to a wholly unreasonable result which could never have been intended by the legislature. Take, for

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example,  a  case  where  A  agrees  to  sell  his property to B for a certain price and before the sale is completed pursuant to the agreement and it  is  quite  well-known  that  sometimes  the competition  of  the  sale  may  take  place  even  a couple  of  years  after  the  date  of  the agreement-the  market  price  shoots  up with the result that the market price prevailing on the date of the sale exceeds the agreed price at which the property is sold by more than 15% of such agreed price. This is not at all an uncommon case in an economy of rising prices and in fact we would find in  a  large  number  of  cases  where  the  sale  is completed more than a year or two after the date of the agreement that the market price prevailing on the date of the sale is very much more than the price at which the property is sold under the agreement. Can it be contended with any degree of fairness and justice that in such cases, where there  is  clearly  no  understatement  of consideration in respect of  the transfer and the transaction is perfectly honest and bonafide and, in fact, in fulfillment of a contractual obligation, the assessee who has sold the property should be liable to pay tax on capital gains which have not accrued or arisen to him. It would indeed be most harsh  and  inequitable  to  tax  the  assessee  on income which has neither  arisen to  him nor  is received by him, merely because he has carried out  the  contractual  obligation  under-taken  by him.  It  is  difficult  to  conceive  of  any  rational reason why the legislature should have thought it fit to impose liability to tax on an assessee who is bound  by  law  to  carry  out  his  contractual obligation to sell the property at the agreed price and  honestly  carries  out  such  contractual obligation. It would indeed be strange if obedience to the law should attract the levy of tax on income which has neither arisen to the assessee nor has

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been  received  by  him.  If  we  may  take  another illustration, let us consider a case where A sells his  property  to  B  with  a  stipulation  that  after some-time  which  may  be  a  couple  of  years  or more,  he  shall  resell  the  property  to  A  for  the same price could it be contended in such a case that when B transfers the property to A for the same price at which he originally purchased it, he should be liable to pay tax on the basis as if he has received the market value of the property as on the date of  resale,  if,  in the meanwhile,  the market price has shot up and exceeds the agreed price  by  more  than  15%. Many  other  similar situations can be contemplated where it would be absurd  and  unreasonable  to  apply  Section  52 Sub-section  (2)  according  to  its  strict  literal construction.  We  must  therefore  eschew literalness  in  the  interpretation  of  Section  52 Sub-section  (2)  and  try  to  arrive  at  an interpretation  which  avoids  this  absurdity  and mischief  and  makes  the  provision  rational  and sensible, unless of course, our hands are tied and we cannot find any escape from the tyranny of the literal interpretation. It is now a well settled rule of  construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the legislature, the court  may  modify  the  language  used  by  the legislature or even 'do some violence' to it, so as to achieve the obvious intention of the legislature and produce a rational construction, Vide: Luke v. Inland Revenue Commissioner [1963] AC 557. The Court may also in such a case read into the statutory provision a condition which, though not expressed,  is  implicit  as  constituting  the  basic assumption  underlying  the  statutory  provision. We  think  that,  having  regard  to  this  well recognised  rule  of  interpretation,  a  fair  and

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reasonable  construction  of  Section  52 Sub-section  (2)  would  be  to  read  into  it  a condition  that  it  would  apply  only  where  the consideration for the transfer is under-stated or in other words, the assessee has actually received a larger consideration for the transfer than what is declared in the instrument of  transfer and it would have no application in case of a bonafide transaction  where  the  full  value  of  the consideration for the transfer is correctly declared by  the  assessee.  There  are  several  important considerations  which  incline  us  to  accept  this construction of Section 52 Sub-section (2).”

30. In  Commissioner  of  Income Tax,  Bangalore  Vs.  J.H.

Gotla Yadagiri  AIR 1985 SC 1698 this Court propounded that

though equity and taxation are often strangers, attempts should

be  made    that  these  do  not  remain  always  so  and  if  a

construction results in equity rather than  injustice, then such

construction should be preferred to the literal construction.  

31. In a recent rendition in State of Jharkhand and others

vs. Tata Steel Ltd. and Ors.  (2016) 11 SCC 147, this Court

while exploring the underlying intent of a notification pertaining

to the period of repayment by the respondents-assessee, which

had earlier  availed the benefit  of  deferment of  payment of  tax

under  the  Jharkhand  Value  Added  Tax  Act,  2005  did

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exhaustively dwell on the golden rule of interpretation based on

literal  and plain meaning of  the  words/expressions used in a

statute and  with approval placed reliance on an earlier decision

of this Court in Hansraj Gordhandas vs. H.H. Dave, Assistant

Collector  of  Central  Excise  & Customs,  Surat  and others

(1969) 2 SCR 252, in which it was propounded thus:  

“It was contended on behalf of the respondent that the   object   of   granting  exemption  was  to encourage  the  formation  of  cooperative  societies which  not only produced cotton fabrics but which also consisted of members,  not  only owning but having  actually  operated  not  more  than   four power-looms  during the three years immediately preceding  their  having  joined  the   society.   The policy  was  that  instead  of  each  such  member operating  his  looms  on  his   own,  he  should combine with others  by  forming  a  society  which, through   the  cooperative  effort  should  produce cloth. The intention was  that  the  goods produced for  which  exemption  could  be  claimed  must  be goods produced on  its own behalf by the society. We  are  unable  to  accept  the  contention  put forward on behalf of the respondents as correct. On a  true   construction   of  the  language  of  the notifications, dated July 31, 1959 and  April  30, 1960 it is clear that all that is required for claiming exemption  is   that   the  cotton fabrics  must  be produced  on   power-looms   owned   by   the cooperative society. There is no further requirement under  the   two   notifications   that  the  cotton fabrics must be produced  by  the  Co-operative Society  on  the power-looms “for itself”. It is well established that in  a  taxing  statute there is no

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room for any intendment but regard must  be  had to   the   clear  meaning  of  the  words.  The  entire matter is governed wholly by  the  language of the notification.  If the tax-payer is  within  the  plain terms  of   the exemption it  cannot be denied its benefit by calling  in  aid  any  supposed intention of the exempting authority. If  such  intention  can be  gathered from the construction of the words  of the   notification   or   by   necessary  implication therefrom, the matter is different, but that  is  not the  case here.”                                            [Underlining is ours]

32. In the same vein, the following passage from M/s Doypack

Systems Pvt. Ltd. vs. Union of India and Ors. (1988) 2 SCC

299 was adverted to:    

“58. The words in the statute must,  prima facie, be   given  their   ordinary  meanings.  Where  the grammatical  construction  is  clear  and  manifest and  without  doubt,  that  construction  ought  to prevail   unless   there   are   some  strong  and obvious reasons to  the  contrary.  Nothing  has been  shown  to warrant that literal  construction should   not   be   given   effect   to.   See Chandavarkar S.R.  Rao  v.  Ashalata (1986) 4 SCC 447  approving  44  Halsbury’s  Laws  of England, 4th  Edn.,  para  856  at  page   552,   Nokes   v. Doncaster   Amalgamated Collieries  Limited 1940 AC  1014.  It  must  be  emphasised  that interpretation  must  be   in  consonance  with  the Directive Principles of State Policy in Article  39  (b) and (c) of the Constitution.

59.  It  has  to  be  reiterated  that  the  object  of interpretation  of   a   statute  is  to  discover  the intention of the Parliament as expressed in the Act.

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The dominant purpose in construing a statute is to ascertain   the   intention   of  the  legislature  as expressed in the statute, considering it as a  whole and in its  context.  That  intention,  and therefore the meaning  of  the  statute,  is primarily to be sought in the words used in  the  statute  itself, which must, if they are plain and unambiguous, be applied as they stand. …”

33. The following excerpts from Tata Steel Ltd. (supra), being

of formidable significance are also extracted as hereunder.  

24.   In this regard, reference to Mahadeo Prasad Bais  (Dead)  vs.  Income- Tax Officer ‘A’ Ward, Gorakhpur and another (1991) 4 SCC 560 would be absolutely   seemly.   In the said case,  it  has been  held  that  an  interpretation  which  will result  in an anomaly or  absurdity   should  be avoided  and  where  literal construction creates an   anomaly,   absurdity   and   discrimination, statute should be liberally construed even slightly straining  the  language  so  as   to  avoid  the meaningless anomaly.    Emphasis has been laid on  the  principle that if an interpretation leads to absurdity, it is the duty  of  the  court to avoid the same.

25.  In  Oxford   University   Press   v. Commissioner  of  Income   Tax (2001) 3 SCC 359, Mohapatra, J. has opined that interpretation should  serve   the   intent   and purpose  of  the statutory  provision.  In  that  context,  the  learned Judge  has referred to the authority in  State of T.N.  v.   Kodaikanal   Motor   Union   (P)  Ltd. (1986) 3 SCC 91 wherein this Court after referring to  K.P. Varghese v. ITO[ (1981) 4 SCC 173  and Luke v. IRC (1964) 54 ITR 692 has observed:-

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“The  courts  must  always  seek  to  find out  the  intention  of   the   legislature. Though the courts  must find out  the intention  of   the   statute   from  the language used, but language more often than not is an  imperfect  instrument of expression of  human thought. As Lord Denning  said  it   would   be   idle   to expect  every  statutory  provision  to  be drafted with   divine  prescience  and perfect clarity. As Judge Learned Hand said, we must  not  make  a  fortress out of  dictionary  but  remember  that statutes  must  have  some  purpose  or object,  whose  imaginative  discovery  is judicial  craftsmanship.  We   need   not always  cling  to  literalness  and  should seek to endeavour to avoid an  unjust or absurd result. We should not make  a mockery  of  legislation.  To  make sense out  of  an unhappily  worded provision, where the  purpose  is  apparent to the judicial eye ‘some’ violence to language is permissible.”

26.   Sabharwal, J. (as His Lordship then was) has observed thus:-

“…  It  is  well-recognised  rule  of construction   that   a   statutory provision  must  be  so  construed,  if possible,  that  absurdity  and  mischief may   be  avoided.  It  was  held  that construction suggested on behalf  of  the Revenue  would  lead  to  a  wholly unreasonable   result   which   could never   have   been  intended  by  the legislature.   It   was   said   that   the literalness   in   the  interpretation  of

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Section 52(2) must be eschewed and the court   should   try  to  arrive  at  an interpretation  which  avoids  the absurdity and  the  mischief and makes the provision rational, sensible, unless of course, the  hands  of the court are tied and it  cannot  find  any  escape  from the  tyranny  of literal interpretation. It is said that  it  is  now  well-settled  rule of  construction  that  where  the  plain literal   interpretation  of   a   statutory provision produces a manifestly absurd and unjust  result  which  could   never have  been  intended  by  the  legislature, the court  may  modify  the  language used by the legislature or even “do some violence”  to  it,  so  as   to   achieve  the obvious  intention  of   the  legislature and   produce   a   rational construction. In  such  a  case  the  court  may  read into   the   statutory  provision   a condition   which,   though   not expressed,  is   implicit   in construing the  basic  assumption  underlying   the statutory    provision. …”

34. As  would  be  overwhelmingly  pellucid  from  hereinabove,

though words in a statute must, to start with, be extended their

ordinary meanings, but if the literal construction thereof results

in anomaly or absurdity, the courts must seek to find out the

underlying  intention of the legislature and in the said pursuit,

can within permissible limits strain the language so as to avoid

such unintended mischief.

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35. In Seaford Court Estates Ltd. vs. Asker [1949] 2 All ER

155 hallowed by time, outlining the duty of the Court to iron out

the creases,  it was enunciated, that whenever a statute comes

up for consideration, it must be remembered that it is not within

human powers to foresee the manifold sets of facts which may

arise and even if it were, it is not possible to provide for them in

terms free from all ambiguity, the caveat being that the English

language is not an instrument of mathematical precision.  It was

held that in an eventuality where a Judge, believing himself to be

fettered by the supposed rule that he must look to the language

and nothing else, laments that the draftsmen have not provided

for this or that or have been guilty of some or other ambiguity,

he ought to set to work on the constructive task of finding the

intention of the Parliament and that he must do this not only

from the language of the statute, but also from a consideration of

the social conditions which gave rise to it and of the mischief

which it was passed to remedy and then he must supplement the

written word so as to give “force and life” to the intention of the

legislature.

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36. It  would,  in  any  case  be  incomprehensible  that  the

legislature, while occasioning the amendment to the first proviso

to Rule  3(2)(c) of the Rules, was either ignorant or unaware of

the  prevalent  practice  of  offering  trade  discount  in  the

contemporary  commercial  dispensations.   This  is  more  so,  as

trade discount continued to be an accepted item of deduction.  In

such a premise, the intention of the legislature could not have

been  to  deny  the  benefit  of  deduction  of  trade  discount  by

obdurately insisting on the reflection of such trade discount in

the text invoice or the bill of sale at the point of the sale as the

only device to guard against possible avoidance of tax under the

cloak  thereof.  Axiomatically,  therefor  the  interpretation  to  be

extended to the proviso involved has to be essentially in accord

with the legislative intention to sustain realistically the benefit of

trade  discount  as  envisaged.   Any  exposition  to  probabilise

exaction of  the levy in excess of  the due,  being impermissible

cannot  be   thus  a  conceivable  entailment  of  any  law  on

imperative  impost.   To  insist  on  the  quantification  of  trade

discount for deduction at the time of sale itself, by incorporating

the same in the tax invoice/bill of sale, would be to demand the

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impossible  for  all  practical  purposes  and  thus  would  be

ill-logical,  irrational  and  absurd.   To  reiterate,  trade  discount

though an admitted phenomenon  in commerce, the computation

thereof may depend on various factors  singular to the parties as

well  as  by  way of  uniform norms in business  not  necessarily

enforceable or implementable at the time of the original sale.  To

deny the benefit of deduction only on the ground of omission to

reflect the trade discount though actually granted in future, in

the tax invoice/bill of sale at the time of the original transaction

would  be  to  ignore  the  contemporaneous  actuality  and  be

unrealistic, unfair, unjust and deprivatory.  This may herald as

well  the  possible  unauthorised  taxation  even  in  the  face  of

cotaneous  accounts  kept  in  ordinary  course  of  business,

attesting  the  grant  of  such  trade  discount  and  adjustment

thereof against the price.  While, devious manipulations in trade

discount  to  avoid  tax  in  a  given  fact  situation  is  not  an

impossibility,  such  avoidance  can  be  effectively  prevented  by

insisting  on  the  proof  of  such  discount,  if  granted.   The

interpretation to the contrary, as sought to be assigned by the

Revenue to the first proviso to Rule 3 (2)(c) of the Rules, when

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tested on the measure of the judicial postulations adumbrated

hereinabove, thus does not commend for acceptance.   

37. On an overall  review of  the  scheme of  the  Act  and the

Rules and the underlying  objectives in particular of Sections 29

and   30  of  the  Act  and  Rule  3  of  the  Rules,  we  are  of  the

considered  opinion  that  the  requirement  of  reference  of  the

discount  in  the  tax  invoice  or  bill  of  sale  to  qualify  it  for

deduction  has  to  be  construed  in  relation  to  the  transaction

resulting in the final sale/purchase price and not limited to the

original sale sans the trade discount. However, the transactions

allowing  discount  have  to  be  proved  on  the  basis  of

contemporaneous records and the final sale price after deducting

the trade discount must mandatorily be reflected in the accounts

as stipulated under Rule 3(2)(c) of the Rules. The sale/purchase

price has to be adjudged on a combined consideration of the tax

invoice or bill of sale as the case may be along with the accounts

reflecting the trade discount and the actual price paid.  The first

proviso  has  thus  to  be  so  read  down,  as  above,  to  be  in

consonance with the true intendment of the legislature and to

achieve as well the avowed objective of correct determination of

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the taxable turnover. The contrary interpretation accorded by the

High Court being in defiance of logic and the established axioms

of interpretation of statutes is thus unacceptable and is negated.

The appeals are thus allowed in the above terms.  No costs.

 ….....…....................................J.   (DIPAK MISRA)

                  .…...........................................J.    (AMITAVA ROY)

NEW DELHI; JANUARY 18, 2017