Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Crl.), 10955-10971 of 2016, Judgment Date: Jan 18, 2017

                                                                [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 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,  (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  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  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.
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  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.
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. 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;


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
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.

(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.


(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 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 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 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.
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 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 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 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 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  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  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 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  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)

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 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
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
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 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,  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 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 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  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”

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
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 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 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
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 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.  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:-

“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 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.
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.

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 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 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   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