P. Govindan Nair, C.J:— The short question arising for decision in this revision case is whether the sum of Rs. 1,06,707.82 allowed by the respondent, a dealer under the Kerala General Sales Tax Act, 1963, as trade commission should be added to the turnover returned by the dealer of Rs. 8,71,624. This question has to be answered in the light of the definition of the term “turnover” in section 2(j) of the Central Sales Tax Act, 1956, read with the definition of the term “sale price” in section 2(h) thereof. We shall extract these sections:
“2. In this Act, unless the context otherwise requires,—
(h) ‘sale price’ means the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charged;
(j) ‘turnover’ used in relation to any dealer liable to tax under this Act means the aggregate of the sale prices received and receivable by him in respect of sales of any goods in the course of inter-State trade or commerce made during any prescribed period and determined in accordance with the provisions of the Act and the Rules made thereunder.”
2. Counsel for the revenue has contended that “cash discount” is distinct and separate from “trade discount” and in so far as the definition of the term “sale price” has specifically stated that only any sum allowed as “cash discount” according to the practice normally prevailing in the trade must be deducted from the sale price, “trade discount” cannot be deducted. On the other hand, counsel for the dealer has submitted that the submission made by counsel for the revenue does not touch the question arising for decision for he is not seeking any deduction from the sale price. According to the dealer's counsel, if there is a trade discount bona fide granted “the amount payable to a dealer as consideration for the sale of any goods” would not be the quoted price but the quoted price minus the trade discount. This submission is fully supported by the decision of the Orissa High Court in Orient Paper Mills Ltd. v. State of Orissa [1976] 35 S.T.C 84; 1974 Tax. L.R 2224.. We shall extract paragraph 5 of the judgment therein which deals with the matter rather exhaustively:
“5. The aforesaid analysis flows directly from the definition of ‘sale price’ in section 2(h) of the Act, which runs thus:
‘“sale price” means the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed as cash discount according to the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charged.’
Essentially, ‘sale price’ means the amount payable to a dealer as consideration for the sale of any goods. In this case the mill rate is mentioned in the catalogue. Under the agreement itself the mill rate is reduced by the discount. The consideration actually payable by the purchaser to the petitioner is the mill rate less the discount. Consideration is the amount which is actually paid or payable after the discount is deducted or deductible. The mere fact that the definition makes provision for cash discount being deducted does not take out an agreed amount to be deducted from the price while fixing the consideration.
There is a fundamental distinction between cash discount and trade discount. Cash discount has been defined in Webster's Third New International Dictionary, Vol. I, at page 346, as ‘a discount granted in consideration of immediate payment or payment within a prescribed time’. In Dictionary of Economics and Commerce by J.L Hanson, at page 130, the definition is ‘an inducement offered by a creditor to debtors to pay promptly’.
Trade discount, on the other hand, has been defined thus:
‘A percentage deduction from the list price of goods allowed by a manufacturer or wholesaler to customers engaged in trade.’ (See Webster's Third New International Dictionary, Vol. I, page 2422).
In Dictionary of Economics and Commerce by J.L Hanson, at page 130, it is as follows:
‘A deduction from the catalogue price of an article generally allowed by a wholesaler to a retailer, that is, trade discount.’
The same concept also is to be found from the book ‘Advanced Accounting’ by J.R Batliboi (25th Edition), at page 14. The entire passage may be extracted:
‘Distinction between trade discount and cash discount.—Trade discount is an allowance made by wholesale dealers to retailers off the catalogue or invoice price. This allowance is made between buyers and sellers engaged in the same class of trade. The object of the trade discount being allowed by the wholesale dealer to the retailer is to enable the latter to sell the goods at the price mentioned in the catalogue or price list issued by the wholesale trader. The trade discount is to enable the dealer to meet all the necessary business expenses and yet leave him a margin of profit on his selling the goods at the catalogue price. The amount of trade discount allowed varies considerably according to different trades and even on different articles in the same trade.
In the books of the wholesale dealer, trade discount is deducted from the outward invoice sent to the retailer and the entry in the sales book is made of the net amount, because the actual amount realisable by him is the catalogue price less the trade discount. Similarly, in the books of the retailer, the entry in the purchase book is made of the net amount, i.e, the amount for which he is liable. Thus, trade discount as a rule does not appear in the books either of the seller or of the purchaser.
Cash discount is an allowance in addition to the trade discount made by the seller to the purchaser, provided the latter settles his account promptly or within a specified time, known as the “period of credit”. This allowance for the prompt payment of accounts may be either receivable or payable. It is receivable by the trader when he pays his account promptly or within the period of credit, and is allowed by him to his own customers in consideration of the prompt settlement of amounts due to him.’
Cash discount referred to in section 2(h) of the Act is different from the trade discount as has been indicated already. Whether from the point of view of buyers or sellers, the only figure that matters is the amount actually paid and received. Consideration is fixed after the discount is deducted from the quoted price and such discount is trade discount. The concept has been very clearly elucidated in P.V.S Kabalamurthi Pillai v. P.V Subramania Pillai by an illustration as follows:
‘To seem to make a concession while in point of fact no concession is made or intended is a device which tradesmen usually employ. To take-an instance, if you want to charge for an article Rs. 75 you may quote its price as Rs. 100 and allow a discount of 25 per cent, or you may quote Rs. 125 as its price with a discount of 40 per cent. In either case, the buyer pays and the seller receives only Rs. 75. So long as the buyer parts only with Rs. 75, it little signifies to him whether the price quoted is Rs. 100 or Rs. 125.1’”
3. With respect, the reasoning therein appears to us to be the correct approach to be made and this approach is what has been taken by the Judicial Committee of the Privy Council in the matter of determining income for the purpose of the Indian Income-tax Act, 1922, in Chitnavi's case, which has been approved by the Supreme Court in Motipur Sugar Factory Ltd. v. Commissioner of Income-tax [1955] 28 I.T.R 128..
4. In the view that we have taken the question as to whether “trade discount” is a different discount from that of “cash discount” is not material. It may be noted that the passage that we have extracted from the judgment of the Orissa High Court mentioned above itself proceeds on the basis that the two types of discounts are separate and distinct.
5. Our attention was drawn by counsel for the revenue to the decision of this court in Deputy Commissioner of Agricultural Income-tax and Sales Tax, South Zone, Quilon v. Aluminium Industries Ltd., Kundara [1969] 23 S.T.C 434; 1968 K.L.J 862.. The view taken therein was that a “trade discount” was not permissible to be excluded from the quoted sale price or stated sale price. But there is no discussion of the question as to what exactly is the sale price in the case of a sale, by a dealer and the appellate decision of the Supreme Court from the above decision in Deputy Commissioner of Agricultural Income-tax and Sales Tax, South Zone, Quilon v. Aluminium Industries Ltd. [1970] 25 S.T.C 476 S.C also does not deal with this question. But the decision relied on by counsel for the revenue in India Pistons Limited v. State of Tamil Nadu [1974] 33 S.T.C 472. seems to support the contention raised on behalf of the revenue. The decision of the Orissa High Court in Orient Paper Mills Ltd. v. State of Orissa [1975] 35 S.T.C 84; 1974 Tax. L.R 2224. has not been referred to by the Madras High Court and the aspect that we have emphasised that in cases where a “trade discount” had been bona fide granted, the actual consideration paid for the sale is only the amount paid after deducting the trade discount from the quoted sale price has not been adverted to or considered by the Madras High Court. With respect we are unable to agree with the decision of the Madras High Court.
6. We adopt the reasoning of the Orissa High Court in Orient Paper Mills Ltd. v. State of Orissa and on that basis this tax revision case has to be dismissed. We do so. We direct the parties to bear their respective costs.
7. Petition dismissed.