THE PUNJAB and Haryana High Court has issued notice of motion to the Chandigarh Administration asking to file a reply as to why their order directing the automobile agencies to pay value added tax (VAT) on the amount of discount offered to customers not be stayed. The administration has to file its reply by August 24.

The directions came from a Bench comprising Justices Ajay Kumar Mittal and Ramendra Jain while hearing a petition filed by the Federation of Chandigarh Region Automobile Dealers challenging the decision of the UT excise and taxation department.

The petitioners contended that the impugned order issued by assistant excise and taxation commissioner (AETC) is not only illegal but has also been issued without taking into consideration the provisions of the Punjab VAT Act as applicable to Chandigarh.

The petitioner stated that the customer is not obliged to pay tax on the part of consideration which has not been recovered from him and resultantly, automobile agencies cannot be forced to pay the said amount, as it would be without authority of law violating Article 265 of the Constitution of India.

The petitioners pleaded that they sell the automobiles at the price as agreed between the buyers and the sellers for which the necessary invoice is issued. The automobile agencies are charging VAT on the sale price of goods as is agreed between the parties and the discount, if any, given to the buyer is deducted from the invoice amount as it is permissible to deduct as per laid down norms. The discounts offered to the customers are part of the sale promotion schemes which are launched by the automobile companies from time to time. Such benefit is passed on to the customer and, therefore, the discount does not form part of the consideration between automobile dealer and buyer thereof.

Around 50 automobile agencies dealing in cars and two-wheelers operate from Phase I and Phase II of the Industrial Area. All the dealers give heavy discounts, especially on high-end cars ranging from Rs 5 lakh to 10 lakh, while in other segments, discounts between Rs 20,000 and Rs 1 lakh are offered depending upon model of the vehicle.

The department had acted on the grounds that the purchases are being made from the parent companies on inter-state basis and any discount affects the payment of local taxes, causing a loss of revenue to the exchequer and such cannot be permitted.