You shouldn’t ask for a discount

             We are human beings and need freshness and enjoyment. Sometimes we need freshness after a long period of mind-blocking and body-jamming hard work; sometimes we want freshness by spending quality time with someone close to us. That person may be your friend, spouse, brother, etc. Let me tell you an interesting or I should say knowledge-sharing story shared by one of my friends Amitabh Adhikari. It was 2020 and Amitabh was living in Chitwan with his wife and two-year-old son. He was just in Nepal after spending almost 22 years of his life in India. As I said he was new in Nepal and desperately searching job. Those days were really painful for him. He didn’t know anything about laws and regulations and culture etc. of here as the almost entire first part of his life was in India. wherever he was facing an interview he was getting a rejection. He was really in pain with the responsibility of his family. After spending almost 3-4 months unemployed, he could at least make some friends. One of his friends was running a wine shop. He and his wife were in real pain, though she was there for him during such a hard time. She was his best friend and they fall into tears together. And As I said we are human beings and we need freshness and enjoyment. It was the last day of that year i.e. 31st December. To get some relief from internal pain they decided to have some wine. In the evening Amitabh was at a wine shop.

          What I shared above was Amitabh’s pain the real story starts from here. He asks the shopkeeper, obviously the friend as I mentioned above for four cans of Tuborg and one-quarter of the old monk. The shopkeeper handed over those things to him and asked for Rs.1,876/- after some calculations. The shop was registered in VAT and obviously in Excise. He took out a book of invoices to issue tax invoices to  Amitabh. In detail Rs.1,660/- plus VAT of Rs.216/-. As I mentioned he didn’t have a job so the source of income was nothing for him. He could manage only Rs.1,800/- after searching all his pockets. As I said the shopkeeper was his friend. So, he asked the shopkeeper if he could issue an invoice by offering a discount of Rs.76/-. The shopkeeper rejected his request at the very first by saying that he could pay me Rs.76/- less but we are not allowed to issue tax invoices by showing the discount.

          Amitabh was not so aware of Nepal’s tax laws as I said earlier. After some time when he was settled in Nepal. One day I and my friends including him and the shopkeeper were hanging out to make some memories and Amitabh shared the situation with us, pointing to the shopkeeper that one of my friends has rejected my request to offer a discount of just Rs.76/- in my hard time. The shopkeeper tried to present his part but could not do so. So, I have to come forward and explain to him the bitter truth that the shopkeeper was right to reject his request for a discount. Amitabh was shocked as I was favoring the shopkeeper who has rejected his request of just Rs.76/-as a discount.

          Amitabh wasn’t ready to accept that he was wrong to ask for a discount of just Rs.76/-. Then I have to explain the entire situation in the taxation laws. I started by quoting section 14(5) of the Value Added Tax Act, 2052 which says,” In the case of any such person and such goods as may be specified by the Department by publishing a notice or issuing an order in writing, the Department may so specify that has to make public the retail selling price of such goods for such period as specified in that notice or order. Upon receipt of such notice or order, no goods shall be sold or transferred without making public the retail price thereof.” If we analyze this provision of the act it says that the department may require any person to publish the retail price of the goods specified by the department in the notice or order. And if we further dig into the situation and try to find out the list of those goods for which publication of the retail price is mandatory. Rule 29(1) of the Excise Duty Rules, 2059 helps us by specifying some of the goods for which publication of the retail price is mandatory. Rule 29(1) says,” Licensee producing or importing liquor or tobacco products shall make public the selling price to the distributor, wholesaler, and retailer and shall indicate the maximum retail price in the goods produced by him.” If we analyze this provision, the provision requires the person producing or importing liquor or tobacco products to publish the selling price for all levels of the distribution channel by mentioning the maximum retail price of the product produced by him.

          Amitabh was like ok, but how is this requirement of publishing retail price have a linkage with my situation? I further try to explain by saying my dear friend please don’t be in hurry. Let me clear your confusion. And I further started by quoting one of the sections of the Excise Duty Act, 20258 i.e. section 4Nga which says,” No industry producing, importing or selling liquors or tobacco products shall organize any prize distribution program or provide any discount on the sale of such products. Organization of such a program or offering a discount shall be considered to be a violation of the conditions of the license.” If we analyze the requirement of this provision, it says that the producer, importer, or seller of the liquor or tobacco product shall not organize any kind of price distribution program. Further, such licensee shall not offer a discount to his buyer. Here buyer may be the ultimate consumer or others in the distribution channel.

          Amitabh was irritated with these explanations, he said with anger what I am saying is the shopkeeper rejected issuing a VAT invoice by disclosing a discount and you are explaining the provisions of the Excise Act. I said my dear friend you should be aware of the entire situation of why the shopkeeper rejected your request. I am not trying to irritate you. What I am doing is trying to explain the entire situation in taxation laws on the basis of which the shopkeeper does have the right to reject your request for the discount. My dear friend, you must be aware that the shopkeeper does not have a right to collect excise duty from you because as per section 4(1)(ka) of the Excise Duty Act, 2058 and Rule 6(2ka) of Excise Duty Rules, 2059 duty is collected on liquor and tobacco products at the time of the removal from the premises of the producer. Further, the producer is not allowed to offer any kind of discount to the buyer including anyone in the distribution channel.

          So, my friend if you are able to understand the situation as I explained above. I will try to explain exactly why the shopkeeper rejected your request for the discount. Dear friend there is another section in the Value Added Tax Act, 2052 i.e. section 14(6) which says,” Provision shall be made that on the sale of such goods by the person specified pursuant to sub-section (5) to any unregistered person, recovery of consumer level tax too is to be made by issuing the invoice of the price made public in the prescribed format. Provided that any person not specified pursuant to sub-section (5) may also issue the invoice referred to in this sub-section voluntarily.” In analyzing this provision of the act we come to know that the person who is required to publish the retail price of the specified goods i.e. goods specified by the Rule 29 of the Excise Duty Rules, 2059 shall collect the tax by issuing the tax invoice in the format specified in schedule 5kha of the Value Added Tax Rules, 2053.

          Normally the supplier of the goods or services issues tax invoices in the format specified in schedule 5 of the Value Added Tax Rules, 2053. Where at the time of calculation of the tax amount what we do is reduce the trade discount to find out the taxable value from the sale price of the product or services for the purpose of collection of VAT from the recipient of the goods or services on the other hand in case of goods of which publication of retail price is mandatory under section 14(5) of Value Added Tax Act, 2052 we are not allowed to reduce the trade discount to find out the taxable value from the sale price of the product for the purpose of collection of VAT from the unregistered recipient of the goods or services. For example, there are two products of Rs.500/- let’s assume one is a packet of biscuits and another is a quarter of rum. Both suppliers do have the practice to offer trade discounts of 10%.  Now at the time of issuing the tax invoice the supplier of biscuits shall issue the tax invoice in the format specified in schedule 5 of the Value Added Tax Rules, 2053, and collect VAT on the amount of Rs.450/- i.e.{500-(500*10%)} from the ultimate consumer, on the other hand, the supplier of rum shall issue a tax invoice in the format specified in schedule 5kha of Value Added Tax Rules, 2053 and collect VAT on the amount of Rs.500/- itself. If he wants to offer any kind of discount then he shall collect VAT on Rs.500/- and then offer a discount on the price inclusive of VAT.

          In conclusion, my dear friend Amit, the supplier of the goods of which the publication of retail price is mandatory by the provisions of the VAT law shall not offer a discount on supplies of goods to the ultimate consumer and the licensee of the excise shall not offer a discount to consumer including anyone in the distribution channel.

 

 

Thanks

Meet you soon with another article till then you may visit cakrishnabhusal.blogspot.com for more articles on taxation.

 












Krishna P Bhusal 

(Member of ICAI)

 

Source:- Value Added Tax Act, 2052 & Excise Duty Act, 2058

              Value Added Tax Rules, 2053 & Excise Duty Rules, 2059; and

              Website of Inland Revenue Department

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