Shops cannot charge VAT on discounted items: Consumer forum

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To check fleecing of customers by charging value added tax (VAT) on discounted items, the district consumer disputes forum has ruled that “Charging of VAT on the discounted price by the shops is unfair trade practice and a deficiency in service.”

Over the past week, the forum has directed three shops and manufacturers to refund the extra VAT charged on discounted items. In January, a store was penalised for charging VAT on discounted items. The National Consumer Disputes Redressal Commission in January 2017 had ruled “…Shops can’t charge extra VAT on items sold on discount price, which is a rebate on the MRP that includes all taxes and cess.”

The cases

Gursharan Singh Kang, Phase-4 resident, purchased 11 products from The Central (a division of Future Lifestyle Fashions Limited), North Country Mall, Kharar. for Rs ?10,372 in July 2016. Kang alleged that while issuing sales invoice, he was charged ?627.52 as VAT at 6.05% on the discounted price. Kang protested, but the employees paid no heed.

In the second case, Vipul Kumar of Sector 44, Chandigarh, moved the consumer forum against the same store in February 2016 claiming that he had been charged 14.13% extra VAT on discounted products.

Nidhi Vig of Modern Housing Complex, Manimajra, moved the forum against Adi Sports India Private limited, at Cosmo Plaza, Zirakpur, and Reebok India Company. She alleged that the store had charged ?377 as VAT on discounted price.

‘No rule mandates discount on VAT’

The store said complainant had failed to point out any rules/regulations/law/bylaw that entitled him to get discount on the VAT. The MRP of the product is inclusive on all taxes, including VAT, and whenever the company comes out with any scheme viz. promotional sales or discount offering, then MRP of each product as offered for sale under the scheme stands reduced to the Final Sales Value (FSV).

FSV means selling price to the customer shall be the transaction value plus the applicable sales tax (including VAT/CST) instead of MRP. Therefore, for the sale pricing purposes, all products to be sold under the scheme during such promotional sales or discount offering, the FSV supersedes MRP. The store claimed that they offered to sell the product at a price lower from MRP and they have clearly displayed in the store that VAT would be charged extra over the discounted sale price.

As no one appeared on behalf of Adi Sports India Private Limited, Cosmo Plaza, Zirakpur and Reebok India Company, despite notice, they were proceeded ex-parte.

The Consumer Protection Council in the relevant district has to declare it as Restrictive Trade Practice. The deputy commissioner has to issue this order, stating that no VAT can be charged on discounted items. Once this is done, an FIR can be lodged those indulging in this practice.