Twitter Query On Sale And Taxes

Twitter Query Extra Taxes On Sale Price Allowed

Sale! That is one word that always catches our eye. More so if you belong to that proud section of the population called ‘girls’. There goes our allegiance to the cliche–yes of course, that cliche which demands that we always make a reference to squealing girls whenever the word ‘sale’ is uttered.

Much as the feminist in me pleads to open a debate on how wrong that cliche is, I will steer clear of the issue and concentrate on the query at hand. (Which by the way is an extremely logical question that comes from a girl-who evidently thinks  not squeals when she sees a ‘sale’ sign. See-there I made my point!)

So one of our readers, asked us that when they say sale and then taxes extra, is it allowed?

The question, honestly, made us do a double take. The number of times we had gone to a sale and still never noticed this!

A primary research indicated that there are no clear answers to the question. So with a little help from our legal expert, Himani Subramanian, we got down to decoding this tax maze.

Under the Consumer Goods (Mandatory Printing of Cost of Production and Maximum Retail Price) Act, 2006, the consumer cannot be charged over the maximum price printed on the goods by the manufacturer. These guidelines are as follows:

1. Consumer goods mean all goods and items brought in the market for sale and are meant for the use and consumption of the consumers;

2. Cost of production means cost incurred directly or indirectly by the manufacturer in the production of goods;

3.Printing means printing of the cost of production and retail price at a visible place on the product in Hindi and English and the local language of the place it is sold; and

4. Maximum retail price means such price at which the product shall be sold in retail and such price shall include all taxes levied on the product.

The VAT is calculated over and above the Sell Price.

So the calculation is:

VAT is governed by the State VAT legislation (VAT Acts of the particular State). The percentage of VAT varies from State to State within India.

In other words, MRP includes all taxes including VAT and no retailer can charge a consumer over and above MRP. Below MRP, however, is permissible and fairly common.

We will look at two scenarios

1. Where flat percentage of discount is offered on the MRP.
2. Where the cost of goods is reduced to particular amount, that is, the sell price is discounted.

In the first scenario the taxes including the VAT forms part of the MRP and discount is offered on the total MRP. The consumers must note that the ‘Sale’ here should specify that the discount is on MRP. If this is the case, then no extra taxes can be charged and if the retailer does so, he will be liable under the Consumer Protection Act.

For example: If 40% discount on MRP of Rs. 100/- is offered, then the total cost of the item will be Rs. 60/-. No extra taxes can be charged.

 We would also like to add that this is not a normal practice and rarely (never!?) do brands offer a discount/sale on MRP.

 The second more likely and common scenario is when the discount or sale is offered on the cost of goods which does not include the taxes and consequently, taxes are added on the discounted price.

A possibility here is that of the dealer misrepresenting the MRP as sell price in the advertisement and then charging taxes over and above the price.

For example: There is a sale going at Arrow where the cost of shirts/T Shirts is reduced from Rs. 799/- to Rs. 499/- and additional VAT is charged on Rs. 499/-. The dealer can argue that Rs. 499/- is the sell price and hence VAT is applicable.

If the dealer has misrepresented the discount by making false advertisement, he can be held liable under the Consumer Protection Act, 1986 in addition to relief under the Central Excise Act or the State VAT legislation.

The practice of sale or discount is an industry/market practice and does not really have a legal background and/or regulations.

The only precaution that we can suggest for the consumers here is to ask the right questions and carefully understand the terms of the discount being offered. The consumer has to be sure that the price list does not mention the condition ‘separate taxes applicable’ and if it does, (which is usually the case), take care that the price being discounted is the sell price not the MRP.