No they are charging VAT on the discounted price but they are giving discount on MRP (which already has the tax component in it). Therefore, they are charging double tax.
For example, the MRP of a pack of socks is ₹309/- which is ₹294.28/- cost & ₹14.72 VAT (@ 5%).
Now they are selling it for ₹249/- but adding VAT later.
MRP always includes all taxes. They are not charging extra VAT on products that are being sold on MRP. They are charging extra VAT only on discounted products.
I don't think you understand how MRP works.
MRP simply put is indicative of the maximum possible price of a product including taxes. There is no other rules about inclusion or exclusion of taxes. The final amount the customer needs to pay should be equal or less than the MRP. That's all there is to it.
For example lets say the MRP of a product is Rs 11 and the tax percentage is 10%. What it means is that a retailer can selling the product at a maximum price including taxes of Rs 11.
i.e. product price of Rs 10 and taxes of Rs 1 = Rs 11.
He cannot sell it Rs 10.5 + 1.05 = 11.55 because that would be over the MRP.
However he can give a 20% discount on the selling price of the item (Rs 10) and sell it at Rs 8 + 0.8 = 8.8 because that is below the MRP.
There is absolutely nothing wrong in changing VAT on any price point that the shop wants to sell it at as long as the combined price does not exceed the MRP.
So why is this confusing? This is because, often these retailers indicate the discount percentage as a factor of MRP while they still treat it as selling price of the product exclusive . Why do they do this? because it is easy for them and easy for you as a customer as MRP's are usually rounded numbers and products do not indicate the actual selling price because tax rates can keep changing. Also the retailer thinks in terms of selling price because that is what matters to him from business perspective. He is not concerned with the tax amount as he would have to deposit it
For instance lets say the MRP is printed as Rs 300 and tax rate is 10%. It would be easy for them to say that the selling price is percentage of that rounded MRP number than of the actual selling price like 272.73. For instance lets say that the retailer wants to sell this at 240 which is 12% off the selling price of 272.73. How does the retailer indicate to the people that they are giving a discount of 12% of the actual selling price when the selling price itself requires reverse calculation. So they will instead say that the selling price is with 20% discount on MRP of 300 which still comes out to 240 Rs. It makes the discount percentage look like a nice figure as compared to figures like 7% or 11% or 13%
They can still add tax on it because they are treating it as selling price exclusive of taxes. Some retailer also do it as a subtle misleading practice to show a bigger discount number, but there is absolutely nothing illegal or wrong about it. Ideally, I would like them to just say that they are giving a discount of 12% after the tax is added. But, often they don't put it that way.
There are also other retailers who like to treat the discounted price itself as price a inclusive of taxes and reverse calculate the selling price and taxes for billing purposes.
There are no hard and fast rules about it. The only rule is that final amount inclusive of taxes should not exceed indicated MRP.
When the retailer is selling at full MRP, its is the maximum that they can sell at, so tax component is implicitly included and they just reverse calculate the selling price and the tax for printing the invoice.