• Kandivali West Mumbai 400067, India
  • 022 39167251
  • support@email.com
September 20, 2021

Discount offered by Company through dealers to Customers liable for GST

by Mahesh Mara in Envato, Legal Court Judgement

Discount offered by Company through dealers to Customers liable for GST

Fact and Issue of the case

The applicant is an authorized distributor of M/s.Castrol India Ltd, Mumbai (Principal Company) [or the supply of Castro] brand industrial and automotive lubricants. There is written agreement between Principal and the applicant about the distributorship. The Principal Company is controlling and managing the entire marketing activities of their products. The Principal Company’s software is mandatory to all distributors and only through that software any distributor could conduct further supply of the products. The Principal Company is having various rate scheme with dealers. As the Principal Company is having sole control over the billing software, the distributors or dealers can supply any goods of the company only through this software. The Principal Company is issuing invoices at a price to its distributors and the distributors supplying the goods to the dealers issue invoice based on the various rate scheme prefixed by the Principal Company. While the distributor generate invoice to dealers through the software designed by the Principal company, the invoice value of the products will be displayed only with the value after deducting discount as per the prefixed rate scheme. The distributor is bound to supply the products to the respective dealers as per the value shown in the invoice. Such discount rebate will be subsequently reimbursed by the Principal Company as Commercial Credit Notes. In these circumstances the applicant requested advance ruling on the following:

i) On the tax liability of the applicant for the transactions mentioned herein and explained as above. The petitioner is paying the tax due as per the invoice value issued by the applicant and availing the input credit of GST shown in the inward invoice received by the applicant from the Principal Company or their stockist.

ii) Whether the discount provided by the Principal Company to their dealers through the applicant as shown in Annexure D attracts any tax under the GST laws.

iii) Whether the amount shown in the Commercial Credit note issued to the applicant by the Principal Company attracts proportionate reversal of input tax credit.

iv) Is there any tax liability under GST laws on the applicant for the amount received as reimbursement of discount or rebate provided by the Principal Company as per written agreement between the Principal Company and their dealers and also on agreement between the principal and distributors.

Observation of the Authority and ruling issued

In view of the observations stated above, the following rulings are issued:

i) On the tax liability of the applicant for the transactions mentioned herein and explained as above. The applicant is paying the tax due as per the invoice value issued by the applicant and availing the input credit of CST shown in the inward invoice received by the applicant from the Principal Company or their stockist.

The applicant/distributor is eligible to avail ITC shown in the inward invoice received by him from the supplier of goods / principal company.

ii) Whether the discount ➢rovided by the Principal Company to their dealers through the applicant as shown in Annexure ID attracts any tax under the G5T laws.

It is established from the statement of the applicant that the prices of the products supplied by the applicant is determined by the supplier /principal company and the applicant has no control on the price of the products. Therefore, it is evident that the additional discount given by the supplier through the applicant; which is reimbursed to the applicant is to offer a special reduced price by the distributor / applicant to the customers and hence the amount represent consideration paid by the supplier of goods principal company to the distributor / applicant for supply of goods by the distributor / applicant to the customer. Therefore, this additional discount reimbursed by the supplier of goods / principal company to the distributor / applicant is liable to be added to the consideration payable by the customer to the distributor/applicant to arrive at the value of supply under Section 15 of the CGST / SGST Act at the hands of the distributor / applicant.

iii) Whether the amount shown in the Commercial Credit note issued to the applicant by the Principal Company attracts proportionate reversal of input tax credit.

The supplier of goods / principal company issuing the commercial credit note is not eligible to reduce his original tax liability and hence the recipient / applicant will not be liable to reverse the ITC attributable to the commercial credit notes received by him from the supplier.

iv) Is there any tax fiabifiry under GST lows on the applicant for the amount received as reimbursement of discount or rebate provided by the Principal Company as per written agreement between the Principal Company and their dealers and also an agreement between the principal and distributors.

The applicant is liable to pay GST at the applicable rate on the amount received as reimbursemect of discount/ rebate from the principal company.

Read the full order from below

Discount-offered-by-Company-through-dealers-to-Customers-liable-for-GST

Enter your email address:

Subscribe to faceless complainces