2018 (7) TMI 1761 - AAR - GST

Rate difference payments not included in transaction value calculation under CGST Act

In Re: M/s. Ultratech Cement Limited

The case addressed whether the amount paid as a 'rate difference' to authorized dealers after supplying goods could be considered in determining the ... Valuation under GST - Reduction on account of Discount - Section 15(3)(b) of the CGST Act - Whether the amount paid to authorized dealers towards “rate difference” after effecting the supply of goods by the applicant to aforesaid dealers can be considered for the purpose of arriving at the 'transaction value' in terms of Section 15 of the CGST Act? - Whether the amount paid to authorized dealers towards “rate difference” after effecting the supply of goods would be allowed under Section 15(1) read with Section 34(1) of the CGST Act or under Section 15(3) read with Section 34(1) ibid? Held that:- The discount from the value of supply can be allowed only if discount is in compliance of the provisions of Section 15(3) of the CGST Act, 2017 - the discount that is given after the goods have been sold has to be established in terms of the agreement entered into at or before such supply i.e. the discount that is to be given afterwards has to be mentioned in the terms of the agreement or the criteria for arriving at the quantum or percentage of discount has to be given in the terms of the agreement which is entered into at or before such supply. The wordings of Section 15 (3) (b) (i) very clearly states that quantum of discount is given after the supply of goods has taken place has to be there in the terms of such agreement i.e. it cannot be open ended not based on any criteria. Thus this discount quantum cannot be arrived at without any basis only at the discretion of the supplier. The supplier has to clearly mention the quantum of discount or percentage of discount which is to be worked out on the basis of certain parameters or certain criteria which may be agreed to between the supplier and the recipient and which are predetermined and mentioned in agreement in respect of supply of the goods. It can clearly be seen that the cash discount, price equalization, shoppee discount, quantity discount and annual discount as mentioned in the GST Annexure for Mumbai region at Sr. No. 1, 2, 3, 4, and 5 respectively are clearly complying with the requirements of the CGST Act and the criteria or conditions for availing discount as per Section 15(3)(b)(i) and (ii) of the CGST Act and the criteria or conditions for availing discount as per Section 15(3)(b)(i) are specifically mentioned as per agreement before hand. Ruling:- the amount paid to the Dealer towards “rate difference” and “special discount” as mentioned above, post supply are not complying with the requirements of section 15(3)(b)(i) of the CGST Act and therefore cannot be considered and allowed as discount for the purpose of arriving at the 'transaction value' in terms of Section 15 of the CGST Act. Issues Involved:1. Whether the amount paid to authorized dealers towards 'rate difference' after effecting the supply of goods can be considered for the purpose of arriving at the 'transaction value' in terms of Section 15 of the CGST Act.2. Whether the amount paid to authorized dealers towards 'rate difference' after effecting the supply of goods would be allowed under Section 15(1) read with Section 34(1) of the CGST Act or under Section 15(3) read with Section 34(1) ibid.Detailed Analysis:Issue 1: Consideration of 'Rate Difference' in Transaction ValueApplicant's Argument:- The applicant, engaged in the manufacture and supply of cement, compensates authorized dealers/stockists with a 'rate difference' when market conditions force them to sell goods at a price lower than their purchase price.- This compensation is issued via a credit note linked to the sales/supplies made to the dealers/stockists in a particular month.- The applicant contends that the 'rate difference' should be considered for arriving at the 'transaction value' under Section 15 of the CGST Act, as it effectively reduces the taxable value of the goods supplied.Authority's Observations:- Section 15(1) of the CGST Act defines the transaction value as the price actually paid or payable for the supply of goods or services where the supplier and recipient are not related, and the price is the sole consideration.- Section 15(3) allows for the exclusion of discounts from the value of supply if they meet specific conditions:- Discounts must be established in terms of an agreement entered into at or before the time of supply and specifically linked to relevant invoices.- Input tax credit attributable to such discounts must be reversed by the recipient.Findings:- The agreements between the applicant and authorized stockists state that discounts will be decided by the company from time to time on the quantity sold in a particular month. However, these agreements do not specify the criteria or parameters for determining the discount.- The absence of predefined criteria or parameters for the discount means it does not meet the requirements of Section 15(3)(b)(i). The discount must be based on a predetermined agreement, which is not open-ended or discretionary.Conclusion:- The 'rate difference' provided by the applicant does not comply with Section 15(3)(b)(i) of the CGST Act. Therefore, it cannot be considered for the purpose of arriving at the 'transaction value' in terms of Section 15 of the CGST Act.Issue 2: Allowance of 'Rate Difference' under Relevant SectionsApplicant's Argument:- The applicant argues that the amount paid as 'rate difference' should be allowed under Section 15(1) read with Section 34(1) of the CGST Act or under Section 15(3) read with Section 34(1).- Section 34(1) provides a mechanism for reducing GST liability through the issuance of a credit note if the taxable value mentioned in the invoice exceeds the actual taxable value of the supply.Authority's Observations:- Section 34(1) allows for the issuance of a credit note if the taxable value or tax charged in the invoice exceeds the actual taxable value or tax payable.- However, the 'rate difference' must still comply with the conditions set out in Section 15(3)(b) to be excluded from the value of supply.Findings:- The 'rate difference' does not meet the criteria specified in Section 15(3)(b), as it is not established in terms of an agreement entered into at or before the time of supply and is not specifically linked to relevant invoices.- As the 'rate difference' does not comply with Section 15(3)(b)(i), it cannot be considered for adjustment under Section 34(1) either.Conclusion:- The amount paid to authorized dealers towards 'rate difference' after effecting the supply of goods is not allowed under Section 15(1) read with Section 34(1) or under Section 15(3) read with Section 34(1) of the CGST Act.Order:- Question 1: Whether the amount paid to authorized dealers towards 'rate difference' after effecting the supply of goods by the applicant to aforesaid dealers can be considered for the purpose of arriving at the 'transaction value' in terms of Section 15 of the CGST Act.- Answer: Answered in the negative.- Question 2: Whether the amount paid to authorized dealers towards 'rate difference' after effecting the supply of goods would be allowed under Section 15(1) read with Section 34(1) of the CGST Act or under Section 15(3) read with Section 34(1) ibid.- Answer: Answered in the negative.