2019 (11) TMI 223 - AAR - GST

Distributor's Input Tax Credit & GST Liability clarified by recent ruling

In Re: M/s. Santhosh Distributors

The ruling clarified that the distributor could avail input tax credit based on the original invoice value, even if the Principal Company did not reduce ... Valuation - treatment of discount/rebate allowed - impact on Input Tax Credit (ITC) - the invoice value of the products is displayed only with the value after deducting discount as per the pre-fixed rate scheme - the discount / rebate is subsequently reimbursed by the Principal Company as Commercial Credit Notes - 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 - whether the availment of credit is correct or not? - HELD THAT:- The applicant/distributor is eligible to avail ITC shown in the inward invoice received by him from the supplier of goods / principal company. 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? - HELD 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. Whether the amount shown in the Commercial Credit note issued to the applicant by the Principal Company attracts proportionate reversal of input tax credit? - HELD THAT:- 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. 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 an agreement between the principal and distributors? - HELD THAT:- The applicant is liable to pay GST at the applicable rate on the amount received as reimbursement of discount / rebate from the principal company. Issues involved:1. Tax liability of the applicant for transactions with Principal Company2. Tax implications of discount provided by Principal Company to dealers through the applicant3. Proportionate reversal of input tax credit on Commercial Credit notes issued by Principal Company4. Tax liability on amount received as reimbursement of discount or rebate from Principal CompanyIssue 1: Tax liability of the applicant for transactions with Principal CompanyThe applicant, an authorized distributor, sought an advance ruling on their tax liability for transactions with a Principal Company involving the supply of lubricants. The distributor raised invoices to dealers based on pre-fixed rate schemes by the Principal Company, with subsequent reimbursement of discounts as Commercial Credit Notes. The ruling clarified that the distributor could avail input tax credit based on the original invoice value, even if the Principal Company did not reduce the tax liability. The distributor was not required to reverse input tax credit proportionately.Issue 2: Tax implications of discount provided by Principal Company to dealers through the applicantThe ruling determined that the additional discount given by the applicant to customers, as directed by the Principal Company, was reimbursed by the Principal Company. This reimbursement was considered as consideration flowing from the Principal Company to the distributor for the supply made to customers. The additional discount amount was to be added to the consideration payable by the customer to the distributor for determining the value of supply under GST laws.Issue 3: Proportionate reversal of input tax credit on Commercial Credit notes issued by Principal CompanyRegarding the Commercial Credit notes issued by the Principal Company for discounts provided by the distributor, the ruling clarified that the Principal Company could not reduce its original tax liability. As a result, the distributor was not liable to reverse the input tax credit attributable to the Commercial Credit notes received from the Principal Company.Issue 4: Tax liability on amount received as reimbursement of discount or rebate from Principal CompanyThe ruling stated that the distributor was liable to pay GST on the amount received as reimbursement of discount or rebate from the Principal Company, as per the written agreements between the Principal Company, dealers, and distributors. The distributor was required to pay GST at the applicable rate on such reimbursements.In conclusion, the ruling provided clarity on the tax implications of transactions between the distributor and the Principal Company, ensuring compliance with GST laws and outlining the distributor's tax liabilities and entitlements in various scenarios involving discounts, reimbursements, and input tax credits.