2021 (7) TMI 789 - AAAR - GST

Appellate authority rules distributor must pay GST on additional discounts from principal company

In re : M/s. Santhosh Distributors

In re : M/s. Santhosh Distributors - TMI Issues Involved:1. Tax liability on discounts provided by the principal company through the distributor.2. Reversal of Input Tax Credit (ITC) on commercial credit notes.3. Tax liability on reimbursement of discounts or rebates to the distributor.Detailed Analysis:1. Tax liability on discounts provided by the principal company through the distributor:The appellant sought a ruling on whether the discount provided by the principal company (Castrol) to their dealers through the appellant attracts any tax under GST laws. The Authority for Advance Ruling (AAR) determined that the additional discount given by the supplier (Castrol) through the appellant, which is reimbursed to the appellant, represents consideration paid by the supplier to the distributor for the supply of goods to the customer. Therefore, this additional discount reimbursed by the supplier to the distributor is liable to be added to the consideration payable by the customer to the distributor to arrive at the value of supply under Section 15 of the CGST/SGST Act at the hands of the distributor.2. Reversal of Input Tax Credit on commercial credit notes:The appellant questioned whether the amount shown in the commercial credit note issued to the appellant by the principal company attracts proportionate reversal of ITC. The AAR ruled that the supplier of goods issuing the commercial credit note is not eligible to reduce his original tax liability, and hence the recipient (appellant) will not be liable to reverse the ITC attributable to the commercial credit notes received from the supplier.3. Tax liability on reimbursement of discounts or rebates to the distributor:The appellant sought clarity on whether there is any tax liability under GST laws on the amount received as reimbursement of discount or rebate provided by the principal company as per a written agreement between the principal and their distributors. The AAR held that the appellant is liable to pay GST at the applicable rate on the amount received as reimbursement of discount or rebate from the principal company.Appellate Authority's Findings:Condonation of Delay:The appellate authority condoned the delay in filing the appeal, as it was within the permissible limit of 30 days from the last date of filing the appeal.Legal Provisions:The value of taxable supply is governed by Section 15 of the CGST/SGST Act. Section 15(3) specifies that the value of supply shall not include any discount given before or at the time of supply if recorded in the invoice or after the supply if it is established in terms of an agreement and linked to relevant invoices, and the ITC attributable to the discount is reversed by the recipient.Post-Sale Discounts:The appellate authority observed that post-sale discounts, which are not known or quantified at the time of supply, do not satisfy the conditions of Section 15(3)(b) and hence cannot be excluded from the transaction value. The additional discount given by Castrol to the appellant is considered as consideration for offering a reduced price to augment sales and falls under the definition of 'consideration' as specified under Section 2(31) of the CGST/SGST Act.Commercial Credit Notes:The commercial credit notes issued by Castrol do not satisfy the conditions prescribed in Section 15(3) of the CGST/SGST Act, and hence the supplier is not eligible to reduce the original tax liability. However, the appellant will be eligible to avail the ITC as per the invoice of the supplier.Order:1. The additional discount reimbursed by Castrol is liable to be added to the consideration payable by the customers or dealers to the appellant, and the appellant is liable to pay GST at the applicable rate.2. The appellant will not be liable to reverse the ITC attributable to the commercial credit notes issued by Castrol.3. The appellant is liable to pay GST at the applicable rate on the amount received as reimbursement of discount or rebate from Castrol.The ruling of the Authority for Advance Ruling, Kerala, dated 16-09-2019, was upheld.