2023 (6) TMI 777 - AAAR - GST

Intel incentives for marketing support don't qualify as trade discounts under Section 15(3)(b)(i) CGST Act 2017

The AAAR, Maharashtra ruled that incentives received by an appellant from Intel under the Intel Approved Component Supplier Program do not qualify as ... Trade discount - Value of supply and exclusions of discounts under Section 15 - Post-supply discount established by agreement and linked to invoices - Consideration for supply - Outcome based contract and implied marketing/technical support services - Place of supply of services under the rule for services in respect of goods (Section 13(3)(a)) - Export of servicesTrade discount - Post-supply discount established by agreement and linked to invoices - Value of supply and exclusions of discounts under Section 15 - Incentives paid by IIUL to the appellant do not qualify as trade discount for valuation under Section 15. - HELD THAT: - The authority examined the statutory conditions for post supply discounts not to be included in the value of supply: (i) existence of an agreement entered into at or before the time of supply between the supplier and the recipient, (ii) specific linkage to relevant invoices, and (iii) reversal of attributable input tax credit by the supplier/recipient. The incentives in dispute are paid by the manufacturer (IIUL) to the appellant and are calculated on the basis of purchases through authorised distributors; there is no agreement between the appellant and the distributors that would establish the discount at or before removal of goods, the incentive quantum is not linked to specific invoices at the time of supply, and there is no reversal of input tax credit by the distributors in relation to supplies to the appellant. The factual matrix therefore does not satisfy the statutory preconditions for treating the payment as a trade discount excluded from taxable value. [Paras 9]The incentive received from IIUL is not a trade discount under Section 15 and therefore cannot be excluded from the value of supply as a post supply discount.Consideration for supply - Outcome based contract and implied marketing/technical support services - The incentive paid by IIUL constitutes consideration for services supplied by the appellant. - HELD THAT: - The agreement between IIUL and the appellant is outcome based and imposes obligations on the appellant to use best efforts to sell and market Intel products, assist in Intel's marketing campaigns, provide first level technical product support, translate marketing materials, and make personnel available for trainings. These contractual duties evidence that the appellant performs marketing and related technical support services in return for the incentive. Given that the payment is dependent on quantified outcomes and the contract requires performance of specified tasks, the incentive is consideration for supply of services rather than a trade discount. [Paras 10]The incentive is consideration for services provided by the appellant to IIUL under the outcome based agreement.Place of supply of services under the rule for services in respect of goods (Section 13(3)(a)) - Export of services - The supply of services does not qualify as export of services because the place of supply is in India under Section 13(3)(a). - HELD THAT: - For export of services, the place of supply must be outside India. Section 13(3)(a) provides that where services are supplied in respect of goods which are required to be made physically available by the recipient to the supplier to provide the services, the place of supply is the location of the supplier. The Authority found that the marketing services are supplied in respect of goods which are made physically available by IIUL through its distributors to the appellant to enable performance of those services. Consequently the place of supply is the appellant's location in India. As the place of supply is in India, the transaction fails the place of supply condition for export of services and thus cannot be treated as export. [Paras 11]The impugned supply is not an export of services because the place of supply is in India under Section 13(3)(a).Final Conclusion: The Appellate Authority for Advance Ruling confirms the MAAR ruling: the incentives are not trade discounts, they are consideration for services performed by the appellant, and those services do not qualify as exports. The appeal is dismissed and the Advance Ruling is upheld. Issues Involved:1. Whether the incentive received from 'Intel inside US LLC' under Intel Approved Component Supplier Program (IACSP) can be considered as 'Trade Discount'Rs.2. If not considered as 'Trade Discount,' whether it is consideration for any supplyRs.3. If it is considered as supply, whether it will qualify as export of serviceRs.Summary:Issue 1: Incentive as 'Trade Discount'- The Appellant argued that the incentive received from IIUL under IACSP should be considered as a 'Trade Discount' under Section 15(3) of the CGST Act, 2017. They relied on a previous tribunal decision in Sharyu Motors v. Commissioner of Service Tax [2016 (43) S.T.R. 158 (Tri. Mumbai)] to support their claim.- The MAAR held that the incentive cannot be considered as a 'Trade Discount' because there is no supply of goods or services from IIUL to the Appellant, and the incentives are not linked to a specific invoice but rather to the volume of sales. The agreement exists between the manufacturer (IIUL) and the supplier (Appellant), not with the distributor.- The Appellate Authority upheld MAAR's decision, stating that the incentives received from IIUL do not qualify as trade discounts as per Section 15(3) of the CGST Act, 2017.Issue 2: Incentive as Consideration for Supply- The Appellant contended that the incentive received should not be considered as consideration for any supply.- The MAAR determined that the incentive received is indeed a consideration for marketing services provided by the Appellant to IIUL, as per the outcome-based contract. The duties outlined in the agreement between the Appellant and IIUL included efforts to sell and market Intel products, assist in Intel's marketing campaigns, and provide technical product support.- The Appellate Authority agreed with MAAR, stating that the incentive is a consideration for the supply of marketing and technical support services, not a trade discount.Issue 3: Export of Service- The Appellant argued that if the incentive is considered as consideration for supply, it should qualify as an export of service under Section 2(6) of the IGST Act.- The MAAR held that the transaction does not fulfill the conditions for export of service, particularly the condition that the place of supply should be outside India. According to Section 13(3)(a) of the IGST Act, the place of supply in this case is the location of the supplier of services (the Appellant), which is in India.- The Appellate Authority upheld MAAR's decision, confirming that the impugned supply does not qualify as an export of service.Order:- The Appellate Authority confirmed and upheld the Advance Ruling Bearing No. GST-ARA-59/2020-21/B-56 dated 27.04.2022 pronounced by the MAAR. The appeal filed by the Appellant was dismissed.