Differential dealer margin paid by petroleum companies to retail dealers constitutes taxable service under GST

The AAR, Kerala ruled that differential dealer margin paid by petroleum companies to retail dealers constitutes a taxable service under GST. The margin represents consideration for the dealer's agreement to operate despite low sales volume, falling under Schedule II clause (e) of CGST Act 2017 as "agreeing to refrain from an act." The authority rejected arguments citing GST Circular 29/2019 and Section 15(3) discount provisions, clarifying this is not a discount on petrol/diesel supply but a separate taxable service. The service is classified under tariff code 999793 and attracts 18% GST rate.

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Issues Involved:
1. Whether the "differential dealer margin" provided by petroleum companies to retail dealers is taxable under GST as a supply of serviceRs.

Analysis:
The applicant argued that the "differential dealer margin" is not a consideration for agreeing to do an act and hence not taxable under GST. However, the Authority observed that the margin is a consideration for refraining from closing down the dealership due to low sales volume, falling under the definition of supply of service. The margin is linked to sales volume and is given based on an agreement, making it taxable under GST.

The applicant also contended that the margin is an incentive provided after the supply has been made, and hence not subject to GST. However, the Authority clarified that the margin is a consideration for agreeing to refrain from an act, not a discount on the supply of petrol. Therefore, the provisions of Section 15(3) regarding taxability of discounts do not apply in this case.

Regarding the argument that petroleum products are not taxable under GST, the Authority differentiated between the supply of petrol/diesel and the service of agreeing to refrain from an act, which is taxable under GST. The service falls under Section 9, Heading 9997, and is subject to an 18% tax rate.

In conclusion, the Authority ruled that the "differential dealer margin" provided by the petroleum company is taxable under GST as a supply of service at an 18% rate (CGST @ 9% and KSGST @ 9%).

This thorough analysis considered the applicant's contentions, relevant legal provisions, and precedents to arrive at a well-reasoned ruling on the taxability of the differential dealer margin under GST.

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