Service Tax on Target Based Incentive to dealers

[HCL Infosytems Ltd.]

Dear Sir,

My company is providing Desktop/Laptops to dealers for reselling and giving Percentage based incentive on Billing Value. Whether Service Tax is applicable on the incentive received by Dealer?

[MANDAVILLI RAMAKRISHNA]

Whether your dealers are charging for their normal business activity with your company. if so, now also ST to be charged. otherwise, this is only business promotion expenditure and not liable. 

In other words, if your dealers are getting commission from you regularly, then ST is levied. If the dealers are getting purchases from you normally and reselling the same, ST is not attracted on incentives also.

 

AI Summary

Service tax applicability on dealer incentives hinges on whether payments constitute commission for services or mere promotional expenditure. Service Tax applies to percentage based incentives to dealers when those payments function as regular commission or remuneration for the dealer's business activity on behalf of the supplier, thus constituting consideration for a taxable service. Payments that are promotional expenditures or incentives to purchasers who buy and resell goods, and not remuneration for services performed for the supplier, are not subject to Service Tax.