Service tax liability on discounts

[Mr Rao]

Dear experts,

One of our clients is manufacturing steel bars. For manufacturing his final products, he is getting inputs like wire rod coils, pig iron etc., from a steel unit under a discounted price. A doubt was raised that this discount appears to be income to our client and hence attracts service tax liability. However, I am of the opinion that the same is not taxable under service tax. Please clarify whether the discounts received by our client attract liability under service tax or under central excise ?

[Himansu Sekhar]

But there appears to be no services involved. Income is accrued because the original prices were shown as expenses payable and the differences occurred due less actual expenditure. It is not a service. No service tax is payable

[KASTURI SETHI]

I support the views of Sh.Himansu Sha, an expert.

[DR.MARIAPPAN GOVINDARAJAN]

In my view discount offered is not an income.

[Govind Gupta]

please clarify your question, if the discount is reflected on invoice itself, it means you would have booked your expenses with the net amount but in a different situation where discount is passed on separately through credit note, whether it was accounted as reduction of expenses or accrued as income and whether service tax input was also reversed if it was accounted in the second scenario.

[Himansu Sekhar]

Some people show the expenditure payable at the debit side of the p/l account in a year. In the subsequent year p/l account when they spend less , the discount is shown at the credit side. Better you can answer this. It is not an actual income. Rather virtual income. Somebody told , income tax act supports this

[Ganeshan Kalyani]

The element of service is missing for applicability of service tax.

[MUKUND THAKKAR]

Discount is part of sales Transaction. which has covered under valuation. so need not pay service tax.

I am agree of view express by all respected experts.

[Mr Rao]

Dear experts,

Thank you very much all the experts for your valuable information on the subject.

AI Summary

Service tax applicability on supplier discounts: discounts lack service element and are not taxable as services. Discounts from suppliers for inputs lack a service element and do not attract service tax. If shown on the invoice, the discount reduces the purchaser's expense; if issued by credit note, the adjustment should similarly reduce expense rather than be treated as taxable income. The matter falls within valuation and accounting adjustment, not a service charge or central excise liability.