Sales promotional discount

[SUBRATA RAY]

Franchisee of branded jewellary offered discount on sale to the customer out of which 50% reimbursed by the customer by crediting it in franchisee ledger. My query is what will be gst impact on such reimbursement

[KASTURI SETHI]

Sh.Subrata Ray Ji,

Can you elaborate your query ? Your query is too brief to reply in a fool proof way.

[PAWAN KUMAR]

Discounts are to which type, post sale or as per the sale scheme. Please clarify the transaction in detail.

[SUBRATA RAY]

Assessee is a franchisee of one branded jewellary. At the time sale of ornaments they are offering discount on making charges to the cudtomer. Subsequently franchisor is reimbursing 50% of discount offered to the franchisee by crediting it to the ledger of the franchisee. What will be type of discount and its gst impact if any which is reimbursed by the franchisor.

[Padmanathan KV]

If the franchisor is issuing a financial credit note/ commercial credit note, then it will not have any GST implication.

[KASTURI SETHI]

Sh.Ray Ji,

What is the basis of such huge discount to the buyer ? What are the terms and conditions to this effect in the Franchisee Agreement ? These are to be examined. If GST is effected, it will raise eyebrows of the GST Officers. It appears to me that such discount has GST effect.

There is no ceiling on percentage of discount but it must be genuine. Such discount must have solid ground.

[Shilpi Jain]

The terms and conditions of the franchisee agreement in this regard would be important.

If considered as a discount to the franchise fees, by way of a discount by the franchisor, then no GST liability on the discount absorbed by the franchisor.

Many retail industries do work on this kind of model. Documentation is key in this case.

[Ganeshan Kalyani]

The GST on credit note would reduce the liability and that may be questioned as regard the discount was predetermined or not at the time of supply. Levying GST on credit note is subject to conditions. If those conditions are not fulfilled then Gst cannot be charged. Then only way is to issue financial credit note.

[PAWAN KUMAR]

nature of discount is also important. discount as per sales scheme offering by franchsior to franchisee post sales of ornaments, the option is in the hand of the franchisor either to borne the expense of GST or to reduce the amount of GST, similarly extend discounts through commercial credit notes or through GST credit notes.

AI Summary

GST treatment of franchisor reimbursement of customer discounts determines whether tax liability can be reduced via credit notes. GST treatment depends on whether the franchisor's ledger credit for half the customer discount is a genuine price reduction affecting the taxable value of supply or a separate reimbursement; this turns on whether the discount was predetermined or post sale, the franchise agreement terms, documentary evidence of genuineness, and whether statutory conditions for issuing a GST credit note are satisfied, otherwise the parties may record the transaction via a commercial/financial credit note.