When there is supply of Good and Services, Incentive/ Rebate invoice raised

[Kumar RK]

 Sir

Show Cause notice received for the below, please suggest for the below:

Observation/ Discussion:

On examination of the reply filed by the taxable person it is clearly establishes that the taxable person himself confirm that they are issuing the invoices without any supply of goods or services. The taxable person issued the invoices on basis of the instruction received from his suppliers. Further, it is notice that the taxable person issued the invoices with Service Accounting Code 999799 which is used for “other services”. The rate of tax for this SAC code is 18%. In this connection it would be prevalent to refer the definition of “service” under section 2(102) which is reproduced below for ready reference “Services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;

As per the above definition of Service it can be understood that it excludes the “money” from service. In this instant case, the taxable person raises the invoice on rebate money offered by suppliers such as HP India Sales Ltd, Lenovo Private Ltd and Epson India Pvt. Ltd not any additional service rendered by him to said suppliers. It is only transaction in money which is reimbursed by his suppliers after affecting the sales by the taxable person to his customers. Hence, it clearly established that it is not supply of goods or services as per the section 7 of the act.

It also understood that the taxable person receives the rebate amount in the form of subsidy or discount from his suppliers after affecting sales to his customers. For this, the taxable person adopted wrong procedure in course of business i.e the taxable person raised the invoices to his supplier for getting that rebate amount.

In this connection, it would be prevalent to refer the section 15 of the act. Wherein, it is clearly mentioned that the taxable person should consider the subsidy or rebate amount which is reimbursed by his supplier while calculating the value of supply. But, the taxable person did not do the same and issued the invoices without adding the said amount in the value of supply. The relevant provisions are reproduced below for better appreciation.

AI Summary

Rebate as consideration: invoices for monetary rebates may not constitute supply absent service or evidence linking subsidy to price.
Whether invoices raised for supplier-paid rebates constitute a supply under GST when no additional goods or services are rendered. Revenue views the rebate receipts as monetary reimbursements excluded from the definition of service and not supplies under section 7, and criticises failure to include such subsidies in the value under section 15. Respondents emphasise the department's burden to prove the rebate is a price-linked subsidy and note that an invoice asserting outward supply, if accepted, requires specific evidence to be displaced; outcome turns on factual matrix about rebate mechanism and supplier instructions.